The Delhi High Court granted partial relief to Huawei Telecommunications (India) by quashing reassessment notice and special audit for 2013–14, while upholding reassessment and audit directions for the 2015–16 assessment year.
NEW DELHI: The Delhi High Court granted partial relief to Huawei Telecommunications (India), the Indian subsidiary of Chinese technology firm Huawei, in income-tax proceedings initiated against the company.
A Division Bench comprising Justices V Kameswar Rao and Vinod Kumar set aside the income-tax notice seeking reassessment of Huawei’s revenue for 2013–14 and quashed directions for a special audit of the company’s accounts for that year. However, the Bench upheld reassessment proceedings and orders for a special audit for 2015–16.
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The matter followed a 2022 search and seizure by the Income Tax Department, after which authorities moved to reopen assessments for fiscal years 2013–14 and 2015–16 and ordered special audits under Section 142(2A) of the Income Tax Act.
The tax department argued that for 2013, Huawei’s income had escaped assessment in the form of receivables for customer claims, while for 2015–16 the alleged escapement was reflected as an “asset”. It also said a special audit was warranted because the ERP data supplied by Huawei was unreliable and the company had acknowledged duplicate and missing entries. The raw ERP output, the department contended, was inadequate to audit the books and required reconciliation with the financial statements, the Court was told.
Huawei challenged these claims, arguing that the special audit notices and consequential directions lacked jurisdiction because the conditions for invoking Section 142(2A) were not met.
Regarding reassessment, Huawei maintained that the proceedings were time-barred by the six-year limitation period and that the reasons provided by the revenue authorities did not disclose any incriminating material showing escapement of income of Rs 50 lakh or more, represented as an asset.
After hearing the parties, the High Court found that the tax department had sufficient grounds to believe income had escaped assessment in the form of assets for 2015–16, making the reassessment proceedings for that year valid. The Court also upheld the special audit orders for 2015–16, noting the voluminous nature of the accounts and the multiplicity of transactions.
Conversely, the Division Bench held the reassessment orders for 2013–14 to be invalid, finding the department had not established jurisdiction or produced incriminating material tied to that year. The Court added that once reassessment proceedings for 2013–14 were quashed, the directions for a special audit of that year “serve no purpose and would not survive.”
Senior advocates Arvind Datar and Tarun Gulati, along with advocates Kishore Kunal, Ankita Prakash and Anuj Kumar, represented Huawei. The Income Tax Department was represented by advocates Indruj Singh Rai, Sanjeev Menon, Rahul Singh, Gaurav Kumar and Siddharth Burman.
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