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Facts
The assessee, an Association of Person (AOP), claimed deductions of Rs. 1,13,51,000/- under Section 80G and Section 80GGC for donations to Kisan Party of India and Rashtriya Samajwadi Party (S). The Assessing Officer's verification, initiated by bounced notices and further inquiry, revealed that these political parties were allegedly involved in 'round tripping' funds and providing 'accommodation entries.' The assessee failed to provide corroborative evidence to substantiate the genuineness of these donations.
Held
The Tribunal upheld the disallowance of the claimed deduction under Section 80GGC, confirming that the donations were 'bogus' and a 'colourable device' to evade tax liability. It found no fresh material from the assessee to deviate from the findings of the lower authorities, which had concluded that the bank accounts of the political parties were used for accommodation entries and funds were returned to donors.
Key Issues
Whether the assessee's claim for deduction under Section 80GGC for donations to political parties was genuine, given allegations of 'round tripping' of funds and lack of supporting evidence.
Sections Cited
143(3), 80G, 80GGC, 133(6), 13A, 131(1), 271(1)(c), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Saurabh Pravinbhai Patel Assessment Unit, And Brijesh Pravinbhai Income Tax Patel AOP, Vs Department, 103, Laksh Prime, New Delhi Opp. Town Hall, Gujarat 388001 PAN: AAEAS5687G (Appellant) (Respondent) Assessee Represented: Shri Saiyam Shah, A.R. & Shri Prakash D Shah, A.R. Revenue Represented: Shri Ankit Jain, Sr. D.R. Date of hearing : 24-04-2025 Date of pronouncement : 30-04-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the appellate order dated 12-10-2023 passed by Commissioner of Income Tax [Appeals], National Faceless Appeal Centre arising out of the assessment order passed under section 143[3] of the Income Tax Act, 1961 [hereafter referred as the Act] relating to the Assessment year 2021-21. A.Y. 2020-21 Page No 2 Saurabh Pravinbhai Patel And Brijesh Pravinbhai Patel AOP vs. Assessment Unit, ITD
Brief facts of the case is that the assessee is an Association of Person (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 and Rashtriya Samajwadi Party (S) 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. Further verification made by the A.O. observed as follows:
“4. Meantime, from the Article on a news portal it is gathered that 3 parties raising over Rs.1000 crore in poll donations under lens. Three little known political parties that allegedly managed to mobilise over Rs. 1000 crore in election donations are now said to be in the dock for serious financial fraud, including round tripping the money back to the donors after claiming income tax exemptions Gujarat based Manav Adhikar National Party Apna Desh Party from Uttar Pradesh and Kisan Party of India from Bihar are currently said to be under scanner of the revenue department and the case of these three parties has not been referred by the poll panel to the government for legal and criminal action. Contributions received by these political parties including Registered Unrecognized Political Parties (RUPPs) are 100% exempt from income tax as an incentive to parties for strengthening the electoral democracy. Prima facie assessments, however, indicate that these political parties raised crores in donation and received income tax exemption. They are alleged to have engaged in heavy round tripping of the funds received and diverted it to non-electoral expenses. In nearly 1,500 cases, it could be traced that the money sent in as 'donation' to these political parties was returned to A.Y. 2020-21 Page No 3 Saurabh Pravinbhai Patel And Brijesh Pravinbhai Patel AOP vs. Assessment Unit, ITD them by way of purchase or transfer. As many as 25 conduits including chartered accountants were found involved. In case of one party, two different persons have allegedly signed on as president, tax exemptions have been taken without due contribution reports and the mode of donation has not been disclosed by another 5.1 From the portal of Election Commission of India it is seen that the commission has declared some of the political parties inactive, as they have not responded to the letter/notice delivered to them and have not contested a single election either to the General Assembly of a State or the Parliament Election 2014 & 2019. These RUPPS have failed to comply with statutory requirements for more than 16 compliance steps since 2015 and are continuing to default. 5.2 Therefore, from the above, it is apparent that the political parties require to offer voluntary contributions received from any person in the returns of income and claim exemption u/s 13A subject to fulfilment of certain condition laid down for this purpose. These political parties are seems to have been engaged in heavy round tripping of the funds received and diverted it to non- electoral expenses, the money sent in as donation to these political parties was returned to them by way of purchase or transfer. In the instant case, the assessee failed to submit the details as called for wide show cause. Therefore, the claim of the assessee to have made donations of Rs.62.01.000/- to Kisan Party of India, Bihar and Rs.51,50,000/- to Rashtriya Samajwadi Party, Gujarat is seems to be suspicious and it clearly shows that the claim made by the assessee is far from truth and nothing but a colourable device to hoodwink the tax department and to evade tax liability in the guise of Sec. 80GGC. The assessee made an attempt to exploit the deduction made available to genuine assessee's. In the given circumstances, onus lies on the assessee to support its claim with corroborative evidences. However, the assessee failed in famishing the documentary evidences called for verification, thereby the genuineness of donation made to political party was not proved by the assessee beyond doubt.”
