Nouvelle Knowledge Services LLP vs Income Tax Officer, Ward-44(6), Delhi

“Decision:

8.1

The ground no. 1 to 4 are related to disallowance of deduction claimed u/s. 80GGC of Rs. 1,50,000/- hence all these are taken together. I have gone through the contents of assessment order, grounds of appeal with statement of facts and the documents filed by the appellant. The case was reopened on the issue of the appellant’s claim of deduction u/s 80GGC on bogus donation to Registered Unrecognized Political Party namely “Rashtriya Samajwadi Party (Secular)”. The Assessing Officer has passed assessment order u/s 147 r.w.s.144B as the appellant failed to justify his claim with supporting evidences during assessment proceedings. It is seen from assessment order that the AO has made the following addition.

8.2

Disallowance of deduction claimed u/s 80GGC of Rs.1,50,000/- made by AO. The relevant portion of the assessment order is placed below :

“3.4.19

Therefore, it is crystal clear that not only has the party been claiming wrong and invalid exemption over the years under section 13A of the IT Act but it has also been mentioning in its IT return of FY 2018-19 that no contribution report has been filed u/s.29C of the R.P. Act, 1951.

3.4.20

From the above discussion, it becomes crystal clear that the donation of Rs.1,50,000/- made by the assesse to Rashtriya Samajwadi Party (Secular) and claimed as exempt in the return of income filed for the AY 2019-10 is not allowable as deduction. In the circumstances, the amount of Rs.1,50,000/-claimed by the assessee as exempt u/s.80GGC of the Act is not allowed and added to the total income of the assessee during the year under consideration.”

For this addition, the undersigned proceeds to adjudicate the matter as under:

8.3

The main issue contested in this appeal is against the disallowance of deduction u/s 80GGC of Rs.1,50,000/-.

8.3.1

The appellant claimed a deduction of Rs.1,50,000/- under section 80GGC for donation made via account payee cheque to Rashtriya Samajwadi Party (Secular). While a receipt was furnished and payment was through banking channels i.e. NEFT, the assessment records and Investigation Wing's findings revealed that the party in question was flagged for providing bogus donation entries. The Assessing Officer acted based on investigation-backed information indicating that the political party operated as an entry provider. It has been established by the Investigation wing beyond doubt that Rashtriya Samajwadi Party (Secular) was involved in bogus donation scam, wherein funds were coming from the said party and same were transferred/withdrawn in cash. These donations were layered by routing through bank accounts of various dummy concerns and finally returned to the original donors, mainly in the form of cash. Importantly, Shri Amitkumar Chaturvedi, ex-National Party President of Rashtriya Samajwadi Party (Secular)] clearly admitted in his statement recorded on oath that the party was engaged in bogus donations scam and explained the modus operandi of the party with respect to donation received by the party. The donation receipt and payment through bank account alone cannot override adverse findings in this case. Moreover, payment by cheque is neither sacrosanct nor can it make a non-genuine transaction as genuine for which reliance is placed on the judgment of the CIT V. Precision Finance (P) Ltd. 208 ITR 465 (Cal.).

8.3.2

On perusal of the assessment order, it is mentioned that during the assessment proceedings various opportunities vide notices u/s 142(1) dated 31.10.2023, 21.11.2023 and 22.11.2024 were issued to the appellant. Assessee filed reply on 14.11.2023, 05.12.2023 and 27.11.2024. A show cause notice dated 23.12.2024 issued to the appellant proposing the addition to be made. On 10.01.2025 the appellant filed reply to the show cause notice. Therefore, it is clear that the principles of natural justice were in fact adhered to by the AO and no prejudice has been caused to the appellant on this account.

