Supreme Court disagrees with High Court order to Congress on tax demand

The Supreme Court on Monday, 20 August, questioned the Delhi High Court's decision asking the Congress party to approach the Income Tax Appellate Tribunal (ITAT) for a stay on an income tax demand notice it was sent for the recovery of alleged outstanding dues of more than Rs 100 crore.

A bench of justices B.V. Nagarathna and N. Kotiswar Singh, which issued notice against the 13 March high court order on the plea of the Congress, however, added that the ITAT can still process the political party's appeal.

"How can the high court ask the petitioner (Congress) to go back to ITAT when it came in appeal against the Tribunal's order? The high court was not right in not exercising its jurisdiction," the bench said.

Additional solicitor general N. Venkataraman, appearing for the income tax department, informed the court that the recovery of the outstanding amount has already been made and the issue in question is of only academic interest now.

Senior advocate Vivek Tankha, appearing for the Congress party, submitted that the high court should have exercised its jurisdiction and at least granted an interim stay on the demand notice.

The bench then issued notice to the income tax department and said, "The pendency of this special leave petition will not come in the way of the ITAT deciding the plea before it."

On 13 March 13, the high court had refused to interfere with the order of the ITAT, declining to stay the notice issued by the income tax department.

The high court, however, granted liberty to the political party to approach the ITAT with a fresh stay application, bringing to its notice the change in the circumstances of the case — including that an amount of Rs 65.94 crore had already been recovered by the income tax department by way of encashment of bank drafts.

"Accordingly, while we find no ground to interfere with the order impugned, we dispose of the writ petition, according liberty to the petitioner to approach the ITAT by way of a fresh stay application bringing to its attention the change in circumstances noticed above. An application, if so moved, may be considered by the ITAT with due expedition," the Delhi High Court had ordered.

It had said Rs 65.94 crore translates to roughly 48 per cent of the outstanding demand, and this changed circumstance is an aspect which would merit consideration by the ITAT in case the Congress party chooses to move a fresh application for stay.

"Whether the aforesaid circumstance would merit protective measures being granted in respect of the balance outstanding demand, and if so to what extent, is an issue which must necessarily be considered by the ITAT in the first instance, it being the tribunal which is in seisin [possession] of the principal appeal. We thus refrain from rendering any conclusive opinion in this respect and leave this aspect open for the consideration of the ITAT," the high court had said.

The Delhi High Court had passed the order while disposing of the Congress' plea challenging the dismissal by the ITAT of its application, in which it had sought a stay on the 13 February notice of the income tax department initiating recovery proceedings against the party.

The assessing officer had raised a tax demand of more than Rs 100 crore for the assessment year 2018–19, where the income was assessed to be more than Rs 199 crore.

The high court had noted that after the Commissioner of Income Tax (Appeals) dismissed the party's appeal against the demand order on 28 March 2023, the petitioner moved an appeal before the ITAT on 24 May 2023 and a stay application was filed on 14 February 2024.

"This would clearly appear to suggest that the petitioner has been far from vigilant and clearly lax in pursuing the legal remedies which were otherwise available," the Delhi High Court had said.

The high court bench had said that from the impugned order, what ultimately appears to have weighed upon the ITAT is the petitioner having been remiss in taking preemptive steps in respect of a demand that had remained outstanding since 2021.

"The petitioner appears to have fallen into deep slumber and stood reawakened only in January 2023 when a notice of demand came to be raised," the high court had said.

It had said the problems that beset the petitioner (the Congress party) were, to a large extent, of its own making and added that the ITAT was justified in rejecting the allegation of the action being either motivated or actuated by mala fides.

The party had earlier said the tribunal's order freezing its funds was "an attack on democracy" as it had come just ahead of the Lok Sabha elections.

The counsel for the Congress had then urged the high court to grant it some protection lest the party collapse.

The income tax department's counsel before the high court had informed the bench that the original tax demand stood at Rs 102 crore, and together with interest, it rose to Rs 135.06 crore. He acknowledged at the same time that Rs 65.94 crore stood recovered at the time of the proceedings.

The tribunal had on 8 March dismissed the Congress' stay application saying, "… we do not find that the recovery notice under Section 226(3) of the Act issued by the assessing officer on February 13, 2024 is lacking in bona fides, so as to require us to intervene."