In one of the biggest tax recoveries to be made from blue-chip companies, the finance ministry has asked Central Board of Direct Taxes (CBDT) to reopen income-tax returns of entities found to have allegedly evaded taxes estimated at over Rs 27,000 crore by wrongly claiming derivative losses.

Sources said the huge tax liability has been estimated just for the two years of financial meltdown during 2008 and 2009. Derivative losses claimed by these entities were to the tune of Rs 50,000 crore. Derivative trading is hedging of foreign exchange against any future risk.

ICICI Bank, Reliance Communications, HCL Technologies, Wipro and Ranbaxy are some of the companies against which highest tax liabilities have been estimated , ranging between Rs 125 crore to Rs 600 crore. During the financial meltdown, these companies had hedged their foreign exchange losses fearing major devaluation of currencies due to volatility in the money market, particularly in dollars.

Reassessment of tax returns of these companies has already begun and all wrongful claims for 2007-08 assessment year would be completed by December. Returns for 2008-09 will be reassessed by next year.

These companies will be asked to deposit the remaining taxes with immediate effect , sources said. CBDT had asked the Directorate General of Income Tax Intelligence to investigate these companies as to how much they had projected derivative losses and claimed benefits even against normal business profits.

According to existing rules, any speculative loss, such as those accrued from derivative trading, can be adjusted against profits within four years as against eight years in normal business profits. The speculative loss can only be adjusted against speculative profits and not against normal business profits.

Indian companies started reporting derivative losses after the Institute of Chartered Accountants of India (ICAI) issued instructions in 2008 to report all derivative losses. This forced companies to declare derivative losses in their profit and loss accounts at the end of the financial year. Till the ICAI instructions , companies declared their losses only when actual realization happened.

The ICAI advisory had sought that company auditors must make such declarations in their P&L account and also in the report made for shareholders. As part of the new accounting norms AS 30, all companies must mark-to-market all derivative outstandings at the close of the financial year.