The Income Tax Appellate Tribunal (ITAT) on Monday dismissed an appeal by the Indian National Congress against a tax demand of Rs 199.15 crore for the assessment year 2018-19.

The party opposed the I-T department's notice, which asked it to pay tax on income of around Rs 199 crore. Congress claimed that the money came from donations and should be exempted from tax, reported Bar and Bench.

The Appellate Tribunal rejected the party's claim for tax exemption under Section 13A due to late return filing and violations of cash donation limits, establishing strict compliance requirements for political parties seeking tax benefits.

The exemption is granted to political parties despite filing its return after the statutory deadline and accepting cash donations in violation of legal limits.

The Congress filed its income tax return on February 2, 2019, over a month after the extended deadline of December 31, 2018, under Section 139(1) for that financial year.

The return declared nil income after claiming Rs 199.15 crore as exempt under Section 13A.

"The assessee's return filed on 02.02.2019 is not within the 'due' date to make it eligible for the impugned exemption," ruled the coram of Judicial Member Satbeer Singh Godara and Accountant Member M Balaganesh, according to Bar and Bench.

In September 2019, the assessing officer found out during scrutiny that the party accepted Rs 14.49 lakh in cash donations, well beyond the Rs 2,000 per donor limit.

This violated Section 13A (d), which mandates such donations should be received via banking channels after the Finance Act 2017 amendment.

"As per section 13A(d) of the Act, donation in excess of Rs. 2,000/- is mandatorily be received through a/c payee cheque/draft or through electronic mode and therefore donation in excess of Rs. 2,000/- received in cash violates provisions of clause (d) of first proviso to section 13A of the Act," Bar and Bench reported, citing tribunal's statement.

The assessment ruling issued on July 6, 2021, rejected the exemption, making the entire amount taxable, even though the Congress claimed total earnings of Rs 199.15 crore versus Rs 197.43 crore in expenses, leaving a surplus of Rs 1.71 crore.

Congress filed a complaint with the Income Tax Appellate Tribunal (ITAT) after the Commissioner of Income Tax (Appeals) upheld this ruling on March 28, 2023.

The IT tribunal denied temporary relief in 2024.

The IT tribunal concluded that in contrast to charity trusts, which are granted more flexibility under Section 12A, political parties must file returns by the deadline specified in Section 139(4B), as opposed to Section 139(1).

The alternative request made by Congress to provide expenditure deductions from gross receipts was likewise denied. The tribunal pointed to a 2016 Delhi High Court decision in a related matter involving the party, noting that such relief is prohibited by Section 13A's third proviso.