“Explore the recent Income Tax notices targeting donors to Registered Unrecognized Political Parties (RUPPs) for AY 2019-20. Uncover the issues surrounding these parties, including non-compliance and violation of statutory requirements. Delve into the income tax implications and understand how genuine donors can navigate this challenging situation. Stay informed about recent legal precedents, such as the case of ACIT v. Armee Infotech, providing insights into deduction claims for donations to political parties under section 80GGC.”
Various assessee’s who have made donation to various RUPPs have started receiving notices for AY 2019-20 u/s 148A(b) and subsequently u/s 148A(d) of The Income Tax Act, 1961. These assessee’s have made donations to claim 100% deduction of donation made, under section80GGC.
Before going to the taxation effects, let’s first understand the whole issue from beginning.
What is “Registered Unrecognized Political Parties (RUPPs) ?”
The RUPPs are political parties who are registered under Section 29A of The Representation of the People’s Act, 1951. (The RP Act). The registering authority for political parties is “Election commission of India (ECI)” RUPP are either newly registered parties or those which have not secured enough percentages of votes in Assembly or General Elections to become a state party or those which have never contested in elections since being registered.
The ECI noted that there are 2796 Registered Unrecognized Political Parties (RUPP) as in September, 2021 (Source: https://eci.gov.in/files/file/13711-list-of-political-parties-symbol-main-notification-dated23092021/), which is an increase of over 300% since 2001. Every RUPP so registered is required to comply with the various rules, instructions and directions given by ECI.
The ECI noted that out of total 2796 RUPPs, a majority are neither taking part in electoral process nor adhering various compliance requirements, which is violation of statutory requirements but also defeats the purpose of clean electoral process.
The ECI dig out the data and realized that,
1. Out of 2354* RUPPs, over 92% RUPPs have not filed their Contribution Report in 2019
2. 199 RUPPs claimed Rs 445 Cr IT exemption in FY 2018-19
3. 219 RUPPs claimed Rs 608 Cr IT exemption in FY 2019-20. Out of these, 66 RUPPs have claimed income tax exemption without submitting contribution reports in Form 24A as mandated under section 29C of the RP Act.
4. 87 RUPPs have been found to be not in existence
5. For the year 2019, 2056 RUPPs have not yet filed their Annual Audited Accounts.
6. In General Election 2019, out of 2354 RUPPs only 623 contested elections and 70% RUPPs did not contest elections**
7. Out of 115 RUPPs which contested Assembly elections of 2021, only 15 RUPPs have filed their Election Expenditure Statement till May 2022.
(Source: https://eci.gov.in/files/file/9787-amendment-notificaiton-list-of-parties-and-symbols-english-dated-01042019/ and https://eci.gov.in/files/category/1551-general-election-2019-including-vellore-pc/, Press release by Press Information Bureau -Delhi- dtd. 25-05-2022)
This press release brought the income tax department into action and has conducted a search and seizure operation at multiple locations u/s.132 of the Income Tax Act, 1961 on RUPPs at various states on 07/09/2022 and around.
These search operations brought out before income tax department a list of more than 23 RUPPs who were involved in taking donations in cheque and returning back cash to donor for some commission. The donor in turn claim income tax benefits of 100% under section 80 GGC and 80 GGB of The Income Tax Act, 1961.
The method of working observed by the income tax department during search, is such that the donation is received through any mode of bank transfer, i.e., cheque/RTGS/NEFT in the RUPP’s bank accounts. This donation is then routed through multi layers, and returned to the original donors in cash after deducting commission by middlemen. Further the political party is exempt from income tax u/s 13A of The I T Act, 1961. The donors get 100% u/s 80GGB or 80GGC of the Income Tax Act, 1961. In this manner the donors escape income tax on their regular income.
The income tax department then started sending notices to the donors, who have donated to the above 23 RUPP parties for assessment year (AY) 2019-20. The notices for subsequent AYs will start following in some time.
Though the situation is not in favour of the assessee in any manner, and the assessee, if he has made false claim of donation, then he should voluntarily come forward and accept the same and pay, income tax, interest and penalty and buy peace of mind.
But in case the assessee has made genuine donation to such RUPPs then and his assessment is reopened then he has one interested case law of Hon’ble ITAT Ahmedabad to his favour in the matter of ACIT Circle 6(1) v. Armee Infotech ITA no. ITA No.1778/Ahd/2016 and cross appeals Armee Infotech v. ACIT Circle 6(1) for AY 2012-13. The assessee has made various donations to rashtriya Komi Ekta Party, Akhil Bhartiya Hindu Mahasabha, Lok Janshakti Parity and claimed deduction u/s 80GGC. The ld. AO disallowed the donation. The ld. ITAT deleted the addition. The observation of the Hon’ble ITAT is quite elaborate.
Recently, Hon’ble ITAT Mumbai in ITA 2649-Mum-2022, in the matter of Shri Ravindra K Reshamwala v. DCIT 17(1) vide order dtd. 21-02-2023, the ITAT bench held in favour of assessee with a reason that on the date of giving donation, the registration of the institute was valid u/s 35(1)(ii) granting approval. So deduction for donation can not be disallowed.
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