IT department freezes Cognizant's bank accounts for alleged tax evasion: Report

Cognizant's net profit declined 29 percent to $361 million in the June quarter due to COVID-19 pandemic (Image Courtesy: Wikimedia Commons)

The Income Tax (IT) department has frozen the bank accounts and deposits of US-based tech giant Cognizant, on grounds that the firm evaded dividend distribution tax (DDT), reported The Economic Times.

The IT department had sent a notice to the the India unit of Cognizant for evading tax to the tune of Rs 2,500 crore. The company is believed to have not paid 20 percent DDT on dividend paid to its parent company in FY17, an Income Tax official told the paper.

"Income Tax Act requires Dividend Distribution Tax on any distribution, on reduction of capital, to the extent accumulated profits defined as dividends... CTS was required to pay DDT of more than Rs 2500 crore in FY2016-17 itself but failed to pay," the official was quoted as saying.

The company's accounts were frozen around a week ago.

“Cognizant’s business operations, our associates and our work with clients are not impacted by actions recently attempted by the Income Tax Department,” said a Cognizant spokesperson.

"The High Court of Chennai this morning heard the matter and instructed the Income Tax Department to not take further action pending further hearings before the court. The company believes that the positions taken by the Indian Income Tax 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," the spokesperson said.