HYDERABAD: In a significant relief for Tech Mahindra, the Telangana High Court on Friday directed the Income Tax department to re-quantify the company’s income based on revised financial statements, which exclude fictitious income reported as part of the infamous “Satyam scam.”
A bench of Justices P Sam Koshy and N Tukaramji delivered the landmark judgment—allowing the writ petitions filed by the IT major, seeking a fresh assessment of income for the assessment years 2002-03 to 2008-09—after a prolonged 14-year hearing.
The case stems from Tech Mahindra’s acquisition of the scam-hit Satyam Computer Services Ltd in 2009, following the disclosure by former chairman and managing director Ramalinga Raju that Satyam’s accounts had been fraudulently inflated.
Raju had inflated the company’s revenue with fake numbers and stated in his resignation letter that he was “riding on a tiger,” saying, “I don’t know how to get off without it devouring me.”
The Serious Fraud Investigation Office (SFIO), Central Bureau of Investigation (CBI), and Law Board have been investigating the false revenue for the assessment years 2009-2010 and 2010-2011. However, the Income Tax department sought to impose a tax of Rs 2,000 crore by reopening assessments and withdrawing the company’s deductions, despite confirmation from the CBI, SFIO, and the High Court that the company had paid excess tax of around Rs 126 crore. In 2011, Tech Mahindra (formerly known as Satyam Computer Services Ltd.) filed a writ petition challenging the Income Tax department’s refusal to accept revised financial statements, which reflected the removal of fictitious income.
The company sought to quash the Central Board of Direct Taxes’ order dated July 11, 2011, calling it arbitrary, illegal, and in violation of Section 119 of the Income Tax Act, 1961, as well as Articles 14, 19(1)(g), 265, and 300A of the Constitution.
The petition specifically sought to have the assessment orders for the assessment years 2003-04 to 2006-07 declared to be void ab initio and requested a fresh assessment for the assessment years 2003-04 to 2008-09 based on the restated accounts.
Senior counsels appearing for Tech Mahindra argued that the Income Tax department’s actions penalised the company despite its efforts to rescue Satyam from financial ruin and safeguard thousands of employees and customers. They contended that Tech Mahindra should not bear the burden of taxes paid on fictitious income fabricated by the former Satyam leadership.
After a 14-year hearing, the High Court finally ruled in favour of Tech Mahindra, declaring that the assessment orders were illegal and in violation of Article 265 of the Constitution. The court directed the Income Tax department to accept Tech Mahindra’s revised returns based on the audited financials and conduct a fresh assessment, excluding fictitious income from the computation.