Patni Computer receives Tax Demand from IT department

Patni Computer Systems Ltd has announced that the Company has received an assessment order along with a notice of demand from the Income Tax officer (Technical)-II, Pune, India on December 31, 2006, in connection with the regular assessment of the Company's income tax return for the year ended March 31, 2004. The said assessment order amongst other things primarily disallows a taxable income deduction the Company made under Section 10A of the Income Tax Act, 1961 of India pertaining to the Company's software development units located in Software Technology Parks of India (STPI). Section 10A of the Income Tax Act, 1961 provides a ten-year tax holiday for setting up software development units in STPI. The assessing officer has denied the tax deduction under section 10A, upon the premise that such benefits are inapplicable since the Company is already in the "same business" as the new units. The assessing officer has also stated that the business has been "split" as the company grew over the last several years. The order claims, among other things, that Section 10A benefits are for new "business" undertakings and are available only for "new businesses" and that the same business in new undertakings shall not qualify for such benefits etc and is therefore disallowed under section 10A of Income Tax Act, 1961. Accordingly, the assessment order disallows the Company's claim for deduction under Section 10A, along with other disallowances, and requires the Company to make a payment of Rs 630.16 million (inclusive of interest), or approximately US$ 14.20 million. In the opinion of management, based on legal advice received, the demand referred to in the assessment order is not tenable against the Company and does not require any provision on this account in the Company's financial statements. The Company expects to file an appeal challenging the assessment order before the first appellate authority under the Indian tax laws known as the Commissioner (Appeals), on or before the due date for such appeals of January 30, 2007. Although the Company currently believes it will ultimately prevail in its appeal, the results of such appeal, and any subsequent appeals, cannot be predicted with certainty. Should the Company fail to prevail in its appeal, or any subsequent appeals, in any reporting period, the Company's financial results for such reporting period could be materially adversely affected.

Source : Equity Bulls

Keywords