Political Donation Deduction Upheld by ITAT Due to Lack of Assessee-Specific Evidence: A Detailed Analysis
The Income Tax Appellate Tribunal (ITAT), Raipur Bench, recently delivered a significant judgment in the case of ACIT vs. Anuj Prakash Gupta relating to the tax deduction claimed on political donations under Section 80GGC of the Income-tax Act, 1961. In an era where political contributions are under heightened scrutiny by tax authorities, this decision demonstrates the principle that tax deductions cannot be denied on mere suspicion or general adverse information against a political entity unless there is specific evidence against the individual assessee. The ruling is noteworthy because it reiterates essential legal safeguards in income-tax proceedings — especially where general search operations lead to adverse findings against third parties, yet no direct link is established to the particular taxpayer.
Facts and Issues of the Case
The assessee, Mr. Anuj Prakash Gupta, had claimed a deduction of ₹2,00,000 for the Assessment Year 2019-20 under Section 80GGC of the Income-tax Act, which allows individual taxpayers to deduct contributions made to eligible political parties or electoral trusts from their gross total income. The donation was made to the Rashtriya Samajwadi Party (Secular) through banking channels, and the assessee had obtained a printed receipt reflecting the transaction. However, during the assessment proceedings, the Assessing Officer (AO) reopened the case under Sections 147/148 based on information received from the Investigation Wing of the Income-tax Department. Search operations carried out under Section 132 had reportedly revealed that the political party in question was involved in providing bogus accommodation entries disguised as political donations, whereby contributors allegedly received refunds after paying a commission.
On this basis, the AO disallowed the deduction under Section 80GGC on the ground that the donation was not genuine but part of a circular money-movement scheme. Dissatisfied with this assessment order, the assessee filed an appeal with the Commissioner of Income Tax (Appeals)/NFAC, which was decided in his favor. Aggrieved, the Revenue then appealed before the ITAT, Raipur. The main legal issue before the Tribunal was whether — in absence of any assessee-specific evidence showing that the assessee received a refund of the donation or directly benefited from the alleged bogus scheme — the deduction could be disallowed simply because the donee political party was implicated in a broader racket.
Observations by the Court and Tribunal
Both the first appellate authority (CIT(A)/NFAC) and the ITAT, Raipur Bench emphasized that the mere identification of the donee political party in a larger investigation does not automatically render every donation made to it by individual contributors illegal or non-deductible under Section 80GGC. The Tribunal scrutinized the evidence on record and noted that:
- There was no dispute that the donation was made through proper banking channels and that a receipt was obtained by the assessee.
- The AO’s action in reopening the assessment was based on general information and search findings against the political party, not on evidence specific to the assessee’s transaction.
- The Department had not produced any bank trail, statements, or corroborative documents to prove that the assessee had received back the donation amount (which would indicate a bogus entry).
- Neither were there any documents or statements establishing the assessee’s involvement or benefit from the alleged accommodation entry scheme.
- The assessee was also not confronted with any direct evidence or given the opportunity to cross-examine witnesses (such as key functionaries of the political party whose statements were relied upon) before the addition was made.
On this basis, the Tribunal observed that an assessment order cannot be sustained if it is founded on general presumptions or adverse findings against third parties alone. The law requires direct and specific evidence — showing the involvement or benefit of the individual assessee — before a deduction claimed under Section 80GGC can be disallowed. This aligns with the principles of natural justice and the settled position that burden of proof lies on the Revenue to demonstrate that the particular transaction in question is not genuine.
In reaching this conclusion, the Tribunal relied on established legal principles that an assessing authority must have tangible, direct evidence linking the taxpayer to the alleged irregularity rather than speculative or broad inferences drawn from unrelated cases or search findings.
Law Applicable
Section 80GGC of the Income-tax Act, 1961
Section 80GGC allows a deduction from the total income of an assessee in respect of contributions made to a political party or an electoral trust. The key conditions for claiming this deduction are that:
- The donation must be made to a political party registered under Section 29A of the Representation of the People Act, 1951; and
- The donation must not be made in cash — it should be paid through a banking channel such as cheque, demand draft, net banking, etc.
If these statutory conditions are satisfied, the deduction is available to the taxpayer. However, the law does not expressly mandate further documentary requirements beyond proof of payment and receipt of the donation.
Principles of Evidence and Burden of Proof
In tax proceedings, the burden of proof lies with the Revenue when it seeks to deny a deduction or make an addition on account of alleged irregularities. Mere suspicion or information received from investigation wings, without direct evidence against the assessee, is not sufficient to dislodge a deduction that was initially allowed on the basis of documented compliance. The Tribunal’s ruling reinforces that tax authorities cannot rely on general findings from unrelated investigations to challenge a deduction unless they can produce evidence that connects the specific transaction to wrongdoing.
Principles of Natural Justice
The Tribunal also underscored the importance of providing an assessee with the opportunity to confront the evidence against them. In this case, because the AO had not provided assessee-specific material or allowed cross-examination of persons whose statements were relied upon, the proceedings were found to be procedurally unfair.
Conclusion by the Tribunal
In its final conclusion, the Income-tax Appellate Tribunal, Raipur Bench, upheld the order of the Commissioner of Income Tax (Appeals)/NFAC and dismissed the Revenue’s appeal. The Tribunal held that the disallowance of the deduction claimed under Section 80GGC was unsustainable in law as the AO had failed to bring on record any assessee-specific evidence indicating that the donation was refunded or was part of a bogus scheme. Since the only basis for the disallowance was broad adverse findings against the political party in a third-party search, the deduction could not be legitimately denied. Consequently, the Tribunal affirmed the deletion of the Rs. 2,00,000 addition made by the Assessing Officer.
This decision is a significant affirmation of taxpayers’ rights — underlining that deductions under Sections like 80GGC must be challenged on solid evidence, not conjecture. For taxpayers who have followed due process — made payments through proper banking channels and hold valid receipts — this ruling provides reassurance that their legitimate claims cannot be arbitrarily disallowed in absence of specific incriminating material.
