I-T dept to expand tax evasion probe

The Income Tax department is likely to include eight other related firms for its investigation into the possible tax evasion by Satyam.

Further, the department is planning to consolidate its investigation of all the companies (Satyam and related companies) under one investigating officer for better coordination.

"The department could centralise all work with one investigating officer or assessing officer to ensure coordinated investigation and uniformity in action," said a finance ministry official. If there is a prima facie case that Satyam has evaded taxes by siphoning of funds to other related companies and by claiming higher exemptions through inflated export income, the department may reassess the income tax liability of the company for the last six years.

These companies are - Maytas Properties, Maytas Infrastructure, Satyam BPO, Nipuna Services, Knowledge Dynamics, Nitor Global Solutions, CA Satyam AS and Satyam Venture Engineering Services.

The tax department is likely to probe whether funds have been diverted to other group companies or taken out of the system. This aspect would also throw some light on suspicion that funds have been siphoned off to group companies or companies associated with former Satyam chairman B Ramalinga Raju and later shown as inflated balance sheet to cover up the mess, a top official said.

The Hyderabad branch of the income tax department has already submitted a primary report to the Central Board of Direct Taxes, which administers and collects all direct taxes in the country.

Raju, in a fax sent to market regulator and stock exchanges on Wednesday, admitted that he had inflated Satyam's revenues and profit figures for years. The Income Tax department is likely to investigate the inflated income theory and determine the modus operandi.

Satyam enjoys tax exemption on its export income under the Software Technology Park scheme (Section 10A of the Income Tax Act, 1961). The department will also investigate the additional tax exemption taken by the company through inflated income figures on its software export income.

However, the tax department is faced with a dilemma also. As the company has disclosed that its profit was inflated, it is possible that it had paid higher taxes. In that case, the department may have to refund taxes.

To be on a safer side, the department may tread cautiously and first study the book of accounts of the firm and its associate firms, before initiating reassessment. However, the tax department may issue show cause notice to seek additional information on their balance sheet.

"It is difficult to understand how the scam escaped from the notice of three auditors - internal auditor, auditor as per company law and auditor for tax purposes," the official said.