The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has remanded a dispute relating to deduction claimed under Section 80GGC of the Income Tax Act for a political donation of ₹1,00,000, holding that the Assessing Officer (AO) had not properly verified the banking trail and related evidence before disallowing the claim.
The bench of Suchitra Kamble (Judicial Member) has observed that the assessee had produced bank statements, donation receipts and details relating to the political party. However, from a reading of the assessment order, it appeared that the AO had not properly verified the banking transactions, including whether there was any subsequent receipt of the donated amount or any corresponding cash transactions that could support the allegation of a bogus donation arrangement.
The appeal was filed by taxpayer against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), for Assessment Year 2019-20. The assessee had originally filed his income tax return declaring total income of ₹9.85 lakh and claimed deduction of ₹1 lakh under Section 80GGC for a donation made to Yuva Janjagriti Party.
The controversy arose after a search and seizure operation conducted by the Investigation Wing of the Income Tax Department on 7 September 2022 against various registered unrecognized political parties, including Yuva Janjagriti Party. According to the department, the investigation revealed that the political party was allegedly involved in a bogus donation racket.
Based on the investigation findings, reassessment proceedings were initiated under Sections 147 and 148A of the Income Tax Act.
The department contended that Yuva Janjagriti Party had failed to submit contribution reports to the Election Commission of India as required under Section 29C of the Representation of the People Act, 1951 for financial years 2017-18 and 2018-19. Consequently, the department questioned the genuineness of donations made to the party and disallowed the deduction claimed by the assessee under Section 80GGC.
The AO ultimately added ₹1 lakh to the assessee’s income by rejecting the deduction claim.
The taxpayer argued that the donation was genuine and had been made to a registered political party. In support of the claim, the assessee furnished donation receipts issued by the political party; details of the party including PAN and address; bank statements reflecting the donation transaction; and income tax return and computation showing the deduction claimed.
The assessee further contended that he was not involved in any alleged bogus donation activities and that the deduction had been claimed in accordance with law.
On the jurisdictional challenge, the Tribunal rejected the assessee’s objection to the reopening of assessment.
The ITAT observed that information obtained during the investigation and search proceedings indicated that the assessee’s donation appeared in the records of the political party. The Tribunal also noted that the assessee had admitted making the donation during the assessment proceedings. Accordingly, it held that the reopening under Section 147 was valid and dismissed the jurisdictional ground.
While examining the merits of the addition, the Tribunal found deficiencies in the assessment process.
The Tribunal held that these aspects required proper examination before arriving at any conclusion regarding the genuineness of the donation claim.
The ITAT remanded the matter to the Assessing Officer for fresh examination of the relevant evidence and adjudication on merits in accordance with the Income Tax Act. The Tribunal also directed that adequate opportunity of hearing be provided to the assessee and that the principles of natural justice be followed.
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