Aditya Kalra & Munsif Vengattil

NEW DELHI (Reuters) – Indian tax officials froze $478million worth of deposits held in bank accounts in China by Xiaomi (OTC:) Corp. The move was made as part of an investigation into alleged taxes evasion.

The report by Reuters of the fund freeze by tax authorities comes after another legal tussle Chinese smartphone company Xiaomi has faced where it successfully challenged – a block of $725 million on its funds by an Indian enforcement agency for alleged illicit foreign remittances.

According to a Xiaomi court record, the authorities in India blocked 37 billion rupees (478 million USD) from February’s income tax case. This was due to a provision under Indian law that permits officials to use such measures to safeguard New Delhi’s revenue interests.

Xiaomi has not responded to our request for comment.

A spokesperson from the Income Tax Department declined to comment.

Sources with direct knowledge of the matter said that the blockage by tax inspectors resulted from raids on Xiaomi India offices last December, which were conducted to investigate income tax evasion.

One source said that the investigation concerns claims that a Chinese company bought smartphones at inflated prices from India. This allowed it to make fewer profits by selling the phones to customers, and avoid corporate income tax.

It’s not known if the company appealed.

Xiaomi cited the Income Tax Department freeze in its May 4, Karnataka court filing. It is contesting the Enforcement Directorate’s other bank account seize in this royalty case.

Directorate claims Xiaomi made illegal foreign remittances “under the guise” royalty payments to entities even though the company did not receive any services from them. This is an accusation that the company strongly denies. According to the Indian Court, Xiaomi appealed and was forced to postpone its decision by the Directorate until May 23.

In its court documents, Xiaomi refers to the probes and states that it has “cooperated in all of these investigations” and given all necessary information.

Xiaomi filed that India’s Income Tax Department placed under lien $478million of its deposits in an order dated February 18, 20,22.

Since 2020 when India and China were at odds over a border dispute, Chinese businesses have had difficulty doing business in India. India has banned more than 300 Chinese apps, which includes popular ones like TikTok. It also tightened regulations for Chinese investors in India.

Recent allegations that Xiaomi executives were intimidated by Indian Directorate officials have been in the news. This led to public criticisms of the agency as well as words of support and encouragement from the Chinese government.

According to Counterpoint Research, Xiaomi’s share in the Indian smartphone market quadrupled from 6% to 24% in 2016, making it market leader.