Hyderabad: Software services provider Mahindra Satyam on Friday said it has received a provisional order from the income-tax (I-T) department attaching its properties in a Rs617 crore tax case.
The company informed the Bombay Stock Exchange that it had received the 30 January order on Thursday from the office of the additional commissioner of income tax, Hyderabad, attaching its land and buildings.
The I-T department, in its order, sought to attach Mahindra Info City, the corporate headquarters of the company in Madhapur, the information technology hub of the city, a senior executive of the company said over the phone on condition of anonymity.
Tax trouble: The I-T department has sought to attach Mahindra Info City, the company’s corporate headquarters in Madhapur, Hyderabad.
The case pertains to certain foreign tax credits amounting to Rs345 crore the company claimed under its former management during the fiscal years 2003-2008, the period an accounting fraud took place when B. Ramalinga Raju was chairman. The amount had grown to Rs616.54 crore since then with the addition of interest. Mahindra Satyam has maintained that the demand is untenable on the grounds that income during the fraud years was fictitious and, hence, no tax was payable.
The Hyderabad-based information technology consulting and outsourcing company that trades under the name Satyam Computer Services Ltd was hit by scandal in January 2009 when founder Raju confessed to misstating accounts to the tune of Rs7,136 crore over a period of several years. Satyam Computer was subsequently taken over by the Mahindra Group’s Tech Mahindra Ltd in April 2009 in an auction process overseen by the government.
Following a notice from the Central Board of Direct Taxes (CBDT) in March last year, Mahindra Satyam contested the claims by approaching the courts. On the Supreme Court’s orders, it deposited a bank guarantee of Rs617 crore in an escrow account in April that was valid until 31 December. When the I-T department sought to encash the bank guarantee, the firm moved the Andhra Pradesh high court and obtained an interim relief when the court stayed the tax department’s moves on 31 January. It also ordered a status quo on the assessment proceedings.
The provisional attachment order of the I-T department was dated a day before the high court’s order.
A Mahindra Satyam spokesperson said the company will take “appropriate action” after consulting its lawyers. “We are talking to our lawyers. We are awaiting the final order from the income-tax department,” he said.
The company can challenge the order, said Mumbai-based corporate tax lawyer H.P. Ranina. He said that while it is normal practice to attach the bank accounts of defaulters, the move to attach fixed assets of a company was surprising.
“By attaching the land and buildings, they can’t do anything. They need cash,” he said. “It makes no difference for Mahindra Satyam. It won’t affect their business. If they (I-T department) attach a bank account, then it may affect their operations, payment of salaries to their employees, etc.”
The latest move was disappointing, said the executive cited above.
“An organization that has turned around its performance after a crisis is being hounded by the same government,” he said.
Satyam Computer’s stock fell 0.54% to Rs73.95 on a day the benchmark Sensex rose 0.99% to close at 17,604.96 points.
Hansa Krishnamurthy Iyengar, a senior analyst with market research and advisory services firm Ovum, said the move by the tax department would be “more like a hiccup than a major hurdle in growth”.
“The company’s spokespeople say that the I-T department’s order is just a provisional order, while the AP high court has advised both parties to maintain status quo till further notice. Hence, there is not much to read into here. Also, if indeed the company has to pay the dues, they would take a hit on their bottom line and write it off as a one-time expense,” she said.