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The Income Tax Department on Friday said it had carried out pan-India search and seizure operations on certain foreign mobile handset manufacturing companies and associated persons on December 21, and found that two major companies have made remittances in the nature of royalty aggregating to more than ₹5,500 crore, to and on behalf of its group companies located abroad.

The claim of such expenses does not seem to be appropriate in light of facts and evidence gathered during the search action, it said in a statement without naming the companies.

Various premises in Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, Delhi and NCR were covered in the action, it said.

“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,” it said, adding that such lapse makes them liable for penal action amounting to more than ₹1,000 crore, under the Income-tax Act, 1961.

Mobile companies including Oppo, Xiaomi and One Plus were reportedly covered in the search.

“The search has brought to fore another modus operandi whereby foreign funds have been introduced in the books of the Indian company but the sources of funds are of doubtful nature, purportedly with no credit worthiness. The quantum of such borrowings is about ₹5,000 crore, on which interest expenses have also been claimed,” it further said.

Evidence with regard to the inflation of expenses and payments on behalf of the associated enterprises have also been noticed, which led to the reduction of taxable profits of the Indian mobile handset manufacturing company. Such an amount could be in excess of ₹1,400 crore, the I-T Department said.

It is further found that one of the companies utilised the services of another entity located in India but did not comply with the provisions of tax deduction at source. The quantum of liability of TDS on this account could be around ₹300 crore.

In case of another company, the Department said that it has been detected that the control of the affairs of the company was substantively managed from a neighbouring country. “Evidences have been gathered on attempt to transfer the entire reserves of the company to the tune of ₹42 crore out of India, without payment of due taxes,” it said.

Survey action in the case of certain fintech and software services companies have revealed that a number of such companies have been created for the purposes of inflating expenses and siphoning out funds.

For this purpose, such companies have made payments for unrelated business purposes as also utilised bills issued by a Tamil Nadu based non-existent business concern. The quantum of such out-flow is found to be around ₹50 crore. Further investigations are in progress, it added.

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