The Income Tax Appellate Tribunal (ITAT), Delhi, has reaffirmed that deductions under Section 80GGC of the Income Tax Act, 1961 are permissible only for genuine political donations. In a recent ruling, the Tribunal dismissed an assessee’s appeal, holding that donations routed through entities engaged in accommodation entries do not qualify for tax benefits. This judgment underscores the necessity of verifying the legitimacy of political donations before claiming deductions.
Background & Facts
The Dispute
The appellant, Arun Pratap Singh, a salaried employee, claimed a deduction of Rs. 3,00,000 under Section 80GGC for donations made to the political party 'Rashtriya Samajwadi Party' (Secular) (hereinafter referred to as RSP(S)). The donation was made via NEFT and supported by a receipt issued by the political party. However, the Assessing Officer (AO) disallowed the deduction and made an adhoc addition of Rs. 15,000 under Section 69C read with Section 115BBE of the Act, alleging that the assessee had paid a 5% commission on the donation.
Key Facts
- The assessee donated Rs. 3,00,000 to RSP(S) during the assessment year 2019-20.
- The donation was made through banking channels (NEFT) and supported by a receipt.
- The AO disallowed the deduction under Section 80GGC and added Rs. 15,000 under Section 69C for alleged commission payments.
- The assessee relied on the Tribunal order in ACIT vs. Anuj Prakash Gupta (ITA No. 11/RPR/2026) to support his claim.
Procedural History
- 30.01.2026: Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the assessee’s appeal, upholding the AO’s order.
- 23.03.2026: The assessee filed an appeal before the ITAT, Delhi (ITA No. 1134/DEL/2026).
- 12.06.2026: ITAT pronounced its order, dismissing the assessee’s appeal.
The Parties' Positions
For the Appellant
- The assessee argued that the donation was genuine, made through banking channels, and supported by a valid receipt.
- The AO’s disallowance and addition were based on mere assumptions without evidence.
- The assessee relied on the Tribunal’s decision in ACIT vs. Anuj Prakash Gupta to support his claim.
For the Respondent
- The Revenue contended that RSP(S) was engaged in providing accommodation entries under the guise of political donations.
- During a search under Section 132, the President and key office bearers of RSP(S) admitted to routing funds through layers of entities and returning cash to donors after deducting commission.
- The Revenue relied on the Tribunal’s decision in Saurabh Pravinbhai Patel And Brajesh Pravinbhai Patel AOP vs. Assessment Unit Income Tax (ITA No. 1017/Ahd/2023) to argue that the donation was bogus.
Relief Sought
The assessee sought:
- Deletion of the addition of Rs. 15,000 made under Section 69C.
- Allowance of the deduction of Rs. 3,00,000 claimed under Section 80GGC.
The Legal Issue
The central question before the ITAT was whether a donation made to a political party engaged in accommodation entries qualifies for deduction under Section 80GGC of the Income Tax Act, 1961, or whether such transactions are merely sham arrangements designed to evade taxes.
Arguments Presented
For the Appellant
- The assessee argued that the donation was made through legitimate banking channels and supported by a valid receipt.
- The AO’s disallowance and addition were arbitrary and lacked evidentiary support.
- Reliance was placed on the Tribunal’s decision in ACIT vs. Anuj Prakash Gupta to contend that the deduction should be allowed.
For the Respondent
- The Revenue contended that RSP(S) was a shell entity engaged in providing accommodation entries.
- Statements recorded during the search under Section 132 revealed that donations were returned to donors in cash after deducting commission.
- The Revenue relied on the Tribunal’s decision in Saurabh Pravinbhai Patel And Brajesh Pravinbhai Patel AOP vs. Assessment Unit Income Tax to argue that the donation was not genuine and did not qualify for deduction.
The Court's Analysis
The ITAT examined the modus operandi of RSP(S) as revealed during the search proceedings. The Tribunal noted that the political party was involved in routing funds through multiple entities, ultimately returning cash to donors after deducting commission. This systematic pattern of financial maneuvering was held to be a clear attempt to legitimize illicit funds and evade taxes.
"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."
The Tribunal relied on the decision in Saurabh Pravinbhai Patel And Brajesh Pravinbhai Patel AOP vs. Assessment Unit Income Tax, where the Ahmedabad Bench of the ITAT had dismissed an appeal challenging the disallowance of a similar deduction. In that case, the Tribunal held that donations routed through shell entities engaged in accommodation entries do not qualify for deduction under Section 80GGC. The Tribunal also referred to the Supreme Court’s decision in Pavankumar M. Sanghvi v. ITO, which upheld the disallowance of deductions for transactions involving shell entities.
The ITAT observed that the assessee had failed to produce any fresh evidence to rebut the findings of the lower authorities. The Tribunal emphasized that the burden of proving the genuineness of the donation lay on the assessee, and in the absence of such proof, the disallowance was justified.
The Verdict
The ITAT dismissed the assessee’s appeal, upholding the disallowance of the deduction of Rs. 3,00,000 under Section 80GGC and the addition of Rs. 15,000 under Section 69C. The Tribunal held that the donation was not genuine and was part of a systematic arrangement to evade taxes.
What This Means For Similar Cases
Genuineness of Donations Is Non-Negotiable
- The judgment reaffirms that deductions under Section 80GGC are permissible only for genuine political donations.
- Assessees must ensure that donations are made to legitimate political parties and not to entities engaged in accommodation entries or financial maneuvering.
Burden of Proof Lies on the Assessee
- The assessee bears the burden of proving the genuineness of the donation. Mere production of a receipt or evidence of banking transactions is insufficient if the recipient entity is found to be involved in illicit activities.
- Assessees should conduct due diligence on the political party before making donations to avoid disallowance of deductions.
Accommodation Entries Will Not Qualify for Tax Benefits
- Donations routed through entities engaged in accommodation entries will not qualify for deductions under Section 80GGC.
- The Tribunal’s reliance on precedents such as Saurabh Pravinbhai Patel and Pavankumar M. Sanghvi indicates that courts will scrutinize the modus operandi of political parties before allowing deductions.
