Delhi HC stays Rs 329 cr tax penalty on Vivo Mobile India, seeks I-I dept response

The Delhi High Court on Thursday stayed the recovery of Rs 329 crore penalty imposed by the income tax department against Vivo Mobile India, which manufactures and sells smart mobile phones and accessories under the brand name of ‘Vivo’ and ‘iQOO’, even as it sought response from the income tax department.

A Division Bench led by Justice V Kameshwar stayed the Transfer Pricing Officer’s (TPO) order asking Vivo Mobile India, a wholly owned subsidiary of Honk Kong-based Multi Accord, to pay Rs 329.11 crore penalty on various grounds, including failure to accurately disclose the group holding structure and declaring Vivo China as an associated enterprise, besides the international transactions undertaken by them.

Similarly, the court also stayed a similar order passed against Oppo India, which has also challenged various demand orders passed by the TPO. According to the sources, the penalty for the seven assessment years (2016-23) for Oppo Mobiles India is around Rs 5000 crore.

The case will be next heard on September 23.

Senior counsel Arvind P Datar, appearing for Vivo, told the HC that the income tax department’s penalty order was “ex facie wholly without jurisdiction, illegal, arbitrary, perverse”, in contravention of the mandatory provisions of the Income Tax Act, 1961, and in breach of the basic principles of natural justice and therefore, bad in law.

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He argued that the department had imposed penalty even for not submitting the shareholding pattern of the foreign trading entities from which purchases were made and for failing to furnish the complete purchase details from foreign trading entities, including the relationship with such entities.The senior counsel said that the assessment proceeding for AY 2019-20 is currently ongoing and the draft assessment order under Section 144C (1) had not been yet passed by the Assessing Officer. “Consequently, the substantive assessment proceedings for the year under consideration remain incomplete. Therefore, in view of the provisions contained in Section 275 of the Act there is a complete bar to proceed with the penalty proceedings, and the limitation to complete the same has not yet commenced,” according to Vivo.Vivo had filing its return of income for assessment year 2019-20 under section 148, wherein it declared its nil income. The case of Vivo was selected for scrutiny and notice was issued to it h under Section 143(2).

In February, 2024, the tax department made a reference to the TPO to determine the arm’s length price of the international transaction undertaken by Vivo. On January 28, the TPO passed an order under Section 92CA(3) proposing adjustment of Rs 67.47 lakh towards payment of royalty to Vivo China and Rs 1284.36 crore towards advertisement, marketing and promotion expenses.

Consequently, the TPO issued a show cause notice to Vivo to impose a penalty under Section 271G on the grounds that there was an alleged failure by the assessee to furnish pending information requested by the department during the proceedings under Section 92CA of the 1961 Act.

Later the TPO rejected the Vivo’s reply and levied a penalty of Rs 329 crore against it.

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