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Synopsis

In a recent development, the Delhi High Court has dismissed three petitions filed by the Indian National Congress (INC) challenging the initiation of reassessment proceedings by the Income Tax (IT) Department.

The division bench, comprising Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav, dismissed the petitions brought forth by the INC, contesting the IT Department's decision to open assessment proceedings for the fiscal years 2014-2015, 2015-2016, and 2016-2017.

The court described the petitioner's timing, just days before the assessment's completion deadline, as arriving “at the proverbial fag end of the proceedings.”

The petitions contested the validity of proceedings initiated under Section 153C of the Income Tax Act, 1961. This included challenging a notice issued on March 7, 2023, and subsequent orders dated September 22, 2023, March 1, 2024, and March 6, 2024. The challenge focused on procedural irregularities and substantive legal issues surrounding the application of Section 153C and actions taken by the Income Tax Department.

Senior Advocate Abhishek Manu Singhvi representing the Congress party, argued that the Income Tax Department's reassessment action under Section 153C of the Act against them had been commenced with inordinately delayed and was “barred by limitation,” as they could only go back a maximum of six assessment years. Consequently, it was contended that the notices and proceedings should be quashed based on principles established by the Supreme Court.

During the proceedings, the bench queried the Income Tax Department (Respondents) about the seized material, to which it was apprised by Special Counsel Zoheb Hossain, who appeared for the IT Department, that the escaped income by the Congress exceeded ₹520 crore. It was also asserted that there had been no breach of statutory provisions.

The Court addressed various contentions raised by the Congress. However, it chose not to answer the argument regarding the delay in the initiation of reassessment proceedings. “We have chosen not to answer it because you arrived before us only on 20th [March]. The assessment is to be completed by 31st; that is something we have left open for you to urge,” Justice Varma informed the counsel representing Congress.

“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 further said.

The court clarified that it would be incorrect to interpret the First Proviso to Section 153C of the Act as imposing a limitation or preventing the respondents from initiating assessment or reassessment for the entire block period of ten assessment years. Consequently, the submission that the power to assess would only extend up to Assessment Year (AY) 2017-18 was deemed misconceived.

Based on the language and text of Section 153C, the court held that the material gathered during the search would empower the respondent to undertake assessments for six assessment years immediately preceding the relevant assessment year in which the search was conducted. Additionally, it would extend to four additional AYs as stipulated by Explanation 1 to Section 153A of the Act.

The court emphasised that this interpretation was evident from Section 153C's reference to “the relevant assessment year or years referred to in sub-section (1) of section 153A.”  To understand the meaning of the term “relevant assessment year,” reference must be made to Explanation 1 in Section 153A. Thus, the contention that Section 153C would only apply to six assessment years immediately preceding the AY relevant to the financial year of the search was deemed untenable.

The court observed that the "Satisfaction Note" contained detailed references to unaccounted transactions related to elections such as the Lok Sabha Elections 2019 and MP Assembly Elections. It also mentioned specific unaccounted transfers to a political party during various assessment years. The note highlighted disbursements to candidates and alleged payments to MPs, MLAs, and candidates. Additionally, it suggested payments and contributions from government departments, corporations, and individuals to the petitioner.

The court further noted, “The petitioner 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.”

The court said, “the assessment is liable to be completed by 31 March 2024.”

In a related development, on March 13, the Delhi High Court upheld the Income Tax Appellate Tribunal (ITAT) order, which refused to grant a stay on the Income Tax notice for the recovery of more than Rs. 105 crore as outstanding tax against the INC. While affirming the ITAT order, the Court granted the Congress party the liberty to approach the Appellate Tribunal afresh with their grievance.

The Bench of Justices Yashwant Varma and Purushaindra Kumar Kaurav upheld the ITAT order, citing no reason for interference.

 

Cause Title: Indian National Congress vs DEPUTY COMMISSIONER OF INCOME TAX CENTRAL -19 & ANR [W.P.(C) 4264/2024 & CM Nos. 17433/2024 & 17435/2024]