8.3.3

The appellant has failed to discharge his onus of proving the transaction as genuine during the assessment proceedings. It is pointed out that it is settled law that Burden of proof that transaction is genuine lies on the assessee. Reliance in this regard is placed on following decisions:

(i)

Kaveri Associates vs ACIT [Karnataka HC] Assessment year 1999-2000 One 'R' was a partner in assessee-firm - In search 'R' made a statement that amount of Rs. 75.50 lakhs found in his account books was drawn from firm - Assessee-firm, in response to notice issued under section 148, read with section 147 for first time filed a nil return of income for assessment year 1999-2000 claiming that aforesaid amount did not represent any parts of its income, and it had received said amount from as many as 14 persons by way of advance for sale of shops that were being constructed by it – Assessing Officer added aforesaid amount to income of assessee as unexplained cash credits under section 68 - Whether in view of finding of Assessing Officer that amount of Rs.75.50 lakhs had not been properly explained by assessee, particularly being in nature of cash credits, Assessing Officer was justified in adding the said amount to income of assessee as unexplained cash credits - Held, yes.

(ii)

Orient Trading Co. Ltd vs CIT [Bombay HC] Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment years 1944-45, 1945-46 and 1949-50 - Whether where entry stands in name of third party and assessee satisfies ITO as to identity of third party and also supplies such other evidence which prima facie show that entry is not fictitious, initial burden of proof lies on assessee can be said to have been discharged by him - Held, yes – Certain amount was credited in books of assessee company to account standing in name of 'R' - Facts revealed that entire account occurring in name of 'R' in assessee's account books was treated as account of 'S' both by Investigation Commission and by Income-tax Officer assessing 'S' for subsequent years - Whether assessee's assertion that account of 'R' in its account was benami account of 'S', was justified - Held, yes - Whether, therefore, aforesaid amount did not belong to assessee and did not constitute his undisclosed income - Held, yes.

(iii)

It is noted that in the case of Shri Charan Singh vs. Chandra Bhan Singh (AIR 1988 SC 6370), the Hon’ble Supreme Court have clarified that the burden of proof lies on the party who substantially asserts the affirmative of the issue and not upon the party who denies it. It has been further held that the party cannot, on failure to establish a prima facie case, take advantage of the weakness of his adversary’s case. The party must succeed by the strength of his own right and the clearness of his own proof. He cannot be heard to say that it was too difficult or virtually impossible to prove the matter in question. In the case under consideration, since it is the appellant who had made the claim that he had earned genuine money through cash sales, all the facts were especially within his knowledge. Section 102 of Indian Evidence Act makes it clear that initial onus is on person who substantially asserts a claim. If the onus is discharged by him and a case is made out, the onus shifts on to deponent. It is pertinent to mention here that the phrase “burden of proof” is used in two distinct meanings in the law of evidence viz, ‘the burden of establishing a case’, and ‘the burden of introducing evidence’. The burden of establishing a case remains throughout trial where it was originally placed; it never shifts. The burden of evidence may shift constantly as evidence is introduced by one side or the other

8.3.4

In the present case, the appellant has not been able to discharge his initial burden of proof. He has completely failed to produce any evidence whatsoever which could have justified that the donation to political parties was genuine. The AO did not accept the contention of the appellant in light of fact that persons holding responsible positions in the party in their sworn statements had accepted that the party is not carrying out any political activity and was formed for the sole purpose of carrying out bogus donation scam and the donations received from the persons are returned to them in cash after deducting commission and explained in the detail the modus operandi of this transaction. The AO has examined the factual position of this case in detailed and the modus operandi was also discussed in the assessment order which does not need any further elaboration, and the addition made by the AO deserve confirmation. The case laws relied upon by the appellant are not applicable to the instant case as the donation made to the political parties was not in good faith which is evident from the modus operandi of bonus donation racket was unearthed during the search action in RUPP group.

8.3.5

In view of the above discussion, the deduction under section 80GGC was rightly disallowed by the AO and the disallowance of Rs.1,50,000/- u/s 80GGC is accordingly confirmed.”

“2.

Brief facts of the case is that the assessee is an individual filed his Return of Income for the Asst. Year 2019-20 on 26-10-2019 declaring total income of Rs.8,25,580/- after claiming deduction under Chapter VIA of Rs. 3,17,858/- which is inclusive of donation of Rs.1,50,000/- u/s. 80GGC of the Act given to Political Parties. The assessment was reopened since the assessee has given donation of Rs.1,50,000/- to Rashtriya Samajwadi Party (Secular) which is the registered unrecognized political party and claiming bogus deduction u/s. 80GGC of the Act.

2.1.

