Public Political Party Vs DCIT (ITAT Delhi)
Bogus Donations, No 13A Exemption: Delhi ITAT Taxes Political Party on 6% Commission, Section 68 Additions Set Aside
The Delhi Bench ‘C’ of the ITAT, in a batch of 8 appeals filed by delivered a significant ruling on taxability of political parties indulging in bogus donation arrangements.
The case arose from a search u/s 132 conducted pursuant to a pan-India probe into Registered Unrecognised Political Parties (RUPPs). The AO denied exemption u/s 13A, treated donations as unexplained u/s 68, and relied on seized material, bank statements, and the treasurer’s statement u/s 132(4), alleging that the party acted merely as a conduit for routing donations back to donors after retaining commission of 5–8%.
The Tribunal upheld the denial of exemption u/s 13A, holding that the Assessee failed to comply with mandatory statutory conditions, namely:
- Non-filing / belated filing of returns u/s 139(4B),
- Failure to file contribution reports with the Election Commission within due dates,
- Non-maintenance of proper & audited books of account,
- Absence of donor identity, PAN and reconciliation with bank accounts.
Relying heavily on the Delhi HC judgment in CIT vs. Indian National Congress, the ITAT reiterated that Section 13A is a beneficial provision requiring strict compliance, and failure thereof renders voluntary contributions taxable as “Income from Other Sources” u/s 56(1).
However, the Tribunal made an important distinction and held that addition u/s 68 was not sustainable, since:
