With the Central Board of Direct Taxes (CBDT) refusing its plea on tax arrears, Mahindra Satyam has moved the Andhra Pradesh High Court, challenging the Board's directive to pay Rs 616 crore in tax arrears for the questionable period of 2002-2008 when its former Chairman, Mr B. Ramalinga Raju, fudged financial numbers and led it into a deep crisis.

“It is not a fair demand. The company cannot pay tax on an income that never existed,” said Mr Vineet Nayyar, Chairman of Mahindra Satyam.

Though the scrip had taken a beating initially on the BSE after the news, Mahindra Satyam's shares closed at Rs 67.20 slightly higher than yesterday's close of Rs 67.05. The IT services company, which also sought stay of the proceedings initiated by the IT Department to recover the amount, said the Department, instead, should refund Rs 200 crore the company paid in excess of the actual tax demand.

The company had appealed to CBDT, seeking relief from re-opening of past assessments for the assessment years 2003-04 to 2008-09. “The Board had turned down our plea and we have moved the High Court on Tuesday,” Mr Nayyar said.

“Mr Ramalinga Raju had taken foreign tax credits to the tune of Rs 345 crore. It was found out to be fudged. Now, we are asked to pay Rs 616 crore including the interests on the tax liability,” said Mr Vineet Nayyar.

The question of foreign tax credits would not arise as it was based on fraudulent figure. Demanding a refund of Rs 200 crore taxes paid in excess, he termed it a curious situation. When the Central Bureau of Investigation (CBI) and the Serious Frauds Investigation Office (SFIO) accepted that the company had paid excess taxes, the IT Department was asking for Rs 616 crore.

Defending his case, he said the Union Government had submitted an affidavit in the Company Law Board, as it stepped in to bail out Satyam Computer Services from sinking, and agreed that Satyam would be allowed to restate its accounts in relaxation of rules. While acknowledging that the financial statement of a company could not be altered one year after it was approved by the annual general meeting, Mr Nayyar said he was relying on Section 119 C that said that CBDT could relax rules when a company faced an unprecedented hardship.

Mr P.K. Agarwal of equity research firm Purple Line Investment Advisors felt that there could be little impact of the development on share price. “The market has already taken this in stride. On the face of it, the company has a point. There cannot be a tax where there is no income,” he said.

He, however, said that not all information was available in public domain. Documents that found the revenues fudged and inflated were not accessible for review.

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