This is why Cognizant accounts were frozen by Indian taxman in major crackdown

According to Cognizant, it paid all applicable taxes related to its buyback transaction in 2016 and the Indian Income Tax Department's (ITD) position is "contrary to law and without merit".

Cognizant has significant operations in India where the majority of its 260,000 employees reside. Image source: Reuters

Cognizant Technology Solutions Corp, US-based software services firm, is stuck in a tax soup as the Income Tax department has frozen the tech giant's bank accounts and deposits in Chennai and Mumbai for allegedly evading dividend distribution tax (DDT) worth Rs 2,500 crore. The dispute pertains to unpaid dues around share purchases done by its subsidiary, Cognizant Technology Solutions India, which had bought back shares from foreign owners -- Cognizant Mauritius and the US-based parent Cognizant Technology Solutions (CTS).

Cognizant's accounts were frozen a week back and it had approached the High Court against the tax department, according to a news report. "Cognizant's business operations are not affected by the action," the company told IANS. 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 paid all applicable taxes related to its buyback transaction in 2016 and the Indian Income Tax Department's (ITD) position is "contrary to law and without merit".

Cognizant said it will "continue to vigorously defend itself and will pursue all available legal remedies".

In an e-mailed statement, a Cognizant spokesperson said the company's business operations and its work with clients were "not impacted by actions recently attempted by the Income Tax Department".

The spokesperson said the Chennai High Court heard the matter yesterday and has instructed the ITD not to take further action pending hearings.

"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 statement added.