By Aditya Kalra and Abhirup Roy
NEW DELHI (Reuters) - Indian authorities have blocked at least two of ByteDance's bank accounts for alleged tax evasion, prompting it to ask a court to quash the directive that it fears will hit its operations, two sources with direct knowledge told Reuters.
ByteDance in January cut its Indian workforce after New Delhi decided to retain a ban on its popular video app TikTok, first prohibited last year following a border clash between India and China.
China has repeatedly criticised India's move and said it suspected it was against WTO rules.
ByteDance, which issued a statement contesting the Indian decision, has around 1,300 employees in India, most of whom service its overseas operations, including work on activities, such as content moderation.
In mid-March, authorities ordered two of ByteDance India's bank accounts in Citibank and HSBC to be blocked because of alleged evasion of certain taxes in online advertising dealings between the ByteDance unit in India and its parent entity in Singapore, TikTok Pte Ltd, the two sources said.
The authorities also directed Citibank and HSBC to prevent ByteDance India from withdrawing funds from any other bank accounts linked to its tax identification number, the first source said.
In a court filing, which is likely to be heard this week at a High Court in the financial capital Mumbai, ByteDance India has said that although it had only about $10 million in its accounts, the blocking decision was an abuse of the legal process and would make it hard for it to pay salaries and taxes, the source added.
Both the sources declined to be identified as the details of the bank freeze and company's court challenge were not public.
ByteDance said "we disagree with the decision of the tax authority" in this matter, adding that it was committed to legal compliance and will cooperate with the government.
Citibank and HSBC declined to comment, while the finance ministry, did not respond to a request for comment.
The TikTok app ban was imposed when India banned dozens of Chinese apps last year saying it was in the interest of national security and sovereignty.
The move was widely linked to India's broader pushback against Chinese businesses after clashes at a disputed Himalayan border site left 20 Indian soldiers dead.
The directive to freeze ByteDance India's bank accounts came after tax authorities last year inspected documents at the company's office, scrutinised documents and questioned some executives in relation to the advertising and other transactions with its parent entity, the first source said.
BUSINESS AT A STANDSTILL
In its court document, which the source was privy to, ByteDance India has said its entire business had come to a standstill because of the bank freeze and that such an action violates its rights "to carry free trade and business".
"The company was already struggling with the India ban. This can hit employee salaries, vendor payments," the second source said.
TikTok had come under scrutiny around the world. During former U.S. president Donald Trump's administration, which alleged that the app posed national security concerns as personal data of U.S. users could be obtained by China's government, an allegation the company denied.
U.S. President Joe Biden's new administration has paused a government lawsuit that could have resulted in a de facto ban on TikTok's use in the United States.