Tax investigation found irregularities in the Chinese Technology firm Huawei by reducing the income graph for income tax evasion. The Chinese firm lessened the 400 crore rupees in the account books to show a low taxable income. The ongoing investigation has only exposed the tax evasion, but the story will continue as the investigation progresses.
The Union Finance Ministry did not mention the company’s name, but officials exposed Huawei as a concerned firm. The giant tech company was unable to answer the questions related to the income tax during the tax raid on the company’s offices in three cities. The concerned company Huawei mentioned the raids of the income tax team.
“We have been informed of the visit of the Income Tax team to our office and also of their meeting with some personnel,” the company had said in the statement. The Finance Ministry of India declared that the telecom company did not add the $4 billion in the books, and the firm failed to justify their account books.
India confronted China at borders in 2020 in the Ladakh region. After the clash, the Indian government limited the use of 54 websites, mainly Chinese websites, in the country. The US also pressed the allies to ban the Chinese companies and websites aiming to achieve the containment of China. According to the Finance Ministry, the search action has revealed that the group has made inflated payments against receipt of technical services from its related parties outside India.
“The assessee company could not justify the genuineness of obtaining of such alleged technical services in lieu of which payment has been made as also the basis of determination of consideration for the same. The expenses debited by the assessee company towards receipt of such services are to the tune of ₹ 129 crores over five years,” it said.
“However, the evidence collected during the investigation indicated that this entity has been rendering significant services/ operations of high-end nature. On this aspect, suppression of income of ₹ 400 crores has been detected,” the Finance Ministry said.
During the search, it was found that the assessee group has debited more than ₹ 350 crores in its books of account in recent financial years towards royalty to its related party. Such expenses have been incurred to use brand and technical know-how-related intangibles.
During the search, the group has failed to substantiate receipt of any such services/technical know-how or the basis of quantifying royalty rate for such claim. Consequently, rendering services and such royalty payments becomes highly questionable and prima facie, disallowable as business expenses as per extant Income Tax law.
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