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Cairn Energy says contacted by Indian tax authority

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LONDON, Jan 24 (Reuters) - British explorer Cairn Energy (LSE: CNE.L - news) said it had been contacted by India's tax authorities to discuss income tax assessments dating back about seven years, becoming the latest foreign firm to be embroiled in India's tax crackdown.

India has stepped up its efforts to enforce tax collection to remedy its budget deficit. Other companies recently involved in tax disputes in India include Vodafone, IBM (NYSE: IBM - news) , Royal Dutch Shell (Xetra: R6C1.DE - news) and LG Electronics (KSE: 066570.KS - news) .

Cairn said the assessments were for the year ended Mar. 31, 2007, and it was cooperating to provide the necessary information and would update the market in due course.

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It said while talks were ongoing, it had been instructed by the income tax department to keep hold of its shares in Cairn India. Cairn Energy holds a 10.3 percent stake in Cairn India, which is now majority owned by mining conglomerate Vedanta Resources (Other OTC: VDNRF - news) .

Shares in Cairn Energy opened 3.9 percent lower but recovered to trade down 2.5 percent at 255.5 pence by 0813 GMT.

In 2006, Cairn Energy spun off its Indian oil and gas operations into Cairn India and listed the unit a year later, in a flotation that raised $1.18 billion, making it at the time the largest initial public offering in Indian corporate history. (Reporting by Brenda Goh; Editing by James Davey and David Holmes)