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Tax sleuths on Satyam trail
January, 09th 2009

When it rains, it pours. The Central Board of Direct Taxes (CBDT) has launched an investigation into Satyam Computer Services, joining a  growing list of authorities investigating the company whose fate hangs in the balance following an admission of financial irregularities by its founder-chairman.

The company, which is likely to be issued with a show cause notice by tax authorities, is being investigated by markets regulator Sebi, the registrar of companies and a host of agencies, including the Andhra Pradesh police.

The income-tax office in Hyderabad, where Satyam is based, has sent in a preliminary report on the company which will set the stage for a more detailed investigation, said a finance ministry official, who asked not to be named.

The company, among Indias top five software exporters in terms of revenues, is likely to be issued with a show-cause notice by tax authorities as they look at the returns filed by the company. The investigation could also include verification of tax payments by the company and its actual liabilities.

Authorities are expected to examine the tax benefits enjoyed by the company over the years on its export income. The company is understood to have drawn benefits under Section 80 HHC of the Income Tax Act which was scrapped in 2005 and allowed companies to avoid paying taxes on export income. The company now enjoys tax exemptions available to software exporters under Section 10A or the Software Technology Park Scheme.

The investigation will see as to how much additional tax benefit accrued to the company on account of inflated income from software exports, the finance ministry official said.

Satyams former chairman B Ramalinga Raju admitted to inflating the companys revenues and profits on Wednesday as part of an elaborate deception for years.

Taxation experts said tax authorities could also examine if additional expenses or credits were claimed by Satyam. These expenses will qualify as unaccounted income, making the company liable to a reassessment by tax authorities, the expert said.

Provisions in the income-tax law allow authorities to go back and open assessment of tax returns of up to six years. Tax returns are based on original accounts and once the company restates its accounts, it will have to amend its tax returns as well. However, companies are allowed to amend tax returns of the previous two years.

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