The income-tax department appears to have turned a blind eye seven years ago to diversion of funds from Satyam to members of the Raju family. A deputy director of investigation in IT found fixed deposits worth Rs 19.5 crore in banks on which tax had not been deducted at source.

The fixed deposit accounts were in the names of various family members of chairman Ramalinga Raju including his mother B Appalanarsamma, father Satyanarayana Raju and other relatives.

The IT department started a probe when it found a large number of form 15H (wherein senior citizens seek exemption from TDS) filings that were associated with accounts without proper documentation, according to an IT report submitted in 2002.

The Times of India in its edition of January 15 had reported that the authorities were taking a another look at the 2002 investigation report against the promoters of Satyam, which had unearthed more than 50 bank accounts in the names of Raju's family members and alleged fronts.

The officer who was carrying out the investigation had found that the funds had originated from Satyam and reached the banks through layers of transactions.

Instead of nailing the Raju camp which was involved in this embezzlement, the IT department transferred the officer, Siripurapu Padmaja, and asked her replacement to produce another report. But even the report of the second officer, Bhaskar Goswami, which was described as a supplementary one, supported Padmaja's findings.

By this time Raju's men, having got wind of the investigation, approached the IT department and offered to pay tax on the FDs, which they were allowed to do. There was no effort to involve the economic intelligence agencies, Sebi, RoC or the department of company affairs in what was a more serious crime than income-tax evasion.

"Raju was too big a guy in 2002. He was the face of a new emerging Hyderabad. The then AP chief minister Chandrababu Naidu had put him on the same dais along with President Clinton even as heads of top industry houses sat in the the audience. Who could have pointed a finger at him then?" said an IT official.

When this correspondent spoke to A K Basu, who was then director of investigation (and is now a chief commissioner), his response was, "It's so long ago...Now the matter is being looked at at the level of Delhi...It would be inappropriate for me to comment."

P A Chowdhury, then director general of investigation and now an insurance ombudsman after retirement said, "I won't be able to tell you what we did with the report. That's confidential."