The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has delivered an important ruling clarifying the scope of deductions available under Section 80GGC of the Income-tax Act, 1961 ( Donation to political party). The Tribunal held that merely making a political donation through banking channels and obtaining a donation receipt is not sufficient to claim a tax deduction if the surrounding facts indicate that the transaction lacks genuineness.
In Prasana Jayantkumar Bhatt v. Deputy Commissioner of Income-tax (ITA No. 426/Ahd/2026), the Tribunal dismissed the taxpayer’s appeal and upheld the disallowance of a ₹12 lakh deduction claimed under Section 80GGC. The decision reinforces the principle that tax authorities are entitled to look beyond documentary evidence and examine the real substance of a transaction by applying the test of human probabilities.
Background of the Case
The assessee, a salaried individual, filed his income tax return for Assessment Year 2019-20 and claimed a deduction of ₹12 lakh under Section 80GGC. According to the taxpayer, the amount was donated to the Rashtriya Samajwadi Party (Secular), a political party registered under the Representation of the People Act, 1951.
The donation was made through normal banking channels, and the assessee also produced donation receipts issued by the political party. Based on these documents, he claimed that all statutory conditions prescribed under Section 80GGC had been satisfied.
However, during assessment proceedings, the Assessing Officer rejected the deduction after concluding that the donation was not genuine. The Commissioner (Appeals) subsequently affirmed the disallowance, leading the taxpayer to file an appeal before the ITAT Ahmedabad.
Taxpayer’s Arguments Before the Tribunal
The assessee contended that he had complied with every legal requirement for claiming the deduction. His principal submissions included:
- The donation was made through a proper banking channel.
- The recipient was a political party legally registered under the Representation of the People Act, 1951.
- Valid donation receipts were issued by the political party.
- The Income Tax Department had failed to produce any direct evidence showing that the donated amount had been returned to him in cash.
- Any alleged irregularity or misconduct committed by the political party should not automatically invalidate a genuine donation made by a donor.
According to the taxpayer, documentary evidence clearly established the authenticity of the payment, and therefore the deduction under Section 80GGC should be allowed.
Revenue’s Stand
The Revenue strongly opposed the claim by relying on the findings of an extensive investigation into the affairs of the recipient political party.
According to the Department, search proceedings had uncovered a systematic accommodation-entry operation involving the political party. The investigation allegedly revealed that donations received by the party were routed through multiple shell entities before ultimately being converted into cash.
The Revenue relied upon several categories of evidence, including:
- Material seized during search proceedings.
- Statements recorded from relevant persons.
- Detailed analysis of bank transactions.
- Tracing of fund movements through intermediary entities.
- Evidence showing a layered financial structure designed to facilitate accommodation entries.
The Department argued that the assessee’s donation formed part of this larger arrangement and therefore could not be treated as a genuine political contribution eligible for deduction under Section 80GGC.
ITAT’s Observations
After examining the evidence placed on record, the Ahmedabad Bench agreed with the Revenue’s findings.
The Tribunal observed that payment through banking channels alone cannot establish the genuineness of a transaction when substantial evidence indicates that the recipient organisation was functioning as an accommodation-entry provider.
According to the Tribunal, documentary evidence such as bank statements and donation receipts cannot override credible investigative material demonstrating that the transaction lacked commercial reality.
The Bench specifically noted that where a systematic mechanism of routing funds through shell companies has been established, the apparent form of the transaction cannot be accepted without examining its real substance.
Burden of Proof Shifted to the Assessee
One of the significant aspects of the judgment is the Tribunal’s discussion regarding the burden of proof.
The assessee argued that there was no direct evidence showing that cash had been returned to him after making the donation.
The Tribunal rejected this contention, observing that direct evidence is rarely available in sophisticated tax evasion schemes involving accommodation entries.
It held that once the Revenue produces credible investigative material indicating that a transaction forms part of a larger accommodation-entry network, the burden shifts to the taxpayer to rebut those findings with convincing evidence.
In the present case, the assessee merely relied upon:
- Bank payment records.
- Donation receipts.
The Tribunal found that these documents were insufficient to counter the extensive investigative evidence produced by the Department.
Registration of Political Party Not Sufficient
Another important issue before the Tribunal was whether the recipient’s registration under the Representation of the People Act automatically established the genuineness of the donation.
The Tribunal answered this question in the negative.
It observed that registration merely establishes the legal existence of a political party. It does not guarantee that every transaction undertaken by that party is genuine or legally acceptable.
For claiming deduction under Section 80GGC, the taxpayer must establish that the particular contribution itself is genuine and not merely that the recipient organisation legally exists.
Supreme Court Decisions Distinguished
The assessee relied upon several landmark Supreme Court judgments, including:
- CIT v. Orissa Corporation (P.) Ltd.
- CIT v. Divine Leasing & Finance Ltd.
- K.P. Varghese v. ITO
The Tribunal held that these decisions were distinguishable because they arose in entirely different factual circumstances.
Unlike those cases, the present matter involved extensive investigation, search material, witness statements, and tracing of financial transactions demonstrating a larger accommodation-entry operation.
Accordingly, those precedents could not assist the assessee.
Reliance on the Test of Human Probabilities
The Tribunal instead relied upon two landmark Supreme Court decisions:
- CIT v. Durga Prasad More
- Sumati Dayal v. CIT
These judgments lay down the principle that tax authorities are not bound to accept documentary evidence at face value. They are entitled to examine surrounding circumstances, evaluate the conduct of parties, and apply the test of human probabilities to determine the true nature of a transaction.
Applying these principles, the Tribunal concluded that the donation could not be regarded as genuine merely because it was routed through banking channels and supported by formal documentation.
Tribunal’s Final Decision
Finding no error in the order passed by the Commissioner (Appeals), the Ahmedabad Bench dismissed the taxpayer’s appeal and upheld the disallowance of the deduction claimed under Section 80GGC.
The Tribunal held that the assessee had failed to discharge the burden of proving that the contribution represented a genuine political donation eligible for tax deduction.
Key Takeaways for Taxpayers
This ruling carries significant implications for taxpayers claiming deductions for political contributions under Section 80GGC.
The decision makes it clear that:
- Payment through banking channels is not conclusive proof of a genuine transaction.
- Donation receipts alone cannot establish eligibility for deduction where contrary investigative evidence exists.
- The Income Tax Department can rely on search findings, witness statements, and surrounding circumstances to determine the true nature of a transaction.
- Once the Department establishes credible evidence suggesting an accommodation-entry arrangement, the burden shifts to the taxpayer to rebut the allegations with substantial evidence.
- Registration of a political party under the Representation of the People Act does not automatically validate every donation made to it.
- Courts and tax authorities are empowered to apply the test of human probabilities while examining suspicious transactions.
Conclusion
The Ahmedabad ITAT’s decision reiterates that substance prevails over form in tax law. While Section 80GGC encourages transparency by allowing deductions for genuine political contributions, taxpayers must ensure that such donations are authentic and capable of withstanding scrutiny.
The ruling serves as a reminder that statutory compliance extends beyond making payments through banking channels. Where investigative agencies uncover evidence of accommodation-entry operations, taxpayers must be prepared to demonstrate the genuine nature of their transactions with credible and convincing material. Consequently, this judgment strengthens the Revenue’s ability to deny deductions where political donations are found to be part of sham arrangements rather than bona fide contributions.
Case Details
- Case: Prasana Jayantkumar Bhatt v. Deputy Commissioner of Income-tax
- Tribunal: ITAT Ahmedabad
-
Case No.: ITA No. 426/Ahd/2026