In response, the assessee filed Return of Income on 22-052023 claiming the same original return including donation of Rs.1,50,000/- u/s. 80GGC of the Act. The assessee was issued a show cause notice, in reply the assessee filed a donation receipt given by Rashtriya Samajwadi Party (Secular), copy of the relevant bank statement and Certificate of Registration of Rashtriya Samajwadi Party (Secular). The assessing officer considered the same and held that Post Search enquiries on registered unrecognized political parties group of Ahmedabad (23 registered unrecognized political parties), it was established that the donation made to such Registered Unrecognized Political Parties (RUPP) in the nature of scam claiming bogus deduction u/s. 80GGC/80GGB of the Act and intended to defraud the legitimate tax of the assessee. The amounts were returned to the donor after deducting certain percentage from it. As it was proved to be non-genuine and bogus, the same was disallowed and demanded tax thereon.

3.

Aggrieved against the re assessment order, assessee filed appeal before Ld. CIT(A) who has confirmed the addition by detailed appellate order.

4.

Aggrieved against the same, assessee is in appeal before us raising the following Grounds of Appeal:

1.

That the re-opening of the assessment by the Jurisdictional Assessing Officer by issuing the notice us 148 is bad-in-law and the assessment order passed by the Faceless Assessing Officer also bad-in-law on two grounds viz. (a) the notice was issued without the A.O. recording his own satisfaction about the escapement of an income and (b) the notice should have been issued by the Faceless Jurisdictional A.O. in view of the provisions of section 151A of the Act as also the CBDT notification no. 18/2022 dt. 29-3-2022.

2.

That the A.O. erred in not allowing deduction of Rs. 150,000/- claimed by the appellant in respect of a donation to a registered political party by NEFT/RTGS in spite of fulfilling all the pre-conditions laid down under the said section and producing the Donation receipt issued by the said political party. It is submitted that on the basis of the evidences produced by the appellant and the facts mentioned in the Statement of Facts, the said deduction is clearly admissible, particularly in the absence of any cogent evidence produced by the A.O. against the appellant and supporting the return of donation money to the appellant and hence, the same be allowed.

3.

That the A.O. also erred in not allowing the deduction claimed u/s 80-GGC in violation of the principles of natural justice by not furnishing the copies of the statements recorded relied upon by him and by not allowing the cross-examination opportunity to the appellant.

5.

Ld. Chartered Accountant appearing for the assessee request for adjournment as he is busy with preparation and submission of Tax Audit Report which is falling due on 10-11-2025, the adjournment request was rejected.

6.

Further careful consideration of the grounds of appeal, it is noted that the identical issue was considered by Co-ordinate Bench of this Tribunal in Saurabh Pravinbhai Patel and Brijesh Pravinbhai Patel AOP v. Assessment Unit, Income Tax Department [IT Appeal No. 1017 (Ahd) of 2023,dated 30-4-2025] on donation made to political parties u/s. 80GGC of the Act wherein it was held as follows:

"4.

Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A). After considering the Tribunal's decision, confirmed the disallowance made by the Assessing Officer by observing as follows:

"While adjudicating the instant case by the undersigned, the eyeopening facts came in notice in the case of Pavan Anil Bakeri v. Deputy Commissioner of Income-tax adjudicated by the Hon'ble ITAT, Ahmedabad Bench which changed the course of the case to a whole new direction In the above case the Hon'ble ITAT held that where assessee made donation to a political party and claimed deduction under section 80GGC, since Assessing Officer found that bank accounts of above political party had been used by accommodation entry provider where donation received by cheques were layered though various bank accounts and ultimately cash was returned back, donation claimed under section 80GGC was merely accommodation entry and thus, disallowance of deduction under section 80GGC was proper. The sequence of events in the above case are "The assessee paid donation of Rs 52,00,000/- to Rashtriya Samajwadi Party (Secular) To verify the genuineness and utilization purpose of the donation, a notice u/s 133(6) was issued on 5-10-2018 to Rashtriya Samajwadi Party (RSP) There was no representation from RSP Therefore another opportunity was granted vide letter dated 16-10-2018 Again there was no response from RSP. Therefore, a summon u/s 131(1) of the Act was issued to Shri S.N. Chaturvedi, National President, RSP to attend the office on 19-11-2018 to produce the requisite the donation details. No one attended the office of the said date of hearing.

