I-T Dept Freezes Bank Accounts of Cognizant; Operations Not Impacted, Says IT Major

Chennai: The Income Tax Department has frozen bank several accounts of software services company Cognizant in Mumbai and Chennai for alleged evasion of Dividend Distribution Tax (DDT). However, the firm has said that its operations were not affected by the action.

The I-T department’s action comes after a tax evasion notice was sent to the India unit of Cognizant alleging tax evasion of around Rs 2,500 crore.

I-T department has declared that while the company distributed dividends to its parent company from 2013 to 2016, it did not pay taxes on this distributed income. Dividend distribution tax is levied at 20%, which adds up to Rs 2,500 crore in Cognizant’s case.

A company official also said that the Madras High Court had instructed the tax department not to take further action pending further hearings. According to Cognizant, it has paid all applicable taxes.

“The I-T department took action to recover the unpaid DDT and has attached its bank accounts and deposits in excess of Rs 2,500 crore in Chennai and Mumbai. It is learnt that Cognizant Technology Solutions (CTS) has moved High Court against the attachment proceedings. Apart from this, the Income Tax department found that CTS has made illegal payments through an Indian company for setting up its offices and claimed as expenses in returns of income for financial years 2013-14, 2014-15 and 2015-16,” said the department’s report.

One of India’s biggest IT firm, CTS has also been alleged of purchasing its own shares from shareholders in May 2016 under the scheme of “arrangement and compromise”.
The shareholders are a Mauritius-based company and a US-based firm holding 54 percent and 46 percent of shares in the Indian entity respectively.
While Cognizant did not deduct tax on remittance made to the Mauritius company it deducted 10 percent TDS on remittances to the US company. Both these transactions attract a tax of 20%.

Furthermore, official sources told News18 that CTS’s parent company in the USA had been notified of alleged illegal payments in the US Justice Department and that the Indian subsidiary acted in a way that violated US law. The case pertains to illegal payments by CTS to an Indian company during the financial years 2013-14, 2014-15 and 2015-16. The I-T department will be filing complaints regarding the same with Economic Offenses Court in Egmore.

“Cognizant’s business operations, our associates and our work with clients are not impacted by actions recently attempted by the I-T Department. The High Court this morning heard the matter and instructed the department to not take further action pending further hearings before the court. The company believes that the positions taken by the department are contrary to law and without merit. Cognizant has paid all applicable taxes due on the transaction at issue. The company will continue to vigorously defend itself and will pursue all available legal remedies. Cognizant is committed to complying with the law in all jurisdictions where it operates,” an official spokesperson of CTS told News18.

CTS is estimated to be worth $15 billion and has more than 2 lakh employees in India.