Xiaomi, Oppo could be fined up to ₹1,000 crore for breaking tax law

About 10 days after raids on the properties of phone manufacturers Xiaomi and Oppo, the Income Tax (I-T) Department said on Friday (December 31) that the Chinese firms could be fined up to ₹1,000 crore for violating the law of the land.

On December 21, taxmen conducted searches in Delhi and 11 states – Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, and Rajasthan.

“The search action has revealed that two major companies have made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than ₹ 5,500 crore,” the Income Tax department said in a statement on Friday.

The I-T department said that Xiaomi and Oppo had not complied with the regulatory mandate prescribed under the Income-Tax Act, 1961 for disclosure of transactions with associated enterprises. “Such a lapse makes them liable for penal action under the Income-Tax Act, 1961, the quantum of which could be in the range of more than ₹ 1,000 crore,” the statement added.

There have been apprehensions about the source of funding as well. The statement further said that foreign funds have been introduced in the books of the Indian company, but “there is no clarity on their source of funds, purportedly with no credit-worthiness of the lender”.

Also read: I-T raids offices of Chinese mobile companies for tax evasion

“The quantum of such borrowings is about ₹ 5,000 crore, on which interest expenses have also been claimed,” the I-T department’s statement read.

The department further said that one of the firms inflated expenses, payments on behalf of the associated enterprises, which led to the reduction of taxable profits of the Indian mobile handset manufacturing company. “Such an amount could be in excess of Rs.1400 crore,” read the statement.