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December 22, 2022

Karnataka HC quashed IT order attaching Xiaomi’s RS 3700 crore FDs

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Karnataka HC quashed IT order attaching Xiaomi’s RS 3700 crore FDs

The income tax department had provisionally attached fixed deposits of Xiaomi Technology India worth Rs 2,600 crore in HSBC Bank and Rs 1,100 crore with Citibank. Xiaomi had challenged the order as being arbitrary, mechanical, and without application of mind.

The Karnataka High Court has quashed a provisional order from the Income Tax Department attaching Rs 3,700 crore held in fixed deposits by Xiaomi Technology India, preventing the telecom giant from making any payments from the FD in any form, including royalty payments to any businesses or entities outside of India.

Partly allowing Xiaomi’s petition, Justice SR Krishna Kumar has said the petitioner-company is, however, allowed to take overdrafts from the FD accounts and make payments from overdrafts to companies or entities located outside India.

The I-T department has been instructed to finish the petitioner’s final draft proceedings from 2019–20 to 2021–2022 before March 31, 2023.

According to Justice Krishna Kumar, the I-T department has not made a determination that the petitioner is a “fly-by-night operator” from whom it would be impossible to recoup the expected demand. The judge noted in his judgement that “the impugned order also does not say that the petitioner was either a habitual defaulter or he was operating no business at all or the petitioner did not have adequate funds to pay the demand.” the judge pointed out in his order as per news and media report

The judge has said that except for stating that it was necessary to attach FDs to protect the revenue interest, no other reasons were assigned by the department

It is trite law that grant of approval should not be a mechanical act and should reflect independent application of mind and this important safeguard of taking prior approval of the commissioner under Section 281B of Income Tax Act is not a mere empty formality and cannot be taken lightly. The judge stated that the impugned decision based on the abovementioned approval ought to be overturned since the approval given by the principal commissioner of income tax reflects full non-application of mind and is a non-speaking and unreasoned approval which is contrary to law ,as per media report

Following approval by the I-T principal commissioner on August 11, 2022 the I-T deputy commissioner, Bengaluru, passed a provisional attachment order the same day under Section 281B of the Income Tax Act, 1961 over the petitioner- company’s fixed deposits. Xiaomi challenged the order. saying it was arbitrary and reflects premeditated conclusion since any opinion for attaching the property had not been recorded

It is just an administrative action, which does not require to be informed to the petitionerthe I-T department asserted in defence of it. The department contended that the petitioner – who is guilty of defrauding the respondents and ot paying taxes by moving funds outside India is not entitled to any relief as per media report.

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