Facts of the Case

The Petitioner, M/s Huawei Telecommunications (India) Company Pvt. Ltd., filed a writ petition seeking modification of an interim order dated 21 April 2022, whereby the Court had restrained the Petitioner from repatriating any money abroad without prior permission.

The Petitioner contended that:

  • It was engaged in telecom business requiring import of equipment from overseas suppliers.
  • Due to the restriction, it was unable to make payments to foreign suppliers, thereby affecting business operations.
  • The company had complied with all prior conditions and submitted affidavits of compliance.
  • Significant foreign exchange inflows were being generated through its operations.

The application sought removal/modification of the restriction to allow continuation of business activities.

Issues Involved

  1. Whether the restriction on repatriation of funds abroad imposed by the Court should be modified.
  2. Whether powers under Section 132(9B) of the Income Tax Act can be exercised to restrict legitimate business operations.
  3. Whether such restrictions are proportionate and necessary to protect revenue interests.

Petitioner’s Arguments

  • The restriction caused severe prejudice to business operations, as payments to overseas suppliers were essential.
  • There were no outstanding tax dues, and the company had an exemplary compliance record.
  • Section 132(9B) powers cannot be used for protecting speculative or future tax demands.
  • The Respondents failed to establish necessity and proportionality of the restriction.
  • The Petitioner undertook:
    • Not to repatriate dividends or royalty without Court permission.
    • To provide periodic financial disclosures.
  • Revenue interest was already secured to the extent of ₹100 crores, with additional refund amounts pending.
  • Relied on judicial precedent including Radhakrishnan Industries vs State of Himachal Pradesh (2021) regarding proportional exercise of powers.

Respondent’s Arguments

  • The Petitioner allegedly failed to produce books of accounts during search proceedings.
  • There were large-scale import transactions (₹19,000+ crores) raising concerns on profit margins and transfer pricing.
  • Potential tax demand could be substantially higher (₹1000+ crores) based on discrepancies.
  • The restriction was necessary to protect revenue interests.
  • Suggested:
    • Allow limited business operations with circulating funds of ₹300 crores.
    • Require security of ₹350 crores or more if restrictions are lifted.
  • Argued no financial hardship existed, and full security must be ensured before relaxing restrictions.

Court’s Findings / Order

The Delhi High Court, without adjudicating merits, balanced equities and modified the earlier order as follows:

  1. Petitioner to furnish:
    • Existing ₹100 crores FDR, plus
    • Additional ₹100 crores FDR with lien in favour of the Department.
  2. Revenue directed to:
    • Not release pending refund (~₹30 crores) till assessment completion.
  3. Petitioner:
    • Allowed to continue business operations.
    • Restricted only from repatriating royalty/dividend abroad.
    • Required to submit monthly statements of payments.
  4. Authorities directed to:
    • Complete assessment expeditiously.
  5. Attachment orders to be withdrawn upon compliance with deposit conditions.
  6. The order clarified that:
    • It is based on Petitioner’s offer and
    • Shall not act as precedent. 

Important Clarifications

  • Courts may balance business continuity with revenue protection through conditional relief.
  • Section 132(9B) powers must be exercised proportionately and not arbitrarily.
  • Interim restrictions can be modified upon adequate security.
  • Such orders are often fact-specific and non-precedential.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3355-DB/MMH30082022CW63522022_190946.pdf

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