IT Department didn’t Freeze but Recovers Rs 115 Crore Congress Long-standing Tax: A Detailed Analysis

By
Vikrant Singh
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Analysis

On the morning 16th of February, there was a strong feeling of concern online, with heartfelt appeals expressing worry about the unstable condition of democracy. At the heart of this concern was the proclamation from the Indian National Congress, stating that the Income Tax department had frozen their party’s financial resources. This created a grave situation as the Congress party encountered obstacles in managing expenses through its bank account. The predicament extended to the freezing of accounts associated with the All India Congress Committee and the Indian Youth Congress, as asserted in a significant press conference.

Post-incident, Congress leaders didn’t mince words, using sharp rhetoric to criticize Prime Minister Narendra Modi and his government, branding them as purveyors of fascism. This condemnation wasn’t confined to internal party circles but reverberated in the digital realm, where influential voices aligned with the Congress expressed shared concerns, decrying perceived threats to democracy in unison.

These sentiments, encapsulated in various tweets, encapsulate the prevailing mood surrounding the Congress Party and its impact on socio-political discussions. (Congress, Rahul Gandhi, Pawan Khera, Indian American Muslim Council, Rohini Singh, Medusa)

However, this report aims to move beyond emotional responses. Instead, its focus is on shedding light on the verifiable facts that prompted the keen scrutiny of the Income Tax authorities. The core of this investigation involves a thorough analysis of the opposition party’s claim about the frozen accounts.

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Analysis

Lined, not Freezed

Following the press conference, the Congress party sought recourse at the Income Tax Appellate Tribunal (ITAT), where Congress leader and lawyer Vivek Tankha presented the party’s case regarding the alleged freezing of their bank accounts.

During the presentation, the Income Tax Department clarified to the ITAT that there was no freeze on the Congress party’s bank accounts; instead, there was a lien. The ITAT, after hearing both sides, noted that the revenue department claimed no-issuance of orders to freeze transactions but acknowledged the imposition of a lien on the accounts, limited to the outstanding tax demand. The department requested time to submit a status report.

Source- Bar and Bench

The ITAT order said, “On hearing both sides, it comes up from the learned Special Counsel for the Revenue, that the Revenue (IT) does not claim to have issued any order or direction to the concerned bank(s) for freezing the transactions in the bank account(s), but only for a lien on the amount lying in the bank account(s) upto the outstanding tax demand.”

INC_Tax_caseDownload

Money Control reported on this development, stating, “The Income Tax department on February 16 told the Income Tax Appellate Tribunal (ITAT) that it has not issued an order to banks for freezing the transactions in Congress’ bank accounts.” The ITAT order emphasized that the department had established a lien, a legal right, on the account balance to settle the pending tax demand. A lien, in this context, signifies a claim or legal right against an asset, typically utilized as collateral until the obligation is fulfilled.

Source- Money Control

Additionally, lawyer and Congress leader Vivek Tankha tweeted, “Indian National Congress can operate its accounts with a lien of the IT Dept thereon!! Direction by Hon ITAT Delhi. Prayer for interim relief will be heard on Wednesday.” Tankha, in a video message, expressed gratitude to the ITAT for opting not to freeze the party’s bank account but only to place a lien on it.

However, despite Tankha’s appreciation, Congress party treasurer Ajay Makan conveyed displeasure with the ITAT ruling in a tweet at 1:08 pm, an hour later than Tankha’s message. This dichotomy in reactions from key party figures adds an intriguing layer to the unfolding events.

Ajay Makan’s tweet reads, “On our petition, Income Tax Department and the Income Tax Appellate Tribunal (ITAT) has said that we have to ensure that Rs 115 crores have to be kept in the Banks. This 115 crore is the lien marked in the Bank Accounts. We can spend an amount over and above that. This means that Rs 115 crores have been frozen. This Rs 115 crores is much more than we have in our Current Accounts.”

Routine Procedure

At 7:33 pm, Ajay Makan took to Twitter, sharing two attached copies directing bankers to settle the owed amount directly to the tax authority under the Income-tax Act, 1961, from any funds held for or on behalf of the Congress.

The attached copies detailed a notice instructing any bank holding funds for the Indian National Congress to remit Rs. 135,06,88,984, encompassing Rs. 102,66,69,925 as the principal amount and Rs. 32,40,19,059 as interest, directly to the tax authority in New Delhi. The notice cautioned that if the bank disbursed any money to the Congress post-receipt of this notice, they might be personally liable for the owed amount or the Congress’s tax obligations, whichever is lesser. Failure to comply with the instructions could lead to legal action against the bank, akin to owing taxes.

