This article explains a recent legal victory for a taxpayer, Abhishek Jayketu Joshi, in a dispute with the Income Tax Department regarding a donation made to a political party.
The Dispute: A ₹5 Lakh Donation
For the 2019-20 tax year, the taxpayer claimed a deduction of ₹5,00,000 under Section 80GGC for a donation made to the Kisan Party of India. However, the Income Tax Department (AO) reopened his case, alleging that the donation was not genuine. Based on information from the Investigation Wing, the department claimed that certain political parties were providing “fake” donation receipts and returning cash to donors after charging a small commission.
Why the Tax Department Rejected the Claim
The Assessing Officer (AO) disallowed the deduction, arguing that:
- The taxpayer’s name appeared in a list of beneficiaries of “accommodation entries” (fake transactions).
- The donation didn’t follow “human probabilities” because the taxpayer (living in Mumbai) donated to a party with no visible presence there.
- Merely paying by cheque and having a receipt was not enough proof of genuineness.
The Taxpayer’s Defense
The taxpayer challenged this, pointing out that:
- The payment was made through banking channels (HDFC Bank cheque).
- He possessed a valid donation receipt with his PAN and the party’s details.
- The Kisan Party of India was officially registered with the Election Commission of India.
- The department provided no proof that any money was ever returned to him in cash.
The ITAT’s Landmark Findings
The Mumbai Income Tax Appellate Tribunal (ITAT) ruled in favor of the taxpayer, citing two major reasons:
1. Fatal Procedural Errors by the Department The Tribunal found that the department’s official notice was deeply flawed. It repeatedly and wrongly referred to a different entity, the “Aadhar Foundation,” instead of the Kisan Party of India. The ITAT ruled that an official notice based on incorrect facts makes the entire legal proceeding invalid. Furthermore, the department refused to share the evidence or statements they were using against the taxpayer, which violated the principles of natural justice.
2. Lack of Concrete Evidence On the merits of the case, the ITAT noted that the taxpayer had fulfilled all legal requirements by providing the bank statement, receipt, and registration certificate. The Tribunal stated that the department cannot disallow a deduction based on mere suspicion or general investigations without specific proof that the money was returned to the taxpayer.
The Final Verdict
The ITAT quashed the tax department’s order and allowed the taxpayer’s appeal. This ruling reinforces that the tax department must follow strict procedures and provide solid evidence before labeling a transaction as “bogus”.