Chirag Bhikhabhai Patel Vs DCIT (ITAT Rajkot)
Political Donation Disallowance Scaled Down: ITAT Rajkot Taxes Only 10% of Alleged On-Money
The Income Tax Appellate Tribunal partly allowed the assessee’s appeal for AY 2019-20, substantially reducing an addition arising from disallowance of deduction claimed under section 80GGC for a political donation.
The Assessing Officer had reopened the assessment based on Investigation Wing inputs alleging that donations to a Registered Unrecognised Political Party (RUPP) were accommodation entries, and consequently disallowed ₹4,00,000 claimed as deduction. The Commissioner of Income Tax (Appeals) affirmed the disallowance.
On appeal, the Tribunal noted that the basic statutory conditions of section 80GGC were satisfied:
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the political party was registered under section 29A of the Representation of the People Act, 1951, and
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the donation was made through banking channels, not in cash.
Importantly, there was no direct or corroborative evidence linking the assessee to any alleged accommodation-entry racket, and the internal affairs of the political party were beyond the assessee’s control.
However, considering the smallness of the amount and to plug potential revenue leakage, the Tribunal adopted an estimated approach, holding that the entire donation could not be taxed, and only a notional profit element should be brought to tax. Accordingly, it directed the AO to restrict the addition to 10% of ₹4,00,000 (₹40,000) at normal rates, clarifying that the relief was case-specific and non-precedential.
The appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
