Local Court sets aside summons for Huawei India 

A sessions court has set aside the orders issued by a magistrate to the Indian unit of Chinese smartphone company Huawei, its chief executive and three other top executives, summoning them to commence prosecution proceedings in a case filed by the Income Tax Department.

In an order that offers a major relief to Huawei India, its CEO Li Xiongwei and the others, the sessions court said summoning of the accused “is a serious matter and should not be done in a mechanical manner”.

The tax department had approached the magisterial court seeking to prosecute the company and the executives on charges of deliberately not providing information sought by it. The magistrate issued the summons in June.

In a sharply worded judgement, the sessions court said though no detailed order was required at the stage of summoning, the order “must reflect application of mind by the magistrate”. Perusal of the summoning order reveals that the magistrate “got swayed with the version of” the Income Tax Department, it said.

The sessions court observed that the summoning order was passed on the basis that the accused gave “vague or incongruous answers”, but it did not speak about the specific answers on the basis of which they were summoned. “It is settled law that the court cannot act as the mouthpiece of the prosecution, but has to apply its mind independently to the facts of the case to decide whether the ingredients of the alleged sections are prima facie made out and whether there are sufficient grounds for proceeding against the accused persons”.

Appearing on behalf of the company and its executives, advocate Vijay Aggarwal argued that the trial court in Delhi had no territorial jurisdiction to try the alleged offences which were allegedly committed in Gurgaon, Haryana. Ingredients of Section 275B of the Income Tax Act were not made out to prosecute the company since under the section, the executives are supposed to only provide “necessary facility” to inspect the books of accounts or other documents required for inspection by the tax department, he argued. The lawyer claimed that the company executives had fully cooperated with I-T officials during a search operation.

In the order, the sessions court said: “The mentioning of reasons in the summoning order guarantees consideration, clarity and reduces the chances of arbitrariness. Recording of reasons are meant to serve the wider principle of justice and that justice must not only be done, it must also appear to be done as well.”

The court said: “Reasons are heart and soul of the judicial order and in the absence thereof, such orders become vulnerable. Also, if the reasons given turns out to be ex facie incorrect, the order would be bad in law”.

In his summoning order, the magistrate had ruled that the executives of Huawei Telecommunications India “deliberately chose to give vague answers to some questions and regarding other questions, the answers given by them were incongruous to each other and it seems that they tried to confuse the authorised officer in order to deny access to the books of account and other documents”.

However, the sessions court in the order earlier this month held that “it is important to understand that the offence alleged against the accused persons is only of not affording necessary facility for inspection of electronic books of accounts or other documents which were in their possession or control. The prosecution is not for giving false information or for not providing the books of accounts or any other information or for not maintaining the books of accounts. There are different sections for the other offences”.

Income tax officials had conducted the search and seizure operations in Gurgaon and Karnataka, including Li’s residence, starting February 15. The searches lasted eight days, during which documents and gadgets as well as electronic records in laptops, hard drives, and mobile phones of employees were seized.

The tax department had also attached the bank accounts and trade receivables of Huawei India. It is alleged that Huawei made inflated payments against the receipt of technical services from related parties outside India. The company could not justify the legitimacy of such alleged technical services in lieu of which payment has been made as also the basis on which these were determined, the tax department has alleged. The expenses claimed by the company toward the receipt of such services are of several crore rupees over a period of five years, it said.

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