Indian National Congress Vs DCIT-19 & Ors. (Delhi High Court)
The writ petition challenged the Income Tax Appellate Tribunal’s (ITAT) order dated 8 March 2024 refusing to grant a stay on recovery of tax demand during pendency of the petitioner’s appeal. The High Court held that the only issue warranting fresh consideration was whether the petitioner was entitled to a stay upon depositing 20% of the outstanding amount, a contention summarily rejected by the ITAT. The Court also noted that substantial sums had already been recovered by the department, which could affect the petitioner’s position. Before examining this, the Court reviewed the factual background.
The petitioner, a recognised national political party, filed its return for AY 2018-19 on 2 February 2019 declaring nil income after claiming exemption under Section 13A. During assessment, notices under Sections 143(2) and 142(1) were issued. On 18 March 2020, the petitioner was informed of the proposed tax demand arising from denial of the Section 13A exemption. The assessment order dated 6 July 2021 determined taxable income at INR 199.15 crore on grounds that the petitioner violated the Second Proviso to Section 13A by belatedly filing its return and violated clause (d) of the First Proviso by receiving cash donations exceeding INR 2,000 each. A demand notice followed.
The petitioner appealed to the CIT(A) and sought stay before the Assessing Officer (AO), who on 28 October 2021 permitted stay subject to deposit of 20% of the disputed amount, failing which the petitioner would be treated as an assessee in default. The petitioner did not comply. No further action was taken until 9 January 2023, when a fresh demand letter was issued. A second stay application under Section 220(6) became infructuous after the CIT(A) dismissed the appeal on 28 March 2023. The petitioner then appealed before the ITAT on 24 May 2023. During its pendency, demand notices under Section 226(3) were issued on 13 February 2024, prompting the petitioner to file a stay application before the ITAT. Meanwhile, the revenue obtained and encashed bank drafts amounting to INR 65.88 crore.
Before the ITAT, the petitioner argued that the assessment order was erroneous, particularly regarding alleged violations of Section 13A. The ITAT rejected the petitioner’s argument that the return could be filed within the extended period under Section 139(4), holding that the Third Proviso to Section 13A mandated filing within the due date under Section 139(1). It also held that the petitioner failed to maintain any distinction between voluntary contributions and donations and that receipt of cash donations exceeding INR 2,000 violated clause (d) of the First Proviso, irrespective of compliance with clause (b). The ITAT further relied on prior judicial rulings to hold that once Section 13A exemption is denied, voluntary contributions must be taxed under “income from other sources” without deduction of expenditure.
Regarding allegations of mala fides due to recovery during election season, the ITAT rejected the claim, citing the petitioner’s repeated adjournments and lack of urgency in pursuing its appeal. It noted that the AO had initially offered stay on depositing 20%, and recovery action was taken only in February 2024 despite the demand being outstanding since 2021.
The High Court observed that the ITAT had duly considered the petitioner’s submissions and rendered prima facie findings within the limited scope applicable to stay applications. The Court found no perversity, illegality, or failure of judicial application of mind. It also emphasised that the petitioner was lax in pursuing remedies, failing to comply with the 20% deposit condition, not taking protective steps for two years, and delaying filing a stay application even after appealing before the ITAT. The ITAT was justified in rejecting allegations of mala fides given the petitioner’s conduct.
On the Office Memorandum (OM) permitting stay upon payment of 20%, the Court clarified that the OM does not create an indefeasible right; authorities may require more or less than 20% depending on circumstances. The OM applies only at the CIT(A) stage, not before the ITAT. The Court also noted submissions indicating the petitioner had substantial corpus and assets, undermining the claim of financial hardship.
However, the Court acknowledged that the recovery of approximately INR 65.94 crore—about 48% of the demand—constituted a significant change in circumstances. This factor, the Court held, must be considered by the ITAT if the petitioner files a fresh stay application. While declining to interfere with the ITAT order, the Court granted liberty to the petitioner to move a fresh stay application before the ITAT, which must consider the changed circumstances and decide expeditiously.
All rights and contentions were left open for the ITAT to evaluate in the pending appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
