The Delhi High Court on Monday gave partial relief to Huawei Telecommunications (India) in an ongoing income tax case.
A Bench of Justices V. Kameswar Rao and Vinod Kumar cancelled the tax notice issued to reassess Huawei’s income for the financial year 2013–14. The Court also set aside the order directing a special audit of the company’s accounts for that year.
However, the Court allowed the reassessment proceedings for the year 2015–16 to continue. It also upheld the order for a special audit of Huawei’s accounts for that year.
The case stems from a 2022 search and seizure operation conducted by the Income Tax Department. Following this, tax authorities reopened assessments for 2013–14 and 2015–16 and ordered special audits under Section 142(2A) of the Income Tax Act.
The tax department argued that for 2013–14, Huawei had undisclosed income related to receivables from customer claims. For 2015–16, it claimed that the unreported income appeared as an “asset.”
It also told the Court that a special audit was necessary because the company’s Enterprise Resource Planning (ERP) data had issues, including duplicate and missing entries, making it difficult to verify the accounts.
Huawei challenged this, arguing that the special audit orders were issued without proper legal grounds. It also said the reassessment proceedings were time-barred and that the tax department had not shown any solid evidence of undisclosed income of ₹50 lakh or more.
After hearing both sides, the Court found that there were valid reasons to believe income had escaped assessment for 2015–16, so the reassessment and special audit for that year were justified. The Court noted that the accounts were complex and involved multiple transactions.
But for 2013–14, the Court held that the tax department failed to show sufficient evidence or legal basis to reopen the assessment. As a result, both the reassessment notice and the special audit order for that year were quashed.
Since the reassessment for 2013–14 was set aside, the Court said the special audit for that year also had no relevance.
Senior Advocates Arvind Datar and Tarun Gulati appeared for Huawei, while the Income Tax Department was represented by its legal team.
