Mphasis gets major reprieve as Income Tax Department halves tax liability to ₹582.7 crore

IT services firm Mphasis Ltd has received significant reprieve from the Income Tax Department, with its tax liability being reduced by over 50%, according to a regulatory filing made on Tuesday.

In a rectification order dated July 7, the jurisdictional Assistant Commissioner of Income Tax (ACIT) reduced the earlier tax demand from ₹1,164.77 crore to ₹582.7 crore. The revised demand was issued under Section 154 of the Income Tax Act, 1961, which allows for corrections of mistakes apparent from the record.

This order comes in response to a rectification application filed by Mphasis, following a previous assessment under Section 143(3) read with Section 144B of the Act, initially communicated to stock exchanges on March 8.

Section 143(3) read with Section 144B of the Income Tax Act refers to a formal process through which the Income Tax Department conducts a detailed assessment of a taxpayer’s return. Under this, the department can scrutinise financial records to ensure the correct amount of income and tax has been reported. Section 143(3) allows the department to verify facts and demand additional tax if discrepancies are found.

Section 144B, introduced to promote transparency, outlines a faceless and fully digital procedure, where notices, replies, and final orders are all processed electronically, thereby removing direct interaction between taxpayers and officers and reducing the potential for bias or harassment. Together, these sections are meant to ensure compliance while modernising tax administration.

“The company has received substantial relief…and is contesting the reduced demand before appellate authorities with expectations of further relief,” Mphasis said in its disclosure to the BSE and NSE.

The company has not disclosed any material impact of this development on its financial position, nor is there any ongoing litigation involving key management or promoters concerning this tax matter. Mphasis continues to engage with tax authorities and pursue remedies under the due legal process.

In March, Mphasis informed the exchanges that it had received a tax demand totalling ₹1,164.77 crore for the Assessment Year 2022–23, arising from scrutiny assessments initiated by the Income Tax Department. The demand was primarily based on additions to the company’s taxable income related to ESOP-related expenses and subcontractor expenses paid to overseas associated enterprises without TDS deductions.

At the time, the company had emphasised that these claims were not maintainable and cited favourable precedents in earlier years. Mphasis also flagged computational infirmities in the assessment and indicated it would pursue legal remedies, including rectification and appeals.

Mphasis shares closed 1.78% lower at ₹2,857.80 on Wednesday.