Karnataka High Court Sets Aside Income Tax's Seizure Order Of ₹ 3700 Crore Against Xiaomi

Justice SR Krishna Kumar while providing a major relief to Xiaomi imposed three conditions for setting aside the August 11, 2022, IT seizure order of the Deputy Commissioner of Income Taxand thus held –

"a) that the petitioner shall not be entitled to make payments from the subject fixed deposits accounts in the form of royalty or in any other form to any companies/ entities located outside India; b) that the petitioner is however at liberty to take overdrafts from the subject fixed deposits accounts and make payments from such overdrafts to such companies / entities located outside India; c) that the respondents are directed to complete the draft assessment proceedings of the petitioner for the Assessment Years 2019-20, 2020- 21 and 2021-22 on or before 31.03.2023."

The IT Department had passed the order on grounds that the Chinese firm was remitting income abroad in the guise of paying royalty to avoid paying tax in India.

Senior Advocate Udaya Holla appeared for the Petitioner while ASG M.B. Naragund appeared for the Respondents before the Court.

A similar order by the Enforcement Directorate freezing Rs 5,551 crore was disputed in Court.

Justice MNagaprasanna reserved the judgment in the ED case on November 17 and it is awaited.

In the IT case, the Court found several lapses by the Department.

"A perusal of the impugned order will also indicate that there is no finding recorded as to why a provisional order of attachment had to be passed against the petitioner; it is significant to note that there is no finding recorded by the first respondent that the petitioner was a 'fly-by-night operator' from whom it was not likely to recover the likely demand," the Court noted in its judgment.

Quashing the order, the HC held, "In other words, in the absence of any reasons as to why and how the petitioner would defeat the demand, mere apprehension that huge tax demands are likely to be raised on completion of assessment was not sufficient to constitute formation of opinion and existence of proximate and live link for the purpose and necessity of provisional attachment which implicate the doctrine of proportionality."

Accordingly, the Court partly allowed the petition.

CauseTitle - Xiaomi Technology India Private Limited v. Deputy Commissioner of Income Tax & Ors.

Click here to read/download the Order

With PTI Inputs