Subsequently, at 9:35 pm, Business Today reported that the Income Tax Department had successfully recovered a substantial Rs 115 crore from various bank accounts associated with the Indian National Congress (INC), previously attached due to taxation irregularities. However, the investigation is ongoing, with an outstanding amount of Rs 19 crore yet to be recovered.

Source- Business Today

Citing Money Control, Business Today revealed, “At present, recovery to the tune of Rs 115 crore has been made by withdrawing money from various bank accounts of INC. In proceedings before the Income Tax Appellate Tribunal (ITAT) on February 16, 2024, it was informed by the Income Tax Department that the recovery made by withdrawing money from accounts is a routine recovery measure.”

Hence, both the copies of the order posted by Congress party treasurer Ajay Makan and the report from Business Today unequivocally affirm the nature of these actions as routine recovery measures, devoid of any political motives. Nevertheless, the question remains as to why the Income Tax Department undertook this action against the Congress party, especially just weeks before the upcoming General Election.

Not New, but an Old Case: Congress Faces Long-Standing Tax Challenge as IT Department Recovers Rs 115 Crore

According to a report by Business Today, the Income Tax assessment of the Indian National Congress (INC) concluded on July 6, 2021, under Section 143(3) of the Income Tax Act. The assessment revealed that the INC did not receive a special tax exemption, known as Section 13A, which typically shields specific party incomes, such as those from property or investments, from taxation.

The tax assessment indicated that the INC failed to meet the criteria for Section 13A exemption due to late tax filings and non-compliance with Section 13A(d). This section typically excludes income derived from donations or any funds generated from party assets, such as interest, dividends, or rent, from being considered as total income for tax purposes.

In adherence to the standard procedure, the INC was required to pay 20 percent of the total owed amount, which amounted to Rs 21 crore. However, the party only remitted Rs 78 lakh, resulting in a tax liability for the outstanding sum. In May 2023, the INC appealed to the Income Tax Appellate Tribunal (ITAT).

Source- Business Today

Additionally, The Hindu reported that the Income Tax action was based on the assessment year 2018-19, initially lodged at Rs 103 crore and later revised to Rs 105 crore, including added interest, raising the claim to Rs 135 crore. The Congress approached the IT Commissioner in 2021 but failed to deposit the mandated 20% of the claim amount, prompting the IT department to demand the full sum. The IT Commission dismissed the cases in 2021-22, leading the Congress to approach the ITAT in May 2023, without seeking a stay on assessment claims and paying Rs 1.72 crores at that time. The next hearing at the ITAT is scheduled for February 21.

Journalist Rohan Dua’s tweets shed further light on the matter. The first recovery demand for Rs 135 crore, encompassing Rs 103 crore and interest of Rs 32 crore, pertained to the assessment year 2018-19. The Congress challenged it before the ITAT, which instructed them to pay 20%. However, the party only paid Rs 78 lakh and failed to submit the required 20% of the outstanding amount, resulting in the ITAT issuing a letter demanding the payment of Rs 104 crore. A second appeal was filed in May 2023, but no stay on the demand was sought. The Congress paid Rs 1.7 crore in October, prompting the Income Tax Department to initiate withdrawals totaling Rs 115 crore from various party accounts. The IT department clarified to the ITAT that they did not freeze the Congress accounts.

This highlights that the current Income Tax challenge for the Congress Party is not recent but dates back five to six years. The party chose not to fulfil tax obligations and neglected to comply with the provisions of Section 13A of the Income Tax Act, which grants tax exemption to political parties under specific conditions outlined in Section 13A(a) to (d).

Conclusion 

In a recent analysis, it has been revealed that the Income Tax Department imposed a lien on the Congress party’s account amounting to Rs 115 crore. Initially, the department clarified that it was a lien, not a freeze, leading to a legal process. Subsequently, a letter was issued to Congress banks outlining the routine procedure for the recovery of tax funds directly from the party’s accounts. A Business Today article corroborated this information, confirming that the Income Tax department has successfully recovered the said amount. Importantly, the analysis emphasizes that this tax hurdle for the Congress is not a recent issue but dates back five to six years.

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