The Income Tax Department on Thursday said that recent raids on a multinational telecom group, believed to be Chinese firm Huawei, has revealed that the group has made inflated payments against receipt of technical services from its related parties outside India. According to the Department, ahe expenses debited by the assessee company towards receipt of such services are to the tune of R129 crore over a period of five years.

During the search, it was also found that the assessee group has debited more than .₹350 crore in its books of account in recent financial years towards royalty to its related party, the Department said.

“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 found that, the assessee group has debited more than ₹350 crore in its books of account in recent financial years towards royalty to its related party,” it said.

Such expenses have been incurred for the use of brand and technical know-how related intangibles, the Department said adding that during the search, 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.

‘Highly questionable payments’

“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 added.

On February 15, the I-T Department raided the offices of Huawei in Bengaluru, Delhi and Gurugram. The search and seizure operations were for more than two days and the officials looked at financial documents, account books and company records as part of a tax evasion investigation against the company, its Indian businesses and overseas transactions.

Evidences gathered and statements recorded during the search also revealed that 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 ₹400 crore has been detected,” the I-T Department statement said.

‘Manipulation of account books’

The search action has further revealed that the group has manipulated its account books 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 and advances, which have little or no scientific/financial rationale.

During the investigation, the group has failed to provide any substantial and appropriate justification for such claims, it added.