Donation of More than 1 Cr to Unrecognised Political Party: ITAT Disallows Claim and Confirms Penalty

Brief facts of the case are that the assessee is an Association of Persons (AOP) engaged in the business of real estate and renting services. The assessee filed its Return of Income for the Asst. Year 2020-21 on 30-03-2021 declaring total income of Rs. 25,93,260. The assessee made the following donations and claimed deduction u/s. 80G and 80GGC of the Act. To verify the genuineness of the donations made by the political parties, namely Kisan Party of India (Rs. 62,01,000) and Rashtriya Samajwadi Party (Rs. 51,50,000), notices u/s. 133(6) were issued to confirm the receipt of donations along with the relevant details on the official email of these political parties. The same were bounced.

Therefore a show cause notice was issued to the assessee to justify the claim of deduction u/s. 80GGC of the Act.

The assessee failed to make any response to the show cause notice.

In the meantime, based on media reports and internal revenue investigations, the donations were flagged by Dthe epartment as part of a money-laundering and round-tripping scheme by unrecognised political parties.

“The assessee made an attempt to exploit the deduction made available to genuine assessee’s. In the given circumstances, the onus lies on the assessee to support its claim with corroborative evidence. However, the assessee failed in furnishing the documentary evidence called for verification, thereby the genuineness of the donation made to the political party was not proved by the assessee beyond doubt.” With this, the Assessing Officer made the disallowance of Rs. 1,13,51,000/- claim as a deduction u/s. 80GGC of the Act and demanded tax thereon.

On further appeal, Ld. CIT (A) observed in the case “The Assessing Officer has clearly brought out facts that bank accounts of the above political party have been used by the accommodation entry provider where the donation received by cheques was layered through various bank accounts and ultimately cash was returned back.” As a result, the order of AO was upheld by the CIT (A).

At the Income Tax Appellant Tribunal (ITAT), Revenue argued that both political parties failed to respond to official notices. Further, their accounts exhibited suspicious financial patterns (immediate transfer of donations to third parties), and Donations were part of a layering scheme to return cash to donors, disguising them as legitimate political contributions.

At the same time Assessee filed the same documents as before the Assessing Officer but did not provide new evidence or rebut the revenue’s findings.

ITAT Order:

6. Ld. Counsel appearing for the assessee filed the same set of documents filed before the Assessing Officer and reiterated its submissions. Nothing, no new documents or evidence filed before us to deviate from the findings of the Lower Authorities. The Ld AO has clearly brought out facts that bank accounts of the above political parties have been used by the accommodation entry provider, where the donations received by cheques were layered through various bank accounts and ultimately cash was returned back. The same is not disputed by the assessee with relevant materials. Further, the Ld AO made a detailed enquiry of RSP and its Bank accounts and transfer of funds to one Shri Mukesh Mehta, proprietor of two firms, and he transferred it to Waheguru Enterprise and Sapan Traders, which is clearly a systematic financial manoeuvre to legitimate illicit moneys and evade taxes. In the absence of any fresh materials in support of the assessee’s claim. The Grounds raised by the assessee are devoid of merit and liable to be dismissed.