3.1. Thus the Assessing Officer made the disallowance of Rs. 1,13,51,000/- claim as deduction u/s. 80GGC of the Act and demanded tax thereon.
Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A). After considering the Tribunal’s decision, confirmed the disallowance made by the Assessing Officer by observing as follows:
“While adjudicating the instant case by the undersigned, the eye-opening facts came in notice in the case of Pavan Anil Bakeri vs. Deputy Commissioner of Income-tax adjudicated by the Hon'ble ITAT, Ahmedabad Bench which changed the course of the case to a whole new direction In the above case the Hon'ble ITAT held that where assessee made donation to a political party and claimed deduction under section 80GGC, since Assessing Officer found that bank accounts of above political party had been used by accommodation entry provider where donation received by cheques were layered though various bank accounts and ultimately cash was returned back, donation claimed under section 80GGC was merely accommodation entry and thus, disallowance of deduction under section 80GGC was proper. The sequence of events in the above case are "The assessee paid donation of Rs 52,00,000/- to Rashtriya Samajwadi Party (Secular) To verify the genuineness and utilization purpose of the donation, a notice u/s 133(6) was issued on 5-10-2018 to Rashtriya Samajwadi Party (RSP) There was no representation from RSP Therefore another opportunity was granted vide letter dated 16-10-2018 Again there was no response from RSP. Therefore a summon u/s 131(1) of the Act was issued to Shri S.N. Chaturvedi, National President, RSP to attend the office on 19-11-2018 to produce the requisite the donation details. No one attended the office of the said date of hearing. 21 RSP is a political party registered with Election Commission of India. The Assessing Officer called for the bank details of RSP with Oriental Bank of Commerce, New Naroda Branch. From the perusal of the bank statement, it was observed there was a credit entry of Rs. 52,00,000/-on 07-10-2015 which is donation given by the assessee and there was two debit entries amounting to Rs. 27.00,000/- and Rs 25,00,000/- respectively on the same day On further enquiry from the Oriental Bank of Commerce the amount of Rs. 27,00,000/- credited to Sterlite Inc and Rs 25,00,000/- credited to Shah And Co. on 7-10-2015. 2.2. On examination of the RSP bank statement, it was found that it is a general practice of crediting huge cash and subsequently transfering to another party on same day. Further analysis of the transaction particulars reveals that the cash was transferred to mainly four parties namely Guru Enterprise, Unique Trading, Mahavaisnavi and KK Indersriz. It was also observed that no cash withdrawal for expenses like rent, electricity, water, newspaper, fuel etc of RSP and is not reflecting in the bank account. There is an Inspector of Income-tax was deputed to visit the premises of RSP at UG-8. Harekrishna Complex, C.TM Char Rasta, Amraiwadi, Ahmedabad- 380026 on 15-11-2018 The Inspector submitted his report that RSP office situated on 2nd Floor of 3 storey building which is a small shop and shutter of which was half closed on that day. Nearby peoples were inquired that RSP Office which is found to be closed in most of the times. Copy of the said RSP Office photographs is reproduced in the assessment order. Further perusal of the records of RSP it is observed that during the assessment year 2016-17, RSP has received only donation amounting to Rs. 14,73,309/- whereas as per the bank account statement of the RSP in Oriental Bank of Commerce, total amount credited is Rs. 38,15,03,885/- That apart from RSP is maintaining two other bank account one at Bank of India and another of Central Bank of India. Further enquiry of Mis. Sterlite Inc and Shah And Co both the accounts were closed on 30-3-2016. An enquiry by the Bank both the proprietorship firms, where there is no stocks found and the office premises were being occupied by another person. 2.3 On further verification the donation amount of Rs. 52,00,000/-paid by the assessee to RSP was transferred to Waheguru Enterprise and Sapan Traders on 7-10-2015 of Rs. 25,00 000/-and Rs. 27,00,000/- respectively. This systematic pattern of transferring the funds credited by RSP clearly establishes the modus operandi of the account opening i.e. to route or transfer the funds of RSP back to the donator. Thus the assessee gave Rs. 52,00,000/- to RSP in the form of donation which was transferred to accounts of Shri Mukesh Mehta who claimed to be a businessman. Again the said amount was transferred to Sapan Traders and Waheguru Enterprise. Thus the donation claimed to be paid by the assesse is found to be bogus and the same is disallowed u/s. 80GGC of the Act and added back to the total income of the assessee and also initiated penalty proceedings u/s. 271(1)(c) of the Act for concealment of income."
