I-T dept conducts searches on a major telecom group
Premium- Searches, which were spread across Delhi, Gurugram and Bengaluru covered the main business premises and also the residential premises of the key office bearers
The Income Tax Department conducted last month search operations on a multinational group, engaged in distribution of telecom products and providing captive software development services, the Ministry of Finance informed on Thursday.
The ultimate shareholding of the group lies with a foreign entity of a neighbouring country, the ministry said adding that the searches, which were spread across Delhi, Gurugram and Bengaluru covered the main business premises and also the residential premises of the key office bearers.
The I-T sleauths found 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 crore over a period of five years.
During the search, it was also found that the assessee group had debited more than ₹350 crore in its books of account in recent financial years towards royalty to its related party.
Such expenses have been incurred for the use of brand and technical know-how related intangibles. The department said the group has failed to substantiate receipt of any such services/technical know-how, or the basis of quantification of royalty rate for such claim.
"Consequently, the rendering of services and such royalty payments become highly questionable and prima facie, disallowable as business expenses as per extant Income Tax law," it said.
Also, one of the group entities engaged in providing software development services, has been disclosing lower net margins from the related parties, by claiming its operation to be of low-end nature.
"However, the evidences 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 Rs. 400 crore has been detected," the ministry added.
According to the ministry, the group manipulated its books of account to reduce its taxable income in India through creation of various provisions for expenses, such as provisions for obsolescence, provisions for warranty, doubtful debts/ loans & advances etc., which have little or no scientific/financial rationale.
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