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Delhi High Court gives relief to Huawei in tax case, lifts freeze on bank accounts

Under the indiscriminate attachments, over Rs 1,500 crore of Huawei funds have been attached resulting in severely constricting its business and operations in a completely disproportionate manner, senior counsel Arvind Datar and Tarun Gulati argued.

Besides, the HC directed Huawei Telecommunications India not to the claim refund of around Rs 30 crore from the department till the next date of hearing.

In a major relief to Chinese telecom company Huawei’s India unit, the Delhi High Court on Thursday stayed the provisional attachments of its bank accounts and trade receivables of over Rs 1,500 crore by the Income Tax Department, subject to firm keeping Rs 100 crore in a fixed deposit account. Besides, the HC directed Huawei Telecommunications India not to the claim refund of around Rs 30 crore from the department till the next date of hearing.

A division Bench led by Justice Manmohan stayed the department’s attachment after Huawei Telecommunications India challenged the provisional attachments of almost all of its bank accounts as well as trade receivables as per the income tax department’s various orders between February 17 and March 14 issued under Section 132 (9B) of the Income Tax Act.

Under the indiscriminate attachments, over Rs 1,500 crore of Huawei funds have been attached resulting in severely constricting its business and operations in a completely disproportionate manner, senior counsel Arvind Datar and Tarun Gulati argued.

Seeking a direction from the department to call for records about its attachments of the bank accounts and trade receivables, Huawei wants to quash the department’s orders on the ground the same is whole without jurisdiction, completely illegal, manifestly arbitrary.

Huawei was accused of tax evasion in India. The department’s investigation found that China’s Huawei allegedly manipulated account books to reduce its taxable income by inflating payments made against receipt of technical services from its related parties outside India, the finance ministry had said, adding that “the expenses debited by the assessee towards receipt of such services are to the tune of Rs 129 crore over a period of five years.”

According to counsel Zoheb Hussain, appearing for the department, Huawei had failed to provide any substantial justification for such tax claims during the income tax raids on its Gurgaon office in February and it had not given access to its books of accounts to ascertain the escaped assessment. He further argued that the assessee’s books of accounts were prepared on an ERP system that was located in China. And the company’s holding company in China had repatriated around `750 crore outside India, he contended.

However, the company denied all the allegations in the HC. Huawei in its petition filed through its counsel Kishore Kunal said that these attachments were beyond Section 132 (9B) which requires two-fold conditions to be satisfied — the existence of ‘reasons’ and ‘necessity’ to undertake the attachment for ‘protecting the interest of revenue’. However, the orders under challenge didn’t disclose fulfilment of any such conditions nor such reasons could have been entertained at the preliminary stage where there was no demand against the company.

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