Background of the Case
The assessee, a salaried individual, filed his return for AY 2019-20 claiming a deduction of Rs 12 lakh under Section 80GGC on account of a donation made to Rashtriya Samajwadi Party (Secular). The Assessing Officer disallowed the deduction, holding that the donation formed part of an accommodation entry arrangement. The CIT(A) affirmed the disallowance, following which the matter reached the ITAT.
Assessee's Contentions
The donation was made through proper banking channels.
The political party was duly registered under the Representation of the People Act.
A valid donation receipt had been obtained.
There was no evidence showing that the donated money was returned to the assessee.
Once payment and identity of the donee were established, the initial burden stood discharged.
Reliance was placed on several judicial precedents including:
CIT v. Orissa Corporation Pvt. Ltd.
CIT v. Divine Leasing & Finance Ltd.
K.P. Varghese v. ITO
Various ITAT decisions where deductions were allowed in similar factual circumstances.
Revenue's Case
The Revenue relied upon extensive search and investigation conducted on the political party.
According to the investigation:
Search proceedings under Section 132 uncovered the modus operandi.
Statements of office bearers admitted that donations were routed through shell entities.
Money was layered through multiple bank accounts.
Cash was allegedly returned to donors after deducting commission.
The political party functioned merely as an accommodation entry provider.
The Revenue therefore contended that the deduction under Section 80GGC was unavailable because the contribution lacked genuineness.
Tribunal's Findings
1. Banking Channel Alone Does Not Prove Genuineness
The Tribunal rejected the argument that payment through banking channels and production of receipts automatically establish entitlement to deduction.
It observed that Section 80GGC contemplates deduction only where there is a genuine voluntary contribution to a genuine political activity.
Where investigation establishes that the political party itself was merely providing accommodation entries, banking documents lose evidentiary value.
2. Circumstantial Evidence Can Be Sufficient
A significant aspect of the judgment is the Tribunal's emphasis that direct evidence is rarely available in tax evasion cases.
The Tribunal held that tax authorities are entitled to rely upon:
surrounding circumstances,
banking trails,
statements recorded during search,
human probabilities, and
preponderance of probabilities.
Accordingly, absence of direct proof of cash return did not help the assessee.
3. Registration of Political Party is Not Conclusive
The Tribunal clarified that registration under Section 29A of the Representation of the People Act merely recognizes the legal existence of the political party.
It does not automatically validate every donation received by that party.
Eligibility under Section 80GGC depends upon the genuineness of the transaction itself.
4. Distinguishing Earlier Supreme Court Decisions
The Tribunal carefully distinguished the authorities relied upon by the assessee.
Orissa Corporation
The Tribunal observed that Orissa Corporation dealt with unexplained cash credits under Section 68 where no investigation had been conducted by the Revenue.
In the present case, however, detailed investigation had already exposed the accommodation entry mechanism.
Divine Leasing
Similarly, Divine Leasing concerned identity of shareholders under Section 68, whereas the present dispute related to the genuineness of the donation itself.
K.P. Varghese
The Tribunal accepted that the burden initially lies on the Revenue.
However, once the Revenue produced investigation reports, bank trail analysis and statements recorded under Section 132(4), the burden shifted back to the assessee, who failed to rebut the evidence.
Reliance on Earlier ITAT Decisions
The Bench also noted that similar issues had already been decided against taxpayers in several earlier cases involving donations to the same political party.
It followed its earlier coordinate bench decisions, particularly those involving allegations that donations to Rashtriya Samajwadi Party (Secular) constituted accommodation entries.
Application of the "Human Probability" Test
Perhaps the most significant legal takeaway is the Tribunal's reliance on the Supreme Court rulings in:
CIT v. Durga Prasad More
Sumati Dayal v. CIT
The Tribunal reiterated that tax authorities are not required to accept documentary evidence at face value. They may look beyond the apparent transaction and examine surrounding circumstances to ascertain its real nature.
The Tribunal concluded that the cumulative evidence overwhelmingly established that the impugned donation was merely an accommodation entry.
Final Decision
The ITAT dismissed the assessee's appeal and upheld the disallowance of the deduction under Section 80GGC.
According to the Tribunal:
mere payment through banking channels,
production of donation receipts, and
registration of the political party
were insufficient to establish genuineness in the face of overwhelming investigative evidence demonstrating a systematic accommodation entry arrangement.
Income Tax Case Law Prasana Jayantkumar Bhatt v. DCIT
Citaion-2026 TAXONATION 1820 (ITAT-AHMEDABAD)
With Taxonation.ai, you can instantly research the latest Income Tax and GST judgments, prepare notices, appeals, written submissions, and legal drafts using AI trained on Taxonation's proprietary database of case laws, statutory provisions, circulars, and notifications.
Experience faster IT & GST research and drafting with Taxonation.ai and focus more on strategy than paperwork.
Visit: www.taxonation.ai
