Amidst allegations of “tax terrorism”, the Income Tax department in the Supreme Court on Monday stated its resolve to not take any “coercive steps” against the Indian National Congress on tax demands to the tune of approximately ₹3500 crore raised in March in view of the General Elections.

At the very outset of the hearing before a Bench headed by Justice BV Nagarathna, Solicitor General Tushar Mehta stated that “since the election is going on, we do not want any problem to arise for any political party. We will not take any coercive steps till the case is heard again on July 24, 2024”.

“He (Mehta) has rendered me speechless,” senior advocate AM Singhvi reacted to the turn of events.

Trouble had been mounting for the Congress with fresh notices from the Income Tax department raising a tax demand of ₹1,745 crore for the assessment years 2014-15 to 2016-17. With the latest notice, the Income Tax department had raised a total demand of ₹3,567 crore from the Congress.

Fresh tax notices for 2014-15 (₹663 crore), 2015-16 (about ₹664 crore), and 2016-17 (approximately ₹417 crore) were issued. This followed the termination of tax exemptions for political parties, enforced based on a March 2016 Delhi High Court ruling.

The Congress has challenged the High Court order that gross receipt was taxable. “Gross receipt is never taxable. Only total income is taxable. We are a political party, not a profit-making organisation,” Mr. Singhvi argued.

Mehta said the total of over ₹3500 crore was a “block assessment” of the past seven years. This excluded the ₹135 crore recovered from the party through attachment. He said the department has willingly made the “concession” to avoid coercive measures in view of the prevailing circumstances of the elections.

He emphasized that the Congress was granted leeway, although the tax demands exceeding ₹3500 crore in March 2024 are not directly related to pending appeals in the Supreme Court.

The apex court scheduled the case for a hearing on its merits. In its order, it noted that while the issues in the appeals are yet to be decided, the Solicitor General stated that the Income Tax department does not intend to escalate the situation, and no coercive measures will be taken regarding the demand of approximately ₹3500 crore.

The court further recorded the statement of the department that the Congress need not have any “apprehensions regarding any coercive steps”.

The Congress had raised the issue that the slew of tax notices issued on the eve of the Lok Sabha polls would tilt the level playing field in favour of the ruling BJP.