Bogus Political Donation Scam: ITAT Mumbai Denies Section 80GGC Deduction

The assessee, an individual salaried taxpayer, claimed a deduction of Rs. 2,00,000 under Section 80GGC for a donation made through banking channels to Rashtriya Samajwadi Party (Secular) during AY 2019-20. The return was processed under Section 143(1). Thereafter, the Assessing Officer received investigation inputs indicating a nationwide bogus donation racket involving certain political parties, including the Rashtriya Samajwadi Party (Secular).

Search proceedings allegedly revealed a scheme of routing cheque donations back to donors in cash after deducting commission. Statements recorded under Section 132(4) from party office-bearers admitted to bogus donations and cash generation through dummy entities and APMC vendors. The party had also failed to file contribution reports under Section 29C of the Representation of the People Act while claiming exemption under Section 13A. The deduction was disallowed and upheld by the CIT(A), giving rise to the present appeal.

Main Issue: Whether deduction under Section 80GGC can be allowed when the political donation, though made through banking channels, is found to be part of a sham transaction involving cash being returned to the donor.

ITAT Held: The Tribunal dismissed the appeal and upheld the disallowance. The Tribunal held that overwhelming evidence established that donations received by Rashtriya Samajwadi Party (Secular) were bogus and part of a structured cash-back scam.

The Tribunal relied on unretracted statements of key party officials admitting fraud and observed that fraud vitiates all transactions, rendering even otherwise valid documentation meaningless. Judicial precedents cited by the assessee were held to be factually distinguishable. Since the transaction itself was a sham, the assessee was not entitled to a deduction under Section 80GGC.

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