ITAT rejects Congress appeal against ₹199 crore tax assessment

The Income Tax Appellate Tribunal (ITAT) on Monday dismissed an appeal by the Indian National Congress against a tax demand of ₹199.15 crore for the assessment year 2018-19.

The Appellate Tribunal rejected the party's claim for tax exemption under Section 13A due to late return filing and violations of cash donation limits, establishing strict compliance requirements for political parties seeking tax benefits.

"The assessee's return filed on 02.02.2019 is not within the 'due' date to make it eligible for the impugned exemption," ruled the coram of Judicial Member Satbeer Singh Godara and Accountant Member M Balaganesh.

The Congress party had filed its income tax return on February 2, 2019, declaring nil income after claiming Section 13A exemption of ₹199.15 crore. However, this was filed after the extended due date of December 31, 2018, prescribed under Section 139 of the Income Tax Act for the assessment year 2018-19.

During scrutiny proceedings initiated in September 2019, the Assessing Officer discovered that the party had received ₹14.49 lakh in cash donations exceeding ₹2,000 from various individuals. Section 13A(d), inserted by Finance Act 2017, mandates that political parties receive donations above ₹2,000 only through banking channels like account payee cheques or electronic transfers.

The party's total receipts for the year were ₹199.15 crore against expenses of ₹197.43 crore, showing a surplus of only ₹1.71 crore. However, the assessment order dated July 6, 2021 denied the entire exemption claim, making the full receipt amount taxable.

The Commissioner of Income Tax (Appeals) upheld this decision on March 28, 2023, prompting the party to approach the Appellate Tribunal. In 2024, ITAT dismissed Congress' plea for interim relief.

In its latest order, the ITAT emphasised strict interpretation of exemption provisions in tax law.

"Even section 139(4B) has stipulated filing of return within the 'due' date i.e. required to be furnished u/s 139(1), we are of the considered view that the above former clause in fact restricts any further liberalism herein."

The Congress had argued that Section 139(4) allows belated return filing before the end of the assessment year, similar to charitable trusts under Section 12A. However, the Appellate Tribunal distinguished between the two provisions, noting that "the legislature has incorporated the statutory expression therein as 'within the time allowed under that section' i.e. section 139(1) as well as u/s 139(4) than section 13A 3rd proviso."

On the cash donation issue, it found clear violations of statutory requirements. The assessment revealed cash donations totaling ₹14.49 lakh exceeding the ₹2,000 limit.

"As per section 13A(d) of the Act, donation in excess of Rs. 2,000/- is mandatorily be received through a/c payee cheque/draft or through electronic mode and therefore donation in excess of Rs. 2,000/- received in cash violates provisions of clause (d) of first proviso to section 13A of the Act," the order stated.

The ITAT rejected the party's alternative plea for allowing expense deductions from gross receipts. Referencing a 2016 Delhi High Court precedent in the Congress party's own case, it concluded:

"We thus conclude that given the fact that the assessee has been held to have violated section 13A 3rd proviso in not filing its return within the prescribed 'due' date, its impugned netting claim also deserves to be declined in very terms...the assessee's impugned netting claim also deserves to be declined in very terms. Ordered accordingly."

The Congress party was represented by Senior Advocate PC Sen and Advocates Prasanna and N Bhalla.

The IT department was represented by Advocates Zoheb Hossain, Vipul Agrawal and Sanjeev Menon.

[Read Judgment]