Income tax officials have shown up at Morris Garages (MG) Motor India's manufacturing facility in Halol, Gujarat, and its corporate headquarters in Gurugram, sources aware of the development tell Fortune India. The officials have also seized laptops belonging to directors in Halol. The development comes in light of increased scrutiny by regulators and law-enforcement agencies of companies operating in India with Chinese links. MG Motor is owned by Shanghai Automotive Industry Corporation Motor Corporation Limited (SAIC Motor Corp. Limited), a Chinese state-owned automobile manufacturer.

Neither MG Motor India nor the Income Tax Department has issued a statement regarding the matter. Previously, the ministry of corporate affairs (MCA) reportedly sought an inquiry against MG Motor India after certain irregularities were found in its books. Via the registrar of companies (RoC), the MCA also summoned MG Motor India's directors and its auditor Deloitte, to seek clarifications. The company was under the MCA's radar on various aspects—including alleged tax evasion, irregularities in invoicing, and shady related-party transactions.

"We have been sent a notice seeking clarifications primarily on why we have operational losses basis our annual report for the first year of operations 2019-2020. MG Motor India is a law-abiding, professionally managed company that adheres to the highest standards of compliance and governance and is committed to transparency," the carmaker, at the time, had said in a statement. According to the carmaker, it is fully cooperating with law-enforcement agencies, and was in the process of furnishing the "desired records and information" to the RoC within the stipulated deadline.

The carmaker had also defended the operational losses that it had reported in its annual report. "It is impossible for any automobile company to be profitable in the very first year of its operations. This is because of the huge capex investment required and the long gestation period in a highly competitive market such as India where many multinationals have struggled for decades and have accumulated losses," the carmaker explained in the statement.

MG Motors is the latest company that is being probed by law-enforcement agencies over allegations of money laundering and tax evasion. An estimate pegs the number of Chinese companies operating in India that are under the radar between 400 and 500. The regulatory clampdown has been the stringent on Chinese smartphone makers Xiaomi Corp, Oppo, and VIVO Mobile Communications—with the Enforcement Directorate (ED) launching separate investigations on illegal remittances.

On April 30, the ED seized ₹5,551.27 crore, which was deposited in the bank accounts of Xiaomi Technology India Pvt Ltd. On July 5, it conducted raids across 48 locations in India over alleged money laundering by Vivo and 23 related firms, including Grand Prospect International Communication Pvt. Ltd. (GPICPL). It alleged that Vivo India remitted ₹62,476 crore – almost 50% of its turnover of ₹1,25,185 crore – out of India, mainly to China. It further noted that the remittances in contention were allegedly made in order to disclose huge losses in Indian incorporated companies to avoid payment of taxes, as mandated by the law. Around the same time, the directorate of revenue intelligence (DRI) under the Finance Ministry, also detected evasion of customs duty to the tune of ₹4,389 crore by Oppo Mobiles India Private Ltd.

MG Motor income tax

IT officials show up at MG Motor's plant in Halol, HQ in Gurugram; seize laptops