I-T dept terms Reebok India case as tax evasion and not fraud

After Germany-based Adidas accused Reebok India of alleged

Rs 870-crores fraud, which is currently being investigated by the Serious Fraud Investigation Office (SFIO) and the Economic Offences Wing (EOW) of the Gurgaon Police, the income Tax (I-T ) department has found that it may not be a case of corporate fraud as made out and could involve tax evasion to the tune of Rs 140 crores. The department, in its probe has found that there do not exist any signs of laundering in the company’s finances, but the case qualifies under the category of manipulation and misrepresentation of discounts offered by the firm to its dealers and manipulation of books of accounts.

The I-T department has been checking the account books and financial documents of a number of Reebok dealers in India to whom it has begun issuing notices. In the criminal complaint filed at EOW, Adidas had accused its former MD Subhinder Singh Prem and chief operating officer Vishnu Bhagat of Rs 870-crores fraud by indulging in criminal conspiracy and fraudulent practices over a period of time.

The I-T department, according to sources, does not rule out the culpability of accounting officials of the firm at this stage, for their deliberate or mistaken oversight in account books which led to the alleged financial irregularities in the Indian arm of the global sports merchandise manufacturer. The taxman is also probing a Rs 135-crores insurance claim that Reebok India had made after its godown in Gurgaon was engulfed in a fire accident last year.

Meanwhile, Reebok India has been booked by the Enforcement Directorate (ED) for alleged Foreign Exchange Management Act (FEMA) violations for running unauthorized retail outlets and breach of export commitments. As per reports, ED has pointed out that Reebok India has failed on several counts in the initial agreement for its operations in India. For one it has failed to export goods worth Rs 8,000 crores in the first 10 years of its operations, as was required by it. And second, it breached the commitment to not import goods that could be manufactured locally and instead imported most of its wares from its manufacturing units based in Southeast Asia. Moreover it violated FEMA guidelines to start a countrywide retail chain.