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As Income Tax tribunal allows Congress party to operate its bank accounts after being ‘frozen’, read details of the ₹135 crore tax demand case

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.

On Friday, 16th February, Congress party said that the Income Tax department has frozen its bank accounts over a tax demand. Addressing a press conference, party leader Ajay Maken said that banks are not honouring cheques issued by the party. He said that a demand of ₹210 crore has been made by the I-T department on flimsy grounds over a case relating to income tax returns of 2018-19.

However, a few hours later, the party said that the Income Tax Appellate Tribunal granted relief and ordered to unfreeze the party’s bank accounts. But the party added that it has been asked to keep ₹115 crore in their bank accounts. This means, effectively ₹115 crore is still frozen, and the party can spend the rest of the amount from their accounts. Ajay Maken claimed that this amount is much more than what they have in current accounts.

Congress Rajya Sabha MP and advocate Vivek Tankha, who appeared for the party before the ITAT, said that the ITAT said there is no restriction on bank accounts but only a lien of ₹115 crore.

However, 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 am 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 fund 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.

As per government sources, the assessment under section 143(3) of the Income Tax Act, 1961, was completed in July 2021. The party had claimed exemption under section 13A, which grants exemption from tax to political parties for voluntary contributions received from individuals. The prayer for exemption was not allowed because the Congress party failed to comply with the provisions of section 13A(d), and the return of income was also fled late.

Notably, section 13A(d) of the Income Tax Act says that any income of a political party made through voluntary donation will not be included in the total income of the party, provided that “no donation exceeding two thousand rupees is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bond.”

This means, the exemption is allowed only if individual donations are ₹2000 or less, it is not applicable for all donations.

The assessment was done on an income of ₹199 crore, and a tax demand of ₹103 crore was created.

After that, the Congress party had appealed with the Assessment Officer seeking a stay, and accordingly the party was asked to pay 20% of the total demand, around ₹21 crore, as per rules. However, the party paid only ₹78 lakh. As the party failed to pay 20% of the outstanding demand, a letter was issued asking it to pay the balance demand of ₹104 crore. Moreover, later the appeal filed by the party was dismissed.

Congress party submitted a second appeal against the tax demand with the Income Tax Appellate Tribunal in May, 2023. However, this time the party didn’t file any plea seeking stay. Later in October 2023, Congress paid ₹1.72 crore.

Therefore, the Income Tax department decided to withdraw ₹115.80 crore from various bank accounts of the party. As per the information received, I-T Dept recovered the amount from six bank accounts on 13, 14 and 15 February. The amount was recovered from accounts maintained with the Bank of Baroda, Union Bank, Canara Bank, Oriental Bank of Commerce, and two branches of the State Bank of India.

As per the dept, after recovering ₹1,15,79,58,732 an amount of ₹19,27,30,251 is still pending, as the total demand is over ₹135 crore. However, as per the ITAT order today, the ‘recovered’ money will now be kept as a lien and the amount will lie in the bank accounts of the Congress party.

In proceedings before ITAT on 16/02/2024, the Income Tax Department said that the recovery made by withdrawing money from accounts is a routine recovery measure. The I-T dept added that the operation or activity of the accounts has not been stopped. “Further, INC has many more accounts for its activities, a fact which was taken note of by the ITAT,” the dept added.

The next hearing by the ITAT has been scheduled on 21 February 2024.

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