IT consulting and outsourcing company, Mahindra Satyam, is poised to wage a legal battle against the income tax (I-T) department, which served draft notices on the company demanding payment of Rs 1,037.69 crore and Rs 1,075.73 crore for the 2002-03 and 2007-08 assessment years respectively, said a top official of the company.

“Taking a legal course of action is definitely on the cards. It is only a draft notice and we are yet to completely study it. It will take some more time for us to decide on whether to knock the doors of the Andhra Pradesh High Court or the apex court,” the official told Business Standard, requesting anonymity.

Mahindra Satyam, on Monday, received draft orders from the I-T department, which proposed disallowance of tax exemptions and deductions claimed by the city-based company.

“It (draft notice), however, does not exclude fictitious income wrongly offered to tax by the earlier management. The existence of fictitious sales and fictitious interest has even been confirmed by other central agencies,” the company had said in a filing to the BSE yesterday.

When asked about the company’s current cash reserves and the bank guarantees that it has to furnish for contesting the fresh notice, the official declined to comment.

Under the directive of the Supreme Court, Mahindra Satyam deposited a bank guarantee of Rs 617 crore to the department against its notice early this year. The company has already challenged in the AP high court the I-T department’s decision to call for a special audit of accounts between 2001 and 2007.

A division bench of the high court, on August 16, 2011, reserved its judgement on the writ petition filed by the company until a later time.

Mahindra Satyam's scrip nosedived 2.73 per cent to Rs 65.85 on the BSE on Tuesday, over the previous close of Rs 67.7.(Business Standard)