21 RSP is a political party registered with Election Commission of India. The Assessing Officer called for the bank details of RSP with Oriental Bank of Commerce, New Naroda Branch. From the perusal of the bank statement, it was observed there was a credit entry of Rs. 52,00,000/-on 07-10-2015 which is donation given by the assessee and there was two debit entries amounting to Rs. 27.00,000/- and Rs 25,00,000/- respectively on the same day On further enquiry from the Oriental Bank of Commerce the amount of Rs. 27,00,000/- credited to Sterlite Inc and Rs 25,00,000/-credited to Shah And Co. on 7-10-2015.

2.2.

On examination of the RSP bank statement, it was found that it is a general practice of crediting huge cash and subsequently transfering to another party on same day. Further analysis of the transaction particulars reveals that the cash was transferred to mainly four parties namely Guru Enterprise, Unique Trading, Mahavaisnavi and KK Indersriz. It was also observed that no cash withdrawal for expenses like rent, electricity, water, newspaper, fuel etc of RSP and is not reflecting in the bank account. There is an Inspector of Income-tax was deputed to visit the premises of RSP at UG-8. Harekrishna Complex, C.TM Char Rasta, Amraiwadi, Ahmedabad-380026 on 15-11-2018 The Inspector submitted his report that RSP office situated on 2nd Floor of 3 storey building which is a small shop and shutter of which was half closed on that day. Nearby peoples were inquired that RSP Office which is found to be closed in most of the times. Copy of the said RSP Office photographs is reproduced in the assessment order. Further perusal of the records of RSP it is observed that during the assessment year 2016-17, RSP has received only donation amounting to Rs. 14,73,309/-whereas as per the bank account statement of the RSP in Oriental Bank of Commerce, total amount credited is Rs. 38,15,03,885/-That apart from RSP is maintaining two other bank account one at Bank of India and another of Central Bank of India. Further enquiry of Mis. Sterlite Inc and Shah And Co both the accounts were closed on 30-3-2016. An enquiry by the Bank both the proprietorship firms, where there is no stocks found and the office premises were being occupied by another person.

2.3

On further verification the donation amount of Rs. 52,00,000/-paid by the assessee to RSP was transferred to Waheguru Enterprise and Sapan Traders on 7-10-2015 of Rs. 25,00 000/-and Rs. 27,00,000/- respectively. This systematic pattern of transferring the funds credited by RSP clearly establishes the modus operandi of the account opening i.e. to route or transfer the funds of RSP back to the donator. Thus the assessee gave Rs. 52,00,000/- to RSP in the form of donation which was transferred to accounts of Shri Mukesh Mehta who claimed to be a businessman. Again the said amount was transferred to Sapan Traders and Waheguru Enterprise. Thus the donation claimed to be paid by the assesse is found to be bogus and the same is disallowed u/s. 80GGC of the Act and added back to the total income of the assessee and also initiated penalty proceedings u/s. 271(1)(c) of the Act for concealment of income."

On further appeal Ld. CIT (A) observed in the case "The Assessing Officer has clearly brought out facts that bank accounts of above political party have been used by the accommodation entry provider where the donation received by cheques were layered through various bank accounts and ultimately cash was returned back. I therefore, agree with the findings given by the AO that donation of Rs. 52,00,000/-claimed u/s. 80GGC is merely accommodation entry. The Honorable ITAT Ahmedabad in the case of Pavankumar M. Sanghvi v. ITO, Wd. 3(1)(2), Baroda [2017] 81 taxmann.com 308 on the issue of accommodation entry has observed as under-

"8.

As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realities. It will, therefore, be useful to understand as to how the shell entries, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions to give it colour of a normal business entity used as a vehicle for various financial manoeuvers. A shell entity, by itself, it not an illegal entity but it is their act of abatement, of, and being part of financial manoeuvring to legitimize illicit monies and evade taxes, that takes it actions beyond what is legally permissible These entities have every semblance of a genuine business its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets its apart from a genuine business entity is lack of genuineness in its actual operations. The operations camed out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities."

