The ITAT Mumbai has decisively affirmed that claims for deduction under Section 80GGC of the Income Tax Act, 1961, are void if the recipient political party is part of a systemic scam involving bogus donations and fund laundering. This ruling reinforces that the genuineness of the donation transaction, not merely the documentary submission, determines the validity of the deduction.
Background & Facts
The Dispute
The assessee, Ritesh Sugan Jain, claimed a deduction of Rs. 9,90,000 under Section 80GGC for a donation made to the Rashtriya Samajwadi Party (Secular) during Assessment Year 2019-20. The Income Tax Officer (AO) disallowed the deduction after an investigation revealed the party was part of a large-scale, organized scam involving the acceptance of donations through banking channels and their subsequent return to donors in cash, after deducting commissions of 1.5% to 5%.
Key Facts
The assessee filed his income tax return on 31.07.2019 declaring total income of Rs. 9,52,310 and claiming deduction of Rs. 9,90,000 under Section 80GGC.
The donation was made via cheque to Rashtriya Samajwadi Party (Secular), a Registered Unrecognized Political Party (RUPP).
On 07.09.2022, the Income Tax Department conducted search and seizure operations under Section 132 against a group of 23 RUPPs in Ahmedabad, including the Rashtriya Samajwadi Party (Secular).
During the search, statements were recorded under Section 132(4) from:
Smt. Sandhya Singh, the nominal President of the party, who admitted she had no knowledge of party affairs.
Shri Bishwajeet Singh, her husband and de facto controller, who admitted the party was established solely to facilitate bogus donations and earn commissions.
Shri Amitkumar Chaturvedi, former president, who corroborated the scam.
The party had not filed any contribution reports since FY 2013-14 and was not registered with the Election Commission under the Representation of the People Act, 1951.
The party’s website address was found to be non-functional, and no physical office existed.
Digital and documentary evidence showed that donations received via NEFT/RTGS were routed through shell entities and returned to donors in cash.
The AO concluded that the donation was part of a fraudulent scheme designed to claim tax-free deductions while laundering money.
Procedural History
31.07.2019: Assessee filed return for AY 2019-20 claiming deduction of Rs. 9,90,000 under Section 80GGC.
20.04.2023: Notice under Section 148A(d) issued; notice under Section 148 issued on same date.
07.02.2025: AO passed order under Section 147 read with Section 144B, disallowing the deduction and adding Rs. 9,90,000 to income.
13.10.2025: Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi, upheld the AO’s order, relying on the coordinate bench decision in Milind Pankajbhai Shroff v. Pr. CIT-1, Rajkot (ITA No. 93/RJT/2023 dated 20.05.2024).
27.04.2026: Appeal filed before ITAT Mumbai dismissed.
Relief Sought
The assessee sought deletion of the disallowance of Rs. 9,90,000 under Section 80GGC, arguing that the donation was made in good faith and supported by bank records and receipt. He also challenged the reopening under Section 148, but no submissions were made on this ground.
The Legal Issue
The central question was whether a deduction claimed under Section 80GGC remains valid when the recipient political party is demonstrably part of a systematic, documented scam involving the receipt of bogus donations and their return to donors in cash, despite the presence of formal donation receipts and banking records.
Arguments Presented
For the Appellant/Petitioner
No representative appeared for the assessee. No written submissions or arguments were filed before the Tribunal. The appeal was therefore heard ex parte.
For the Respondent/State
The Department, represented by Shri Bhagirath Ramawat, Sr. DR, argued that:
The Rashtriya Samajwadi Party (Secular) was established and operated solely for the purpose of facilitating tax evasion through the donation scam.
The statements recorded under Section 132(4) during the search operation were credible, unchallenged, and corroborated by documentary evidence.
The party had not filed any contribution reports since FY 2013-14 and was not registered with the Election Commission.
The modus operandi - receipt of donations via banking channels and return in cash after commission - was identical to other RUPPs targeted in the Ahmedabad search.
The principle of fraud vitiates everything applies: even if the assessee acted in good faith, the transaction itself was fraudulent and cannot be sanctified by the existence of a receipt.
The coordinate bench decision in Milind Pankajbhai Shroff was directly on point and binding.
The Court's Analysis
The Tribunal examined the findings of the CIT(A) and the evidence from the search operation under Section 132. It noted that the party’s president was a nominal figure with no involvement in operations, while the real control lay with individuals who openly admitted to running a donation racket.
"The party has been formed to carry out bogus donations scam and bogus donation activities are being carried out from the inception of the party. All the party presidents from the inception have admitted that the RUPP is involved in the bogus donation scam."
The Tribunal emphasized that Section 80GGC requires not merely a receipt, but a genuine donation to a qualifying political party. The court held that when the recipient entity is a sham created solely to launder money and evade tax, the donation cannot be considered genuine under any interpretation of the law.
The Tribunal further relied on the principle that fraud vitiates everything, citing the Pune bench decision in Abhishek Ashok Lohade. It rejected the notion that the assessee’s subjective belief in the legitimacy of the donation could override objective evidence of systemic fraud.
The Tribunal concluded that the CIT(A) had correctly applied the precedent in Milind Pankajbhai Shroff, and that the disallowance was legally sound. The absence of any submissions from the assessee further weakened any potential challenge to the findings.
The Verdict
The appeal was dismissed. The Tribunal confirmed the disallowance of Rs. 9,90,000 under Section 80GGC. The addition to income stands. No relief was granted. The order of the CIT(A) dated 13.10.2025 is upheld in its entirety.
What This Means For Similar Cases
Donor’s Good Faith Is Irrelevant in Systemic Fraud
Practitioners must advise clients that claiming deductions under Section 80GGC for donations to RUPPs carries high risk if the party is linked to any known scam or lacks transparency.
Even if the donor has a receipt and bank proof, the deduction will be disallowed if the recipient party is part of a documented fraud network.
Due diligence must include verification of the party’s registration with the Election Commission and its filing history under Section 29C of the R.P. Act, 1951.
Documentary Evidence Alone Cannot Validate a Fraudulent Transaction
The judgment establishes that formal documentation (receipts, bank statements) cannot override evidence of a fraudulent scheme.
The Tribunal explicitly rejected the argument that the assessee’s submission of documents should be sufficient to uphold the deduction.
Practitioners must now argue that the substance of the transaction - not its form - determines validity under Section 80GGC.
RUPPs Are Presumed to Be Fraudulent Unless Proven Otherwise
The ITAT has effectively created a rebuttable presumption: if a political party is a RUPP with no contribution filings, no physical office, and is linked to a search operation involving fund laundering, its donations are presumed bogus.
The burden now shifts to the assessee to prove the genuineness of the donation beyond the receipt - e.g., by showing the party’s actual political activity, public engagement, or independent audit.
This precedent will be cited in all future cases involving donations to RUPPs, especially those linked to the Ahmedabad RUPP network.
