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As the income tax department continued with its surveys for the second consecutive day Wednesday on the premises of the British Broadcasting Corporation (BBC) at Delhi and Mumbai, two persons close to the development said that while transfer pricing cases do not typically entail survey or search actions, they are likely being resorted to in this case for the reason of “non-compliance”.
“Tax cases involving transfer pricing rules and diversion of profits typically involve undertaking assessments by an assessing officer and issuance of a notice before undertaking any survey/search action. However, the reason for non-compliance is being cited for these surveys. Then, the assessing officer can opt for the legal provision to choose survey action against the company,” a person aware about the development, who did not wish to be quoted, said.
There could also be some irregularities related to the Tax Deducted at Source (TDS) provision of the Income Tax Act, which earlier had also resulted in similar action against some Chinese mobile phone manufacturers, another person said. Detailed questionnaire sent to the Central Board of Direct Taxes (CBDT) on this issue by The Indian Express went unanswered. BBC said they do not have an updated statement but shared information about the survey action. Multiple tax experts that The Indian Express spoke to are of the view that surveys/search actions for transfer pricing rules violation are generally uncommon.
“Transfer pricing issues are very common for foreign companies but survey/search actions against them are not common. Assessment is usually opted for but is not the only route through which such cases can be approached. If tax officers want to do a survey/search, then transfer pricing issues can get covered.
However, it is an approval-driven process with prior approvals required within the tax department before carrying out survey action.They would be having some information against the company and there might be a history of non-compliance too,” a Delhi-based tax expert said. A notice preferably is issued to a company in an assessment exercise by the tax authorities flouting transfer pricing rules before undertaking any such action, experts said.
fThe timelines for reopening assessments for a particular assessment year could also influence a specific tax action, they said.
Section 153 of the I-T Act provides for the time limit for completion of assessment, reassessment or recomputation. As per the Budget presented earlier this month, the time available for completion of assessment relating to the assessment year commencing on or after April 1, 2022 shall be 12 months from the end of the assessment year, in which the income was first assessable. If a reference is made to transfer pricing, then the period available for reassessment gets extended by 12 months. A taxpayer could, however, receive a notice under section 148 if the assessing officer believes that his/her income chargeable to tax might have escaped assessment.
The tax department or the British broadcaster has not yet clarified the case or the assessment year for which the survey action has been carried out by the authorities. Government officials had said on Tuesday that the surveys were conducted at the BBC premises in view of the “deliberate non-compliance with the transfer pricing rules” and its “vast diversion of profits”. Officials in the government said the focus of the surveys on BBC is to look into “manipulation of prices for unauthorised benefits, including tax advantages”. They alleged BBC has been non-compliant under transfer pricing rules; persistent and deliberately violative of transfer pricing norms. It deliberately diverted a significant amount of profits, and did not follow the arm’s length arrangement in the case of allocation of profit, they claimed.
A survey, conducted under Section 133A of the I-T Act, is usually a precursor to a search and seizure operation, and takes place only at business premises. I-T officials look into the books of accounts, bank accounts, cash, stock and non-valuable documents during a survey. In recent surveys, they have impounded phones and laptops of assessees, and returned these in a couple of days.
The tax department’s action comes weeks after the British broadcaster had on January 17 released a documentary on the 2002 Gujarat riots titled “India: The Modi Question”. On January 20, the Central government ordered YouTube and Twitter to take down links sharing the documentary, with officials saying it was found to be “undermining the sovereignty and integrity of India” and had “the potential to adversely impact” the country’s “friendly relations with foreign states” and “public order within the country”.
Responding to the surveys taken by the Income Tax Department, BBC on Wednesday said tax authorities continue to remain at the offices in New Delhi and Mumbai and they are cooperating with the ongoing enquiries. It said it doesn’t have an updated statement but shared information on the action taken by the authorities.
“The Income Tax Authorities remain at the BBC offices in New Delhi and Mumbai. The authorities and some World Service and BBC Studios staff stayed at the offices overnight on 14th February. The office remains open for people to go in and out as needed. We are supporting our staff during this time,” BBC said in response to the queries sent by The Indian Express.
The British broadcaster said it is cooperating with the ongoing enquiries and hopes to “have this situation resolved as soon as possible”.
“Our output and journalism continues as normal and we are committed to serving our audiences in India. The BBC reports independently and without fear or favour. We stand by our journalists and continue to report this story editorially, in an impartial manner,” it said.
