Political donations are encouraged under the Income Tax Act to promote transparency and democratic participation. To support this objective, Section 80GGC allows taxpayers to claim a deduction for donations made to registered political parties. However, in recent years, tax authorities and courts have taken a stricter approach to verify whether such donations are genuine or merely used as a tax evasion tool.
A significant ruling in this regard was delivered by the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, in the case of Saurabh Pravinbhai Patel & Brijesh Pravinbhai Patel (AOP) vs. Assessment Unit, Income Tax Department. The Tribunal clearly held that political donations lacking genuineness and economic substance are not eligible for deduction under Section 80GGC, even if paid through banking channels.
This article explains the ruling in simple terms, analyses the legal reasoning adopted by the authorities, and highlights practical lessons for taxpayers and businesses.
Understand Section 80GGC in Simple Language
Section 80GGC of the Income Tax Act allows any person (other than local authorities and artificial juridical persons) to claim a deduction for donations made to political parties or electoral trusts.
However, certain conditions must be fulfilled:
- The donation must be made to a registered political party
- Payment must be made through banking channels (cheque, electronic transfer, etc.)
- Cash donations are not allowed
- The donation must be genuine and bona fide
While the law does not impose a monetary ceiling, courts have repeatedly emphasised that the genuineness of the transaction is the most critical factor.
Background of the Case
In the present case, the assessee was an Association of Persons (AOP) engaged in real estate development and rental activities. For Assessment Year 2020–21, the assessee filed its return of income declaring total income of around ₹25.93 lakh.
During the same year, the assessee claimed a deduction of ₹1.13 crore under Section 80GGC, stating that political donations were made to the following parties:
- Kisan Party of India, Bihar
- Rashtriya Samajwadi Party (Secular), Gujarat
At face value, the claim appeared compliant since donations were made through banking channels and receipts were obtained.
Why the Tax Department Questioned the Deduction
To verify the claim, the Assessing Officer (AO) initiated scrutiny proceedings and issued notices under Section 133(6) to the political parties to confirm receipt of donations and provide supporting details.
However, several red flags emerged:
- Notices sent to the political parties were returned unserved or unanswered
- The assessee failed to respond to show cause notices
- No additional evidence was provided to establish the genuineness of the donations
- The political parties appeared to be inactive and non-compliant
Due to non-cooperation and suspicious patterns, the AO conducted an in-depth investigation.
Findings of the Assessing Officer
The Assessing Officer relied on multiple sources, including:
- Bank account statements of political parties
- Data from the Election Commission of India
- Media reports on registered unrecognised political parties (RUPPs)
- Earlier judicial precedents involving similar donation structures
The investigation revealed that:
- Large sums were credited to political party bank accounts
- The funds were transferred out on the same day or within a very short period
- Money was routed through multiple entities with no evidence of political activity
- Several parties did not contest elections or carry out real political work
This indicated a classic round-tripping or accommodation entry mechanism, where money circulates back to the donor after passing through intermediary accounts.
Disallowance of Deduction Under Section 80GGC
Based on the findings, the AO concluded that:
- The donations were not genuine
- The political parties acted as conduit entities
- The transactions lacked economic substance
As a result, the entire deduction of ₹1.13 crore claimed under Section 80GGC was disallowed, and the amount was added back to the taxable income of the assessee.
Appeal Before the Commissioner of Income Tax (Appeals)
The assessee challenged the disallowance before the CIT(A). However, the appellate authority relied heavily on the earlier landmark decision of ITAT Ahmedabad in Pavan Anil Bakeri vs. DCIT.
In that case, the Tribunal had observed that:
- Donations were immediately withdrawn by political parties
- Funds were routed back to donors through layered transactions
- Political parties existed only on paper
- The donation mechanism was a colourable device for tax evasion
The CIT(A) found that the modus operandi in the present case was identical, and therefore upheld the Assessing Officer’s action.
Final Ruling of ITAT Ahmedabad
When the matter reached ITAT Ahmedabad, the Tribunal carefully examined the facts and noted that:
- The assessee failed to submit any fresh or credible evidence
- The bank transaction patterns clearly indicated fund rotation
- Political parties did not respond to statutory notices
- No proof of actual political use of funds was available
The Tribunal emphasised that payment through banking channels alone does not establish genuineness. The true nature and purpose of the transaction must be examined.
Accordingly, the ITAT dismissed the appeal and confirmed the disallowance under Section 80GGC.
Key Legal Principles Emerging from the Judgment
This ruling reinforces several important principles:
- Substance Over Form
Even if a donation is legally structured, courts will examine the real intention behind it. - Burden of Proof Lies on the Assessee
Taxpayers must prove that donations are genuine and not accommodation entries. - Political Party Registration Is Not Sufficient
Merely donating to a registered political party does not guarantee deduction. - Non-Compliance Weakens the Case
Failure to respond to notices can result in adverse inference.
Why This Judgment Is Important for Salaried Employees
Salaried Employees often look at political donations as a legitimate tax-saving avenue. However, this judgment sends a clear message that careless or uninformed donations can backfire.
If a donation is disallowed:
- Tax liability increases significantly
- Interest under Section 234B and 234C may apply
- Penalty proceedings under Section 270A may be initiated
- The case may attract further scrutiny
Therefore, businesses must exercise caution before claiming deductions under Section 80GGC.
Practical Tips for Claiming Section 80GGC Deduction Safely
Before making or claiming a political donation, taxpayers should:
- Verify whether the political party is active and compliant
- Avoid donations to little-known or inactive parties
- Maintain proper documentation and confirmations
- Ensure the party has a credible political presence
- Respond promptly to any tax department queries
- Consult a tax professional
Final Words:
The ITAT Ahmedabad ruling clearly establishes that Section 80GGC is not a blanket tax-saving provision. Political donations must be real, transparent, and bona fide. Any attempt to use such donations as a tool for routing funds or claiming artificial deductions will be rejected by tax authorities and courts.
For taxpayers and businesses, the message is clear: ethical tax planning and proper due diligence are non-negotiable in today’s compliance-driven environment.
Citation:Saurabh Pravinbhai PatelAnd Brijesh PravinbhaiPatel AOP vs Assessment Unit,Income TaxDepartment,New Delhi (ITA No. 1017/Ahd/2023Assessment Year: 2020-21)
