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Oppo, Xiaomi may Face Penalty of over Rs1000 Cr

Chinese smartphone makers Xiaomi and Oppo could be fined over Rs1000 crore for for allegedly violating laws pertaining to no-disclosure of related-party transactions.

Sources told ET that transactions pertaining to these two companies were unearthed during raids by the income-tax department on December 21.

Documents and electronic devices seized during the raids were still being assessed, the sources said, adding that the department had found that one of the companies was being managed from ‘a neighboring country.’

Oppo and Xiaomi did not respond to ET’s queries till press time Friday.

The department had carried out the searches in Delhi, and across 11 states, including Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar and Rajasthan.

“The search operations have also brought out the modus operandi of purchase of the components for manufacturing of mobile said in a statement on Friday.

Without naming the entities concerned, the department said these companies had not complied with regulations prescribed under the Income-Tax Act, 1961 for disclosure of transactions with associated enterprises.

Such a laps makes them liable for penal action under the Act, it said, adding that the quantum of the fine could be more than Rs1000 crore.

“…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 Rs5500 crore,” the department added.

It also found tax deducted at source (TDS) liability of Rs300 crore at one of the companies, the department said, without naming the entity involved.

Sources said the department is also probing the two companies for alleged bogus borrowings of over Rs5000 crore.

“The bogus borrowing is still being scrutinized and is roughly pegged over Rs5000 crore. Since the operations at one of the companies was managed from China, information is still in the process of being studies and scrutinized,” an official privy to the development said.

According to the department, the search also brought to the fore another modus operando, whereby foreign funds were introduced in the books of the Indian company. However, the source of such funds is “of doubtful nature”, it said. S-ET

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