MM TAX CLUB

Income Tax Department carried out search and seizure operations on 06.07.2022 on a major Bengaluru-based pharmaceutical group, engaged in the business of manufacturing and marketing of pharmaceutical products and Active Pharmaceutical Ingredients (API). The group has presence in over 50 countries. The search action covered around 36 premises spread across 9 States.

During the course of the search operations, substantial incriminating evidence, in the form of documents and digital data, has been found and seized. The initial gleaning of the evidence has revealed that the group has been debiting in its books of account unallowable expenses on account of distribution of freebies to the medical professionals under the head “Sales and Promotion”. These freebies included travel expenses, perquisites and gifts etc. to doctors and medical professionals for promoting the group’s products under the heads “Promotion and Propaganda”, “Seminars and Symposiums”, “Medical Advisories” etc. The evidence indicates that the group has adopted unethical practices to promote its products/ brands. The quantum of such freebies detected is estimated to be around Rs. 1000 crore.

The group is also found to have claimed artificially inflated deduction under special provisions in respect of certain incomes, by resorting to suppression of expenses and over-appropriation of revenue to the unit eligible for such deduction.  Various other means of tax evasion, including inadequate allocation of research and development expenses to eligible units and inflated claim of weighted deduction under section 35 (2AB), have also been detected. The quantum of tax sought to be evaded through such means is estimated at over Rs. 300 crore.

Instances of violation of provisions of tax deduction at source under section 194C of the Income-tax Act, 1961 have also been detected in respect of transactions under contracts entered into with the third-party bulk drug manufacturers.

During the search action, unaccounted cash amounting to Rs. 1.20 crore and unaccounted gold and diamond jewellery worth more than Rs. 1.40 crore have also been seized. 

Further investigations are in progress.

Income Tax Department carried out a search and seizure operation on 07.07.2022 on a Delhi and Mumbai based group, engaged in the business of hospitality, marble, lights trading and real estate. A total of 18 premises across Delhi, Mumbai and Daman were covered during the search action.

During the course of the search operation, a large number of incriminating evidences in the form of hard copy documents and digital data have been found and seized. These evidences indicate that the group has parked its undisclosed money abroad in certain low tax jurisdictions. The group, through Malaysia based web of companies, has finally invested the funds in its hospitality business in India. It is estimated that quantum of such funds exceeds Rs. 40 crore.

The evidence gathered indicates that the group has invested in a few companies abroad, which have been incorporated specially for commodity trading. The net worth of one such company including its profits earned has not been disclosed by the group in its ITRs for the relevant period. Further, it has been detected that the promoter of the group has invested in an immovable property in foreign jurisdiction which has also not been disclosed in his Income tax return. Besides these, certain offshore entities, set up for commodity trading, have been identified, which have also not been declared.

The search action also revealed that the group was involved in out-of-books cash sales in its India operations. In its trading business of marble and lights, seized evidences indicate unaccounted cash sales to the extent of 50% to 70% of the total sales. Undisclosed excess stock of Rs. 30 crore has also been found.

In its hospitality business, unaccounted sales have been detected more specifically in banquet division.

So far, undeclared jewellery valued at Rs. 2.5 crore has been seized. Further investigations are in progress.       

During an investigation pertaining to M/s Oppo Mobiles India Private limited (hereinafter referred to as ‘Oppo India’), a subsidiary company of “Guangdong Oppo Mobile Telecommunications Corporation Ltd”, China (hereinafter referred to as ‘Oppo China’), the Directorate of Revenue Intelligence (DRI) has detected Customs duty evasion of around Rs 4,389 crore. Oppo India is engaged in the business of manufacturing, assembling, wholesale trading, distribution of mobile handsets and accessories thereof, across India. Oppo India deals in various brands of mobile phones, including Oppo, OnePlus and Realme.

During the course of investigation, searches were conducted by DRI at the office premises of Oppo India and residences of its key management employees, which led to the recovery of incriminating evidence indicating wilful mis-declaration in the description of certain items imported by Oppo India for use in the manufacture of mobile phones. This mis-declaration resulted in wrongful availment of ineligible duty exemption benefits by Oppo India amounting to Rs 2,981 crore. Among others, senior management employees and domestic suppliers of Oppo India were questioned, who in their voluntary statements accepted the submission of wrongful description before the Customs Authorities at the time of import.

Investigation also revealed that Oppo India had remitted / made provisions for payment of ‘Royalty’ and ‘Licence Fee’ to various multinational companies, including those based in China, in lieu of use of proprietary technology/brand/IPR license etc. The said ‘Royalty’ and ‘Licence Fees’ paid by Oppo India were not being added in the transaction value of the goods imported by them, in violation of Section 14 of the Customs Act, 1962, read with Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007. The alleged duty evasion by M/s Oppo India on this account is Rs. 1,408 crore.

A sum of Rs 450 crore has been voluntarily deposited by Oppo India, as partial differential Customs duty short paid by them.

After completion of the investigation, a Show Cause Notice has been issued to Oppo India demanding Customs duty amounting to Rs. 4,389 crore. The said Notice also proposes relevant penalties on Oppo India, its employees and Oppo China, under the provisions of the Customs Act, 1962.

Income Tax Department carried out search and seizure operations on two leading real estate groups of Bengaluru and Hyderabad, engaged in the business of construction/sale/leasing of commercial/residential space, and educational and hospitality services. The search action covered more than 40 premises located in Bengaluru, Hyderabad and Chennai.

