Notices under Section 148A issued by department for Political Party Donations for AY 19-20

Notices under Section 148A issued by department for Political Party Donations for AY 19-20 for reassessing income claiming that income has escaped assessment equivalent to the amount of donation made being it is a bogus donation in the eyes of income tax department.

For many years lot many tax payers were playing with the fire by claiming bogus donations as deduction to claim income tax refund. Majority of them are salaried employees.

The trigger point of these notices was that income tax department conducted search u/s 132A on 23 RUPP (Registered Unrecognised Political Party) located in Gujarat. In search operation department revealed that agent charge commissions up to 5% and return the balance amount in cash to the tax payer. Interestingly, political parties are tax exempt u/s 13A.

If tax payers fails to prove their claim being genuine then for donation of Rs. 2 lakh they may have to pay 2.5 lakh approx for tax, interest and penalty.

For AY 20-21 and 21-22, tax payers may consider the option of filing updated return without claiming political party donation.

During assessment proceedings, tax payer can ask for all the records and can also ask for cross examination of statements used against him. There are some case laws available at the rescue of tax payers.

No benefit seems to be available, if donation is genuine, at department level and CIT Appeal level. ITAT may grant relief. Rest time will tell.