In the aforesaid case, the Hon'ble ITAT bench held "As regarding ground no. 2, donation of Rs. 52,00,000/- made u/s. 80GGC, the ground is general in nature. The assessee has not produced any additional evidence in support of its claim. In fact the assessee had stated that it had cordial relationship with Mr. Kamlendu Tripathi Secretary of RSP and no other criteria was followed for making these donations. The Ld AO made a detailed enquiry of RSP and its Bank accounts and transfer of funds to one Shri Mukesh Mehta proprietor of two firms and he transferred it to Waheguru Enterprise and Sapan Traders, which is clearly a systematic financial maneuver to legitimate illicit moneys and evade taxes. It is appropriate to follow the Hon'ble Supreme Court judgment, wherein SLP filed by the assessee is dismissed confirming the Tribunal's decision to come to the conclusion that the entire loan transaction was not genuine, in the case of Pavankumar M. Sanghvi v. ITO [2018] 97 taxmann.com 398/258 Taxman 160 (SC) which held as follows:

Assessee received certain sum as loan from two companies -Assessing Officer having found that said lender companies were shell entities added loan amount to income of assessee under section 68-Bank statement of lender companies revealed high transactions during day and a consistently minimal balance at end of working day-Further day when assessee was given loan there were credil entries of almost similar amounts, and balance after these transactions was a small amount Tribunal taking into account bank statements of lender companies and fact that assessee failed to produce these lenders for verification held that alleged loan transactions were not genuine -High Court by impugned order held that since Tribunal had given elaborate reasons to come to conclusion that entire loan transaction was not genuine, appeal filed before it was to be dismissed Whether Special Leave Petition against impugned order was to be dismissed.

5.2

In the absence of any evidence from the assessee, the grounds raised by the assessee are untenable and therefore the same is rejected. The findings given by the lower authorities does not require any interference and the addition is sustained.

It is pertinent to mention here that out of two political parties to whom the appellant paid total donation of Rs. 1,13,51,000/- the modus operandi of the one political party named the Rashtriya Samajwadi Party (Secular) has already been discussed in details in the preceding paragraphs of the instant order. It can be safely presumed that the modus operandi of other political party named Kisan party of India is also indulging only in providing accommodation entry as can be ascertained from various newspaper reports and enquiries which is being conducted by various institutions.

In view of the findings in the above case I am inclined to agree with the decision made by the AO during the assessment proceedings regarding the donation made was basically a bogus donation as the Political Party is indulging only in providing accommodation entry. Thus in view of the above discussion, the submission made by the appellant regarding the claim of deduction for donation of Rs. 1.13.51,000/- to be allowed is not acceptable as already discussed in detail in the preceding Paras of the instant order. Therefore, the ground of appeal stands dismissed."

5.

Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:

1.

The learned National Faceless Appeal Centre has erred in law and facts by confirming the disallowance of claim for deduction under section 80GGC of the Act of Rs.1,13,51,000/- made by the learned A.O. and therefore the learned A.O. be directed to allow the same while computing total income.

2.

That the appellant craves liberty to add, amend and alter any ground of appeal before the final hearing.

6.

Ld. Counsel appearing for the assessee filed same set of documents filed before the Assessing Officer and reiterated its submissions. Nothing new documents or evidences filed before us to deviate from the findings of the Lower Authorities. The Ld AO has clearly brought out facts that bank accounts of above political parties have been used by the accommodation entry provider, where the donation received by cheques were layered through various bank accounts and ultimately cash was returned back. The same is not disputed by the assessee with relevant materials. Further the Ld AO made a detailed enquiry of RSP and its Bank accounts and transfer of funds to one Shri Mukesh Mehta proprietor of two firms and he transferred it to Waheguru Enterprise and Sapan Traders, which is clearly a systematic financial maneuver to legitimate illicit moneys and evade taxes. In the absence of any fresh materials in support of the assessee's claim. The Grounds raised by the assessee is devoid of merits and liable to be dismissed."

6.1.

Respectfully following the above decision of the Co-ordinate Bench, the grounds raised by the assessee are devoid of merits and the same are hereby dismissed.

7.

In the result, the appeal filed by the Assessee is dismissed.”