Delhi HC Sets Aside the Order of ITAT favouring exemption to the Janata Party u/s 13A of Income Tax Act [DOWNLOAD JUDGMENT]

ITAT - EXEMPTION - Taxscan

The Delhi High Court, on an appeal filed by the CIT, Delhi against the “Janata Party” struck down the order of ITAT in which a clean chit had been given to the said party on an allegation of misuse of s.13A of the Income Tax Act. The assessee is a political party registered under the Representation of the People’s Act, 1951. After its formation in 1977 the party was subjected to three major splits. On 1990, when Dr. Subramania Swamy became the President of the party, he opened an account of the central party with Vijaya Bank, New Delhi.The voluntary contributions collected in the various States were brought (mostly in cash) by the office bearers to Delhi where they were deposited in the aforementioned bank account. The Assessee’s case is that from this account funds were disbursed to the various State units through demand drafts or telegraphic bank transfers. It is stated that a numbered signed receipt was given by the collecting party volunteer to the donor for each voluntary contribution.

On 1995, the Department sent a notice to the assessee u/s 142(1) of the Income Tax Act, directing them to file an income tax return for the AY 1995-96. On 19th February 1996, the Assessee filed its return disclosing voluntary contributions of Rs. 68,84,800. Exemption was claimed under Section 13A of the Act and, therefore, the returned income was shown as Nil. It is now claimed that the said return included only the accounts of the central office although there is no such indication in the return as filed, a copy of which has been enclosed with the appeal. It is stated that on the same date, i.e., 19th February 1996, the returns of the Assessee for the earlier AYs 1991-92 to 1993-94 were filed.

On 1998, the representatives of the assessee attended the proceedings that there was an account CA 1327 of the Party with the Vijaya Bank at Chennai but that it was left out while filing returns due to a bonafide error on account of various pre-occupations “including election campaigns, splits, exodus of office bearers.” It was claimed that the credit entries in the said account were “only towards Party funds and do not constitute receipts of any other nature and the Assessee has not violated any of the provisions of the Income Tax Act.”The Assessee disclosed that it had four other bank accounts with one each in Bombay and Bangalore and two in Chennai, which had not been included in the return. It was claimed that these accounts had been incorporated in the consolidated return prepared by its Chennai based CA firm and it would be filed shortly in Delhi. One last opportunity was granted to the Assessee to comply with the direction to file all its accounts by 11am on 28th March 1998.

The Assessing Officer, after the verification of all evidences and documents, determined Rs.1,23,72,370/- as the taxable income of the assessee. Various other allegations such as concealing of income, inability to furnish the books of accounts, misuse of s.13A of the Income Tax Act,1961 etc were raised against the assessee.

The Commissionerof Income Tax (Appeals) also confirmed the said order. Aggrieved by this, the assessee filed an appeal before the ITAT. The ITAT found that the assessee had not violated the provisions of 13A. It was also found that the books of accounts could not be rejected on the mere ipsi dixit of the Revenue authorities. The AO had not pointed out the defects in the accounts and the objections of the AO were untenable.  It was further held by the ITAT that considering that the Assessee party had undergone many splits over the years, it was anybody’s guess as to the number of state units which still owed allegiance to the Assessee. A political party which has all India status would have bank accounts in different States, Districts and Taluks. No exception could be taken for the failure to recall the political workers, who may have travelled to the capital for depositing money with the Party. In the circumstances, the denial of exemption under Section 13A of the Act for non-furnishing of the particulars of the persons, who had carried the cash to Delhi would not result in denial of exemption under Section 13A of the Act.

The High Court, on the appeal filed by the Department refused to upheld the order of the ITAT. S. Muralidhar. J, held that “the Court finds that no valid reasons have been given by the ITAT for overturning the reasoned and detailed orders of the AO and CIT (A). In the circumstances, the question framