According to BBC India’s Income Tax Survey, there are discrepancies in TP documentation, remittance of income that does not adhere to TDS requirements, and income that is not disclosed in proportion to the size of operations in India.
CBDT Press Release dt. 17/02/2023: Income Tax Department carries out survey operations in Delhi & Mumbai (BBC India)
The Income Tax Department conducted a survey action under Section 133A of the Income-tax Act, 1961, at the business premises of a prominent international Media Company’s group entities in Delhi and Mumbai. The group is in the business of creating content in English, Hindi, and other Indian languages, as well as selling advertisements and providing market support services.
According to the IT survey, despite significant consumption of content in various Indian languages other than English, the income/profits shown by various group entities are not commensurate with the scale of operations in India. During the course of the IT survey, the Income Tax Department gathered several evidences pertaining to the organization’s operations, indicating that tax was not paid on certain remittances, and such remittances were not disclosed as income in India by the group’s foreign entities.
The IT survey operations also revealed that the Indian entities of the Group used the services of seconded employees, for which reimbursement was made to the Group’s foreign entities. Such remittances were made in violation of the Income Tax Act’s withholding tax requirements (TDS). Furthermore, the survey revealed numerous discrepancies and inconsistencies in Transfer Pricing (TP) documentation. Such disparities are caused by lack of level of relevant Function, Asset and Risk (FAR) analysis, the incorrect use of comparables to determine the correct Arms Length Price (ALP), and insufficient revenue apportionment, among other things.
The Income Tax Department’s survey operation resulted in the discovery of critical evidence in the form of employee statements, digital evidences, and documents, which will be investigated further in due course. Only the statements of employees whose roles were critical were recorded, including those associated with finance, content development, and other production-related functions. Even though the IT Department took care to record only key personnel’s statements, it was discovered that dilatory tactics were used, including in the context of producing documents/agreements sought. Despite the Media Group’s stance, the IT survey operation was carried out in such a way as to allow for continued regular media/channel activity.