Karnataka HC Lifts I-T Dept’s Block On INR 3,700 Cr FDs of Xiaomi

TIn a major relief to Xiaomi, the Karnataka High Court has lifted the Income Tax (I-T) Department’s block on the Chinese phone maker’s fixed deposits (FDs) worth INR 3,700 Cr (nearly $450 Mn), according to a Reuters report.

Details about the Karnataka High Court’s decision announced on Friday (December 16) were not immediately available.

The move comes about 10 months after the I-T Department first seized the amount in February on charges of tax evasion. In December 2021, the Department also searched the offices of multiple Chinese phone makers, including Xiaomi, on allegations of tax evasion.

According to the investigation by the I-T Department, Xiaomi purchased smartphones from its contract manufacturers at a higher cost in India, which allowed it to record a smaller profit and evade paying corporate taxes in the country.

It was not the first time that Xiaomi came under the scrutiny of the tax department. In January 2022, the I-T Department also issued three show-cause notices to Xiaomi India for recovery of duty amounting to INR 653 Cr for the period between April 1, 2017, and June 30, 2020.

The phone maker has been under intense scrutiny for the last year or so on allegations varying from flouting foreign exchange norms to tax evasion.

The seizure of funds by the I-T Department was on top of the Enforcement Directorate’s (ED) mammoth INR 5,551.27 Cr (nearly $671 Mn) seizure of Xiaomi India for allegedly flouting the norms of the Foreign Exchange Management Act, 1999 (FEMA).

According to the ED’s investigation, Xiaomi made remittances to entities abroad under the guise of royalties for services it never received from these companies. The Chinese phone maker’s activities flouted the provisions of FEMA, 1999, prompting the ED to issue a seizure order.

However, the Karnataka High Court stayed the ED’s seizure order in April.

The Chinese phone manufacturer sells Android smartphones in India under the Mi and Redmi brands.

Chinese companies have been under intense scrutiny in the country following the deadly border clash between soldiers of India and China in 2020. Over the last few months, phone maker Vivo has also been accused of laundering money to the tune of INR 62,476 Cr and evading customs duty of INR 2,217 Cr.

The ED is also investigating multiple illegal digital lending apps in the country for cheating and harassing the general public. Its investigations in many cases have found that the apps were being operated by Chinese nationals or entities linked to China.