Tax Tribunal Rejects Congress’ Appeal, Upholds Rs.199 Crore Tax Demand for FY18

New Delhi: In a major blow to the Congress party, the Income Tax Appellate Tribunal (ITAT) has dismissed its appeal against a tax demand of over Rs.199 crore for the financial year 2017-18.

The party had claimed exemption under Section 13A of the Income Tax Act, stating that the amount in question was received through donations.

However, the tribunal upheld the tax authorities’ view that the exemption claim was not maintainable due to procedural violations.The Congress party filed its income tax return on 2 February 2019, well past the extended deadline of 31 December 2018 for Assessment Year 2018-19. While it declared nil income, it sought a Rs.199.15 crore exemption under Section 13A.

However, as per Section 139(4B), political parties must file returns within the due date under Section 139(1) to avail such exemptions.

During scrutiny, the Income Tax Department found that the party had accepted cash donations amounting to Rs.14.49 lakh, with individual donations exceeding Rs. 2,000, a direct violation of Section 13A(d), which, post the Finance Act 2017, requires political parties to receive donations only through banking channels.Despite reporting Rs.197.43 crore in expenses against total receipts of Rs.199.15 crore, resulting in a surplus of Rs.1.71 crore, the assessing officer in July 2021 denied the exemption and treated the entire amount as taxable. This was upheld by the Commissioner of Income Tax (Appeals) in March 2023.

Congress had approached the ITAT seeking relief, but the tribunal rejected its plea, reiterating that exemption provisions for political parties must be interpreted strictly. It also rejected the party’s argument that late filing under Section 139(4) should be considered valid. The tribunal cited a 2016 Delhi High Court ruling against Congress on similar grounds to deny its alternative prayer for deducting expenses from gross receipts.

The ruling has intensified scrutiny over political funding and compliance, dealing a legal and financial setback to the opposition party ahead of upcoming state elections.