Income Tax Appellate Tribunal rejects Congress party’s plea seeking tax exemption on Rs 199 crore income: Here’s what the tribunal said

In a major blow to the Congress party, the Income Tax Appellate Tribunal (ITAT), dismissed the party’s plea seeking income tax exemption for the income of ₹199.15 crore during the assessment year 2018-19 on 21^st July 2025.

The ITAT denied Congress’s claim for exemption, citing a violation of the conditions in Section 13A of the Income Tax Act.  The Appellate Tribunal noted that the returns were filed late, in addition, there was a violation of cash donation limits.

Notably, Section 13A of the Income Tax Act establishes stringent compliance requirements for political parties seeking tax benefits. However, a political party has to follow certain criteria to avail of the tax exemption.

These conditions include –the political party must maintain proper books of account and documents to allow the tax authority to accurately determine its income. For voluntary contributions exceeding Rs. 20,000, the party must keep records of the contribution along with the donor’s name and address. Donations exceeding Rs. 2,000 should be received only through specific banking methods, such as account payee cheques, bank drafts, or electronic clearing systems. If the treasurer or authorised person fails to submit a report under the Representation of the People Act, the exemption won’t be available for that financial year. The political party must file a return of income for the previous year within the prescribed deadline.

The ITAT panel comprising Judicial Member Satbeer Singh Godara and Accountant Member M Balaganesh ruled: “The assessee’s return filed on 02.02.2019 is not within the ‘due’ date to make it eligible for the impugned exemption.”

The tribunal stressed the strict implementation of tax exemption provisions in the law and said, “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.”

Notably, the Congress party had contended that Section 139(4) allows belated return filing before the end of the assessment year, similar to charitable trusts under Section 12A.

The ITAT, however, differentiated between the two provisions and told the appellant 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.”

“We thus conclude that the assessee’s return filed on 02.02.2019 is not within the ‘due’ date to make it eligible for the impugned exemption,” the ITAT order reads.

Meanwhile, the appellate tribunal also found the Congress party in violation of statutory requirements pertaining to cash donation limits, stating that the assessment found cash donations totalling ₹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 reads.

Regarding whether the assessee’s impugned section 13A exemption claim violates clauses (b) and (d) of the 1st proviso, the Appellate Tribunal held that “given the fact we have already held its above return filed on 02.02.2019 as a time-barred one, the same stands rendered academic. Rejected Accordingly.”

Further rejecting the alternate plea expense deductions from gross receipts the court referenced a 2016 Delhi High Court precedent in the Congress party’s own case and said, “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.”

IT Department’s notices, raids and shocking discoveries regarding Congress’s outstanding tax payments and the party’s victimhood narrative

Earlier, the Income Tax Department had sent multiple notices to the Congress party, raising demands for outstanding payments totalling over Rs 3,500 crores. Incidentally, the tax notices sent to the party on March 29^th were for the assessment years (AY) 1994-95 and 2014-15 to 2020-21, amounting to Rs 1,823 crores.

On 31^st March 2024, the IT department issued fresh tax notices to Congress, demanding payments for AY 2014-15 (Rs 663 crores), 2015-16 (Rs 664 crores), and 2016-17 (Rs 417 crores). This brought the total outstanding tax demands from Congress to Rs 3,567 crores. The development came after the High Court had rejected multiple pleas of the Congress party that had challenged the IT department’s reassessment proceedings against it for several assessment years.

The Income Tax department initiated reassessment proceedings for earlier assessment years after discovering discrepancies in the Congress party’s tax returns. The department found “unaccounted” transactions during its searches, indicating that the party’s total taxable income for certain earlier assessment years was higher than reported, leading to tax liability on undisclosed income.

In 2019, the I-T department’s raids traced “unaccounted transactions” of Rs 523.87 crore. During its searches on entities, including some of which were purportedly linked to Karnataka Deputy Chief Minister D K Shivakumar and a company in Surat, the IT sleuths had uncovered cash transactions involving the Congress party.

As reported earlier, in February 2024, the Congress party claimed that its bank accounts were frozen by the Income Tax Department over a tax demand. Party leader Ajay Maken claimed that a demand of ₹210 crore was made by the I-T department on flimsy grounds over a case relating to income tax returns of 2018-19. Later, the party claimed that the ITAT granted them relief and ordered unfreezing of their accounts but asked to keep ₹115 crore in their bank accounts.

However, shattering the Congress party’s victimhood narrative, the Income Tax department has said that it never froze the bank accounts of the Congress party, and only recovered some of the due amount from the party’s bank accounts. The I-T dept said that as the party is not paying an outstanding tax amount of ₹135, it was decided to recover around ₹116 crore from the party’s bank accounts. The dept added that the party has more funds in its other accounts, which it can freely use.

The case pertains to a tax demand of ₹103 crore raised by the I-T department against the Indian National Congress for the Assessment Year 2018-19. Around ₹32 crore interest was added to it, and therefore the total demand was ₹135 crore. The assessment was done on an income of ₹199 crore, and a tax demand of ₹103 crore was created.

The Congress party also played victim card earlier, and cried foul over Income tax notices, the Solicitor Generak Tushar Mehta submitted in March 2024, that the IT department won’t take coercive action until July in the wake of Lok Sabha elections.

While the Congress party has long been claiming that the “unaccounted transactions” are “third-party transactions”, they had failed to get relief from the Income Tax Appellate Tribunal (ITAT), the Delhi High Court, and the Supreme Court earlier as well.

Once again, the ITAT has found the Congress party’s actions in violation of the law and dismissed its plea seeking tax exemption.

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