I-T dept froze $478 million of Xiaomi funds in Feb

The income-tax (I-T) department officials froze $478 million worth of deposits lying in local bank accounts of China's Xiaomi Corp in February as part of an investigation into alleged tax evasion, according to two sources and a court filing reviewed by Reuters.

The fund freeze by tax authorities, being reported for the first time by Reuters, comes on top of another legal tussle Chinese smartphone giant Xiaomi faces where it has challenged — successfully so far — a block on $725 million of its funds by another Indian enforcement agency for alleged illegal foreign remittances.

In the income tax case, authorities blocked 37 billion rupees ($478 million) in February under a legal provision that allows officials to take such actions to protect the government’s revenue interests, a Xiaomi court document showed.

Xiaomi did not respond to a request for comment. The spokesperson for the I-T department declined to comment. Two sources with direct knowledge said the amount blocked by tax inspectors was a fallout of the December raids conducted at Xiaomi India offices for alleged income tax evasion.

That investigation, said one of the sources, concerns allegations the Chinese company purchased smartphones from its contract manufactures at inflated costs in India, allowing it to record a smaller profit by selling them to customers and evading corporate income taxes. It is not clear if the company appealed the decision.the freeze by the I-T department was cited by Xiaomi in a May 4 court filing in southern Karnataka state, where it is challenging the other bank account seizure done by the Enforcement Directorate in the royalty case.