Federal tax sleuths were back-pedalling furiously on Tuesday after being accused by coffee retailing tycoon V.G. Siddhartha of hounding him to a point where he found himself trapped in a “serious liquidity crunch”.

The income-tax department, which impounded 2.5 crore shares of Siddhartha’s company Coffee Day Enterprises in March against a total unpaid tax liability of Rs 650 crore, claimed that it had acted only “to protect the interests of revenue”.

The shares were impounded based on the assessee’s admission of unaccounted income and “credible evidence gathered in search action”.

In a letter released soon after the mysterious disappearance of Siddhartha late on Monday night, the IT department said it started its investigation as a result of its probe into the deals of a “prominent political leader of Karnataka”.

The department clearly went into a tizzy after it emerged that Siddhartha had written a letter to the board of his company two days before his disappearance in which he had accused the tax sleuths of harassment.

The department started off by questioning the authenticity of Siddhartha’s letter, claiming that his signature did not tally with that “available in his annual reports”. The tax department claimed that Siddhartha had admitted that he possessed unaccounted income of Rs 362.11 crore and that his company, Coffee Day Enterprises, had undisclosed income of Rs 118.02 crore.

The letter said he had made this admission in a sworn statement but then chose not to reflect this unaccounted income in his revised tax returns. The IT department said Siddhartha had only disclosed a sum of Rs 35 crore in his revised tax return.

“One of the group companies, Coffee Day Global, has not paid the self-assessment tax of Rs 14.5 crore on the returned income. Coffee Day Enterprises did not offer the admitted income in its part,” the letter added.

The tax department said it had first confiscated 74.9 lakh shares in Mindtree that Siddhartha and Coffee Day Enterprises held when it learnt in January that he was looking to sell his stake to L&T for around Rs 3,000 crore.

The IT department said it had impounded only a part of the 2.29 crore shares that Siddhartha and his entities held in Mindtree. On March 13, the tax department released the Mindtree shares at Siddhartha’s request but confiscated around 250 crore shares in Coffee Day Enterprises.

Siddhartha and his entities hold 11.39 crore shares in Coffee Day Enterprises, an almost 54 per cent stake. However, 8.62 crore shares are pledged with lenders.

The tax department said out of the tax liability of Rs 650 crore, a sum of Rs 250 crore related to the estimated minimum alternate tax (MAT) liability of Coffee Day Enterprises and another Rs 400 crore related to its “search findings”.

Meanwhile, the Enforcement Directorate — which investigates cases arising from contraventions of forex regulations, money laundering and fugitive economic offenders — said its investigation against Siddhartha “was not very serious and detailed”.