Tax trauma for Satyam again

On Monday, Mahindra Satyam — the entity that emerged from the ashes of India’s biggest accounting fraud — said it had received a tax demand of Rs 2,113.42 crore for two assessment years 2002-03 and 2007-08 — which roughly cover the period during which rogue industrialist B. Ramalinga Raju had fiddled the accounts of the software exporter. Last September, Mahindra Satyam had come out with restated accounts for the period that estimated the total financial irregularities committed by Raju and his cohorts since 2002 at Rs 7,934.9 crore. The forensic audit revealed that the accounting fudge between April 1, 2002 and September 30, 2008 — the last date up to which the company had published its financial results — amounted to Rs 6,763.1 crore, surprisingly close to Raju’s claim that he had padded the accounts by Rs 7,000 crore. The tax demand has come from the additional commissioner of income tax. He is seeking Rs 1,037.69 crore for the assessment year 2002-03 and Rs 1,075.73 crore for 2007-08. In a notice to the stock exchanges today, the company said the draft of the proposed assessment orders proposed disallowance of certain tax exemptions /deductions claimed by the company. It was not immediately clear whether these related to the tax breaks that the government had granted software exporters housed in the so-called software technology parks. The STP tax benefit has been withdrawn from the current financial year. Mahindra Satyam has been contesting the reopening of tax assessment for assessment year 2002-03 and had even filed a writ petition in this connection before the high court of Andhra Pradesh. The company has been seeking court direction that any fresh assessment should be carried out only after stripping out the fictitious sales figures and fictitious interest that Raju claimed he had earned in a desperate attempt to paper over the huge accounting gaps in the software exporter’s books. The latest tax demand “does not exclude the fictitious income wrongly offered to tax by the earlier management”, the company said. Mahindra Satyam said the petitions were still pending before the high court. It added that even the government agencies had confirmed the “existence of fictitious sales and fictitious interest”. On December 28 last year, the income-tax authorities had ordered a special audit at Satyam Computer Services for the years 2002-03 and 2007-08. The company was ordered to get its accounts audited for this period under Section 142 (2A) of the Income-Tax Act. Sub-section 2A of Section 142 confers power on the assessing officer to order a special audit. The tax demand from the IT authorities flows from the December directive.