Vivo could soon come under the Income Tax Department scanner after the Serious Fraud Investigation Office (SFIO) flagged alleged diversion of profits in its investigation report. The findings are expected to be shared with the Central Board of Direct Taxes (CBDT), potentially widening the regulatory net around the Chinese smartphone manufacturer, a government source said.
“There is clear evidence of diversion of profits in addition to fund diversion in Vivo’s case, which has tax implications. The findings will be handed over to CBDT, and an income-tax investigation may follow,” the source told Moneycontrol.
Once the SFIO report is passed on to CBDT, the I-T department may examine potential profit diversion and tax evasion. For Vivo, this could translate into proceedings under both corporate fraud and tax laws.
Fund diversion
The development comes even as SFIO prepares to file its chargesheet against Vivo in a suspected fund-diversion of more than Rs 2,000 crore. The chargesheet, likely to be filed under Section 447 of the Companies Act, 2013, has allegedly identified a clear money trail and evidence of diversion of funds and profits.
Sources have told Moneycontrol that the broader probe into Vivo, Oppo and Xiaomi has pegged the total suspected fraud at more than Rs 6,000 crore. Chargesheets in the Oppo and Xiaomi, also Chinese companies, cases will also be filed in due course, they said.
In Vivo’s case, the chargesheet is expected to outline the minimum and maximum penalties applicable under the relevant sections of the Companies Act. The final penalty will be adjudicated by the Registrar of Companies (ROC) based on the evidence presented by SFIO.
Moneycontrol has sought Vivo’s comments via email and the story will be updated once a response is received.
What is Section 447
Section 447 of the Companies Act, 2013, deals with fraud committed by companies or their officers. Fraud includes any act, concealment or omission intended to deceive, gain undue advantage, or cause wrongful loss.
Penalties include imprisonment and monetary fines, depending on the severity of the offence. Penalties are imposed after adjudication by the ROC or courts.
How is profit diversion different from fund diversion?
Profit diversion typically refers to shifting profits through under-invoicing, over-invoicing, inflated expenses, related-party transactions or deliberate misreporting aimed at reducing taxable income. Fund diversion generally involves routing company money to unrelated entities or shell firms without a legitimate business purpose.