During the course of the search operations, several incriminating documents and digital evidences have been seized. The preliminary analysis of seized evidences has revealed that the land owners had entered into Joint Development Agreement (JDA) with a Bengaluru-based developer. They have received super built-up area from developer in lieu of the land given to the developer for the development of various projects. However, the land owners failed to declare the capital gains accruing from the transaction, though completion certificates for the projects have been obtained. The amount of such undisclosed capital gains is estimated at more than Rs. 400 crore.

The initial analysis of the seized documents has also revealed that these groups have suppressed income to the tune of Rs. 90 crore in respect of the revenue recognizable from the sale of units in real estate. Further, both the groups have indulged in tax-evasion by inflation of expenses in the construction and development business to the tune of Rs. 28 crore, having claimed bogus purchases and resorted to over-invoicing of the construction materials.

It has also been found that interest-bearing borrowed funds have been diverted to related entities/parties for non-business purposes by the main entities of both the groups. Instances of the transactions involving advances/loans between the group companies have also been found, which partake the character of deemed dividend and hence liable to be taxed as income. 

In the case of a trust covered in the search action, it has been found that the trust has failed to utilize, within the specified permissible time limit, the accumulated amount of Rs. 40 crore for the specified purpose as per the objects of the registered trust deed.

So far, the search action has led to the seizure of undisclosed cash of Rs 3.50 crore and gold, silver, jewellery worth Rs. 18.50 crore.

Further investigations are in progress.

In an update dated 11^th July 2022 at income tax e-filing portal, the department has issued a brief note on e-proceedings and Faceless Assessments under income Tax.

Note on ‘e-Proceeding

For cases under International Taxation and Central Charges

As a part of e-governance initiative, to facilitate conduct of assessment proceedings electronically, Income-tax Department has developed the ‘e-Proceedings’ facility. It is a simple way of communication between the Department and assessee in a hassle-free manner, through electronic means, without the necessity to visit Income-tax Office for conduct of assessment proceedings. This new facility is also environment friendly as assessment proceedings have now become paperless.

In assessment proceedings through the ‘e-Proceedings’ functionality, there is a seamless flow of letters, notices, questionnaires, orders etc. from Assessing Officer to assessees’ eFiling account. On receipt of Departmental communication, assessee is able to submit his response along with attachments, if any, by uploading the same on the e-Filing portal. The response submitted by the assessee is also viewed by the Assessing Officer electronically. Thus, besides saving precious time of the taxpayer, ‘e-Proceedings’ also provides a 24X7 anytime/anywhere convenient facility to submit response to the Departmental queries in course of assessment proceedings.

In proceedings being carried out through the ‘e-Proceedings’ facility, assessee retains complete information of all e-submissions made during the course of assessment proceedings in his e-filing account, which is very useful for reference & record purposes.

In cases under ‘e-Proceedings’, physical hearing/attendance may take place in following situation(s):

1. where books of accounts have to be examined; or
2. where provision of section 131 of Income-tax Act, 1961 has been invoked; or
3. where examination of witness is to be made by assessee or Assessing Officer; or
4. where a show-cause notice contemplating any adverse view is issued and assessee requests for personal hearing to explain the matter.

The response to the notice, if any, is to be submitted to the Assessing Officer by the assessee through ‘e-Proceedings’ facility, as mentioned above.

This taxpayer friendly measure has substantially reduced the compliance burden for assessees. The assessees who do not yet have an e-Filing account, are requested to get themselves registered by visiting the home page of website https://www.incometax.gov.in .

Note on ‘Faceless-Assessment’

For cases under faceless assessment

Faceless Assessment is a step forward towards bringing in an efficient and transparent tax regime in the country. The salient features of Faceless Assessment are as under:

I               A National Faceless Assessment Centre (NaFAC) has been set up to facilitate the conduct of Faceless Assessment proceedings in a centralized manner.

II             Further to facilitate the conduct of Faceless Assessment various Assessment Units, Verification Units, Technical Units, Review Units have been set-up.

III            All communication with the assessee or any other person for the purpose of making faceless shall be made in electronic mode.

IV            An electronic record shall be authenticated by the NaFAC by sending it through electronic communication while an electronic record shall be authenticated by respective Units by their digital signature. An electronic record originated by the assessee or any other person shall be authenticated by affixing his digital signature if he is required under the rules to furnish his return of income under digital signature and in any other case affixing his digital signature or under electronic verification code.

V             Every notice, order or any other electronic communication shall be delivered to the assessee by way of –

a) Placing an authenticated copy thereof in the assessee’s registered account or

b) Sending an authenticated copy thereof to the registered e-mail address of the assessee or his authorized representative or

c) Uploading an authenticated copy on the assessee’s Mobile App and followed by a real time alert.

VI            The assessee shall file his response to any notice or order or any other electronic communication through his registered account on the e-filing website www.incometax.gov.in and once an acknowledgement is sent by the National Faceless Assessment Centre containing the hash result generated upon successful submission of response, the response shall be deemed to be authorized.

VII          A person is not required to appear before the Centre or any unit either personally or through authorized representative. Personal hearing, if required, shall be conducted through video conferencing or video telephony, to the extent technologically feasible, in following situation(s):

i               In a case where a variation is proposed in the income or loss returned, the assessee or his authorized representative, as the case may be, may request for personal hearing on the e-filing portal www.incometax.gov.in so as to make his oral submissions or present his case before the income-tax authority of the relevant unit and the incometax authority of the relevant unit shall allow such hearing.( Procedure for seeking of personal hearing is available at the end of this note.)

ii              Where any examination or recording of the statement of the assessee or any other person (other than statement recorded in the cause of survey under section 133A of the Act) is required.

VIII         Pr.CCIT(NaFAC) may, at any stage of the assessment, if considered necessary, transfer the case to the Assessing Officer having jurisdiction over such case, with the prior approval of the Board.