Delhi High Court reserves verdict on Congress challenge to Rs 105 crore Income Tax notice

The Delhi High Court on Tuesday reserved its judgment on a petition filed by the Indian National Congress against the Income Tax Appellate Tribunal (ITAT) refusing to stay the demand notice seeking recovery of over Rs 105 crore as outstanding tax.

The Division Bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav noted that though the demand was of 2021, a reading of the impugned order showed that Congress did not take the stand of seeking to securitize the demand or even offered to securitize the same.

Calling it a ‘badly handled matter,’ the Apex Court noted that somebody from the Congress office ‘went off to sleep’ right from 2021.

The top court of the country said that it would deliver the verdict on Wednesday.

Appearing for the Income Tax authorities, Advocate Zoheb Hossain submitted that though Congress was offered to pay 20 percent of the demand way back in 2021, the same was not done since then and thus, in such situations, the entire amount becomes recoverable.

He contended that he can show a large number of cases, wherein those who did not pay 20 percent, the IT department recovered 100 percent from them.

He added that the Congress party has 120 bank accounts having more than Rs 1400 crore in them. The Counsel said the political party did not plead, demonstrate or argue financial hardship before the Tribunal.

Appearing for INC, Senior Advocate Vivek Tankha said that as per his instructions, Congress has Rs 300 crore in its bank accounts.

He alleged that every account of the party has been seized, adding that this was done to make it difficult for the national parties to fight the upcoming elections.

Tankha further submitted that the authorities have reopened the assessment of the last 7-8 years and that in such a situation, only constitutional courts could protect the Congress.

The Bench at this point observed that merely because someone chose to wake up in February, will not change the facts.

The Apex Court hinted that it would remand the matter back to ITAT. Tankha then sought directions from the Court that its appeal be disposed of expeditiously by the Tribunal.

Earlier on March 11, the grand old party had approached the High Court against the ITAT order of March 8.

Tankha submitted that Congress’ accounts have been frozen and their stay application was rejected by the Income Tax Appellate Tribunal last week.

The Senior Advocate further argued that it was the peak time for elections and if the party did not have the money, then how would it fight the polls?

He added that earlier, ITAT had protected the party but now that protection was gone.

The Income Tax department had earlier issued notice to Congress for the recovery of Rs 105 crore as outstanding tax for the assessment year 2018-19.

On March 8, ITAT had ruled that the IT authorities did not make any error in denying the income tax exemption claimed by the Congress party.

It also mentioned that Congress was unable to make out a strong prima facie case against such a denial of exemption by the IT authorities. In July 2021, the IT authorities rejected the declaration of nil income by the Congress and demanded more than Rs 105 crores as tax.

It stated that the return had been filed beyond the prescribed time period and the party had received donations of Rs 14,49,000 from various persons, each being in excess of Rs 2,000. This was said to be in violation of Section 13A of the Income Tax Act, which allowed a political party to claim exemption from tax in certain cases.

In February 2024, the Congress claimed that its bank accounts were frozen by the IT Department as cheques being issued by it were not being honoured. The party challenged the IT department’s proceedings before ITAT alleging that recovery proceedings initiated on February 13 were aimed at creating hardships to the party in view of the upcoming parliamentary elections.

The Department of Revenue under the Ministry of Finance informed the ITAT that it had not issued any order or direction to the banks for freezing the transactions related to accounts of Congress, but only for a lien on the amount lying in the bank accounts up to the outstanding tax demand.

The IT authorities had also objected to the motive being attributed to the Assessing Officer and submitted that the proceedings have been pending since July 2021.

ITAT then ruled that Congress was required to furnish its return of income by due date.

The Tribunal noted that the law restricted a political party from receiving donations in excess of Rs 2,000 otherwise than by an account payee cheque or bank draft or through electronic clearing system or through electoral bonds.

It also rejected the argument by Congress that since such individual donations in excess of Rs 2,000 were only 0.1 percent of the total contribution, the same should not invite the wholesale denial of exemption.

ITAT concluded that they did not find the recovery notice under Section 226(3) of the Act issued by the Assessing Officer on February 13, 2024, as lacking in bona fides, so as to require them to intervene.

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