On further appeal Ld. CIT (A) observed in the case "The Assessing Officer has clearly brought out facts that bank accounts of above political party have been used by the accommodation entry provider where the donation received by cheques were layered through various bank accounts and ultimately cash was returned back. I therefore, agree with the findings given by the AO that donation of Rs. 52,00,000/-claimed u/s. 80GGC is merely accommodation entry. The Honorable ITAT Ahmedabad in the case of Pavankumar M. Sanghvi v. ITO, Wd. 3(1)(2), Baroda [2017] 81 taxmann.com 308 on the issue of accommodation entry has observed as under- "8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realities. It will, therefore, be useful to understand as to how the shell entries, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions to give it colour of a normal business entity used as a vehicle for various financial manoeuvers. A shell entity, by itself, it not an illegal entity but it is their act of abatement, of, and being part of financial manoeuvring to legitimize illicit monies and evade taxes, that takes it actions beyond what is legally permissible These entities have every semblance of a genuine business its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets its apart from a genuine business entity is lack of genuineness in its actual operations. The operations camed out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities."
In the aforesaid case, the Hon'ble ITAT bench held "As regarding ground no. 2, donation of Rs. 52,00,000/- made u/s. 80GGC, the ground is general in nature. The assessee has not produced any additional evidence in support of its claim. In fact the assessee had stated that it had cordial relationship with Mr. Kamlendu Tripathi Secretary of RSP and no other criteria was followed for making these donations. 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 maneuver to legitimate illicit moneys and evade taxes. It is appropriate to follow the Hon'ble Supreme Court judgment, wherein SLP filed by the assessee is dismissed confirming the Tribunal's decision to come to the conclusion that the entire loan transaction was not genuine, in the case of Pavankumar M. Sanghvi v. ITO [2018] 97 taxmann.com 398/258 Taxman 160 (SC) which held as follows: Assessee received certain sum as loan from two companies - Assessing Officer having found that said lender companies were shell entities added loan amount to income of assessee under section 68-Bank statement of lender companies revealed high transactions during day and a consistently minimal balance at end of working day-Further day when assessee was given loan there were credil entries of almost similar amounts, and balance after these transactions was a small amount Tribunal taking into account bank statements of lender companies and fact that assessee failed to produce these lenders for verification held that alleged loan transactions were not genuine -High Court by impugned order held that since Tribunal had given elaborate reasons to come to conclusion that entire loan transaction was not genuine, appeal filed before it was to be dismissed Whether Special Leave Petition against impugned order was to be dismissed. 5.2 In the absence of any evidence from the assessee, the grounds raised by the assessee are untenable and therefore the same is rejected. The findings given by the lower authorities does not require any interference and the addition is sustained. It is pertinent to mention here that out of two political parties to whom the appellant paid total donation of Rs. 1,13,51,000/- the modus operandi of the one political party named the Rashtriya Samajwadi Party (Secular) has already been discussed in details in the preceding paragraphs of the instant order. It can be safely presumed that the modus operandi of other political party named Kisan party of India is also indulging only in providing accommodation entry as can be ascertained from various newspaper reports and enquiries which is being conducted by various institutions. In view of the findings in the above case I am inclined to agree with the decision made by the AO during the assessment proceedings regarding the donation made was basically a bogus donation as the Political Party is indulging only in providing accommodation entry. Thus in view of the above discussion, the submission made by the appellant regarding the claim of deduction for donation of Rs. 1.13.51,000/- to be allowed is not acceptable as already discussed in detail in the preceding Paras of the instant order. Therefore, the ground of appeal stands dismissed.”
5. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
The learned National Faceless Appeal Centre has erred in law and facts by confirming the disallowance of claim for deduction under section 80GGC of the Act of Rs.1,13,51,000/- made by the learned A.O. and therefore the learned A.O. be directed to allow the same while computing total income.
2. That the appellant craves liberty to add, amend and alter any ground of appeal
before the final hearing.
6. Ld. Counsel appearing for the assessee filed same set of documents filed before the Assessing Officer and reiterated its submissions. Nothing new documents or evidences filed before us to deviate from the findings of the Lower Authorities. The Ld AO has clearly brought out facts that bank accounts of above political parties have been used by the accommodation entry provider, where the donation 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 maneuver 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 is devoid of merits and liable to be dismissed.
In the result, the appeal filed by the Assessee is hereby dismissed.