Incriminating Evidence To Legal Goof-Ups: Why Congress Is Loosing Income Tax Battle In Courts & What’s Next

The Delhi High Court on Friday dismissed Congress’s petition against the initiation of income tax re-assessment proceedings against it for three years (2014-15, 2015-16 and 2016-17) by the Income-Tax department. The Congress filed seven writ petitions against tax department, which is seeking to conclude the ongoing reassessment for seven financial years (2013-14 to 2020-21) by March 31. Out of these seven petition, three were dismissed by the high court on Friday.

A division bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav said that on a prima facie examination, it is evident that the the Income Tax department appears to have collated substantial and concrete evidence warranting further scrutiny and examination under the I-T Act.

”We consequently find no justification to interdict the assessment proceedings at this belated stage by invoking our jurisdiction under Article 226 of the Constitution. However and whether the asserted delay in commencement of proceedings would be fatal to the assessment itself is a question that we leave open to be urged at an appropriate juncture,” the court said.

In the Friday order, the high court observed that the Congress party has woefully failed to establish that the material which forms the bedrock for recordal of satisfaction is not founded on any data, material evidence or documentation pertaining to AYs‘ 2014-15, 2015-16 and 2016-17. “In fact no submission in this respect was either addressed or iterated,” the court noted.

Incriminating Evidence Against Congress With I-T department

Details in I-T department’s ‘satisfaction note’ have not been revealed completely by the high court, however, there are several references unaccounted cash transactions where funds were allegedly delivered to 24, Akbar Road (Congress headquarters).

The I-T department in its searches on Megha Engineering found 10 diary entries showing cash payments of close to Rs 26 crore to Akbar Road between February 28, 2019, and October 1, 2019. The order has cited many such transactions.

The high court bench noted that the material in Satisfaction Note as drawn by the accessing officer makes detailed references to unaccounted transactions with respect to the Lok Sabha Elections of 2019 and MP Assembly Elections 2018 and 2013. The said note also carries material seeming to suggest payments and contributions made by government departments and corporations, liquor manufacturers, industry entities and individuals to the Congress Party. 

According to the court order a person named P V Sunil accepted in his statement to the I-T department that he had paid cash amounts at 24, Akbar Road.

“The material which is taken note of in the Satisfaction Note makes detailed references to unaccounted transactions with respect to the Lok Sabha Elections 2019, MP Assembly Elections 2018…Assembly Elections 2013. Apart from the above there is specific reference to unaccounted for transactions pertaining to the three AYs‘ in question as would be evident from some of the details that we have chosen to extract hereinabove. The search documents recovered from the MEIL Group appear to indicate unaccounted transfers to the political party during AYs‘ 2017-18 to 2020-21,” the order read.

The bench further noted that the material which forms part of the Satisfaction Note also captures details of disbursements made to candidates vying in upcoming elections together with signed receipts. “There is a detailed reference to payments allegedly made to MPs‘/MLAs‘ and candidates. The said note also carries material seeming to suggest payments and contributions made by government departments and corporations, liquor manufacturers, industry entities and individuals to the petitioner,” the order read.

What Worked Against Congress?

Former Chief Income Tax Commissioner, Pradeep Ambastha, told ABP Live that the petitions by the Congress party, were first rejected by the Income Tax Appellate Tribunal (ITAT), and thereafter, by the Delhi High Court. This according to Ambastha “demonstrates the legal goof up its legal team is prone to make and then, cry victim of government’s high handedness.”

Ambastha who is also a legal consultant for tax cases with NIDAAN Law chambers, said that Congress should have fought legally valid and appropriate war against I-T Dept as per duly laid laws and rules.

Speaking on the bank-freeze episode and the subsequent re-opening of the tax assesment, Ambastha said that, “when the assessment proceedings were finalised (in way past) resulting into huge tax demands of more than Rs 100 crores, the Congress should have followed the mandatory provisions of paying 20% of the same (or less only if allowed by the I-T Dept, on a duly-applied stay petition.)”

He further explained that after Congress’s appeal was dismissed at the I-T Commissioner level, rather than vigorously following the path of obtaining stay from appropriate forum , It remained complacent only with filing appeal with ITAT against the Commissioner’s decision.

Only when the I-T dept made a recovery of 65 crores after giving due notices; the Congress party approached the ITAT for a stay. The ITAT granted status quo but could not unwind the damage done, saying that recovery proceedings by I-T Dept were bonafide. 

Ambastha explains that once the plea is dismissed at the commissioner level, the I-T department is bound by law to initiate recovery proceedings. The Congress should have anticipated the recovery action and should have undertaken stay path with alacrity.

Ambastha recalls that even the Delhi high court commented that the Income tax proceedings were handled very badly by the party.

“As we read this ITAT order, the petitioner has itself to blame…It seems you made no efforts to scrutinise the demand…someone in petitioner’s office has remained asleep…” the High Court had observed while refusing to interfere with ITAT order.

Regarding search assessment proceedings, dealt with by the high court on Friday, Ambastha further explains that the Congress party should have challenged the reassessment notice dated March 7, 2023, more vigorously after receiving the re-opening notice. He pointed out that even the high court was amused to find the Congress scurrying when the proceedings had gone a long way and were on the verge of being finalised.

The division bench of high court in the Friday order has noted that Congress chose to move the high court only a few days before the time for completion of assessment would expire and at the “proverbial fag end of the proceedings.”

What’s Next For Congress In Income Tax Case?

Ambastha explains that as clouds of further more and huge tax demands are looming large over Congress in matters of re-opened past years’ proceedings (From AY 14-15 to AY 20-21) on the basis of hugely incriminating materials, the party needs to fight its case patiently. They have to first argue the case before Assessing officer, and then before Commissioner (Appeal) onwards, while simultaneously following path of ‘stay on demand proceedings.’

“There were substantial and tangible materials, produced before the court, on the basis of which reassessment proceedings had been initiated and a whopping Rs 520 crores demand is likely to be raised. They have to explain the unaccounted income and if the party is not at fault then it can fight the case on its merits,” he added.