The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the disallowance of a ₹12 lakh deduction claimed under Section 80GGC by an individual taxpayer after concluding that the donation formed part of a bogus accommodation entry mechanism operated through a political party.
The Bench of Dr. B.R.R. Kumar (Vice-President) and Rahul Chaudhary (Judicial Member) has observed that the cumulative evidence, including bank trails, search material, statements of party functionaries, and the established modus operandi of the recipient political party, clearly demonstrated that the impugned donation was not a genuine voluntary contribution eligible for deduction under Section 80GGC.
The assessee, a salaried employee, had filed his income tax return declaring total income of ₹56.79 lakh after claiming a deduction of ₹12 lakh under Section 80GGC for a donation made to Rashtriya Samajwadi Party (Secular). The Assessing Officer disallowed the claim after investigations revealed that the political party was allegedly engaged in providing accommodation entries by routing donations through shell entities before returning the funds to donors in cash. The disallowance was later confirmed by the CIT(A), prompting the appeal before the Tribunal.
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The taxpayer argued that he had exercised due diligence before making the donation by verifying that the political party was duly registered under Section 29A of the Representation of the People Act, 1951. According to the assessee, the donation was made through banking channels, supported by valid receipts, and all statutory conditions under Section 80GGC had been satisfied.
It was further contended that the Revenue had failed to produce any direct evidence demonstrating that the donated amount had been returned to the assessee. The taxpayer relied upon several judicial precedents, including CIT v. Orissa Corporation (P.) Ltd., CIT v. Divine Leasing & Finance Ltd., and K.P. Varghese v. ITO, arguing that once the initial burden of proving the transaction had been discharged, the onus shifted to the Revenue to establish otherwise.
The Department submitted that the disallowance was not based merely on suspicion but on an extensive investigation involving search proceedings under Section 132, examination of bank accounts, statements recorded from office bearers of the political party, and tracing of fund movements through intermediary shell concerns.
The department contended that the investigation established that the political party systematically accepted donations through banking channels, layered the funds through multiple shell entities, converted them into cash, and returned the amounts to donors after deducting commission, thereby facilitating tax evasion.
The Tribunal held that mere payment through banking channels and possession of donation receipts could not establish the genuineness of the transaction where substantial investigative material demonstrated that the recipient political party itself functioned as an accommodation entry provider.
The Bench observed that deductions under Section 80GGC are intended only for genuine voluntary political contributions and cannot be claimed where the apparent donation is merely a façade for tax avoidance.
The Tribunal emphasised that tax authorities are entitled to examine surrounding circumstances and apply the test of human probabilities, particularly in cases involving clandestine financial arrangements where direct evidence is seldom available. It noted that once the Revenue produced detailed investigation reports, bank trail analyses, statements recorded during search proceedings, and evidence revealing the political party’s modus operandi, the burden shifted to the assessee to rebut those findings with credible material, which he failed to do.
The Tribunal also rejected the argument that registration of the political party under the Representation of the People Act automatically established the legitimacy of the donation.
According to the Bench, registration merely recognises the legal existence of a political party and does not validate every financial transaction undertaken by it. Eligibility for deduction under Section 80GGC depends upon the genuineness of the contribution itself and not merely on the legal status of the recipient.
The Tribunal held that the decisions cited by the assessee, including Orissa Corporation, Divine Leasing, and K.P. Varghese, arose in different factual contexts and were therefore inapplicable.
It noted that unlike those cases, the Revenue in the present matter had conducted extensive investigations, unearthed the complete accommodation entry mechanism, analysed banking trails, and relied upon statements recorded under Section 132(4), thereby discharging its burden of proof.
The Bench also relied upon a series of earlier Tribunal decisions involving identical allegations against Rashtriya Samajwadi Party (Secular) and similar claims under Section 80GGC. Those decisions had consistently held that donations routed through the political party were accommodation entries intended to facilitate tax evasion rather than genuine political contributions.
The Tribunal referred to previous findings which recorded that search proceedings had revealed admissions from key office bearers of the political party acknowledging that donations received through banking channels were subsequently routed through shell entities and returned to donors after deducting commission.
Reaffirming the principles laid down by the Supreme Court in CIT v. Durga Prasad More and Sumati Dayal v. CIT, the Tribunal observed that tax authorities are not required to accept documentary evidence at face value where surrounding circumstances overwhelmingly indicate otherwise.
Finding no infirmity in the orders of the Assessing Officer and the CIT(A), the Ahmedabad Bench of the ITAT dismissed the assessee’s appeal and upheld the disallowance of the ₹12 lakh deduction claimed under Section 80GGC.
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