I-T initiates searches on mobile manufacturing firms For inappropriate claims of finances

The Income Tax Department has initiated an investigation on mobile manufacturing firms across the country on December 21.

Companies under the I-T lens are certain foreign-controlled Mobile Communication & Mobile Handset Manufacturing Companies and their associated persons.

Search and seizures have been carried on various premises in the states of Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, Delhi & NCR.

“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 Rs.5500 crore. The claim of such expenses does not seem to be appropriate in light of the facts and evidence gathered during the search action, “the Ministry of Finance said.

It added, “The search operation has also brought out the modus operandi of purchase of the components for manufacturing of mobile handsets. It is gathered that both these companies had not complied with the regulatory mandate prescribed under the Income-tax Act, 1961 for disclosure of transactions with associated enterprises. Such 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 Rs.1000 crore.”

According to the Ministry, the search has brought to fore another modus operandi whereby foreign funds have been introduced in the books of the Indian company but it transpires that the source from which such funds have been received are of doubtful nature, purportedly with no credit worthiness of the lender.

“The quantum of such borrowings is about Rs.5000 crore, on which interest expenses have also been claimed. Evidence with regard to the inflation of expenses, payments on behalf of the associated enterprises, etc. have also been noticed which led to the reduction of taxable profits of the Indian mobile handset manufacturing company. Such amount could be in excess of Rs.1400 crore,” the Ministry said.