The Donation Dispute
Mr. Patel, a taxpayer, declared an income of Rs 16 lakh in his Income Tax Return filed on June 28, 2019. His claim for a Rs 4 lakh tax deduction, made
under Section 80GGC for a donation to a political party, came under scrutiny during an Income Tax Department investigation. This inquiry revealed that the political party, a Registered Unrecognized Political Party (RUPP), was allegedly involved in a scheme of providing 'accommodation entries' to beneficiaries seeking fraudulent tax deductions. Consequently, Mr. Patel's case was reopened on April 14, 2023, via a notice under Section 148, initiating reassessment proceedings under Section 147. The assessing officer (AO) ultimately disallowed the Rs 4 lakh deduction, asserting the donation was not genuine. This led to a revised taxable income of Rs 20 lakh, finalized on March 24, 2025.
ITAT's Deliberation and Ruling
The Income Tax Appellate Tribunal (ITAT), specifically ITAT Rajkot, reviewed the AO's decision to disallow the Rs 4 lakh deduction under Section 80GGC. Mr. Patel maintained that his donation was made in good faith and that he had no involvement in any alleged scam orchestrated by the political party. The tribunal noted the absence of any direct evidence linking Mr. Patel to the party's alleged misconduct. Crucially, for a Section 80GGC deduction, two primary conditions generally need to be met: the political party must be registered with the Election Commission, and the donation must not be in cash. Mr. Patel's donation fulfilled both these criteria, being made through proper banking channels to a party duly registered under Section 29A of the Representation of the People Act, 1951. The ITAT acknowledged that the political party managed its own affairs, which were not controlled by the donor. Finding no corroborative evidence of Mr. Patel's involvement in the alleged scam, the ITAT recognized that the allegations of accommodation entries were not directly attributable to him.
A Pragmatic Resolution
Despite finding no direct culpability on Mr. Patel's part, and to ensure justice while addressing potential revenue leakage, the ITAT opted for a pragmatic approach. Considering the relatively modest amount of Rs 4 lakh that formed the basis of the 'bogus' claim, the tribunal directed an addition of 10% of this amount to Mr. Patel's income. This resulted in an additional Rs 40,000 being added to his taxable income. The ITAT explicitly stated that this decision was made considering the specific circumstances and the amount involved, and should not be construed as a precedent for future years or similar cases. Ultimately, Mr. Patel's appeal was partly allowed based on this revised calculation, providing him with a significant victory in a complex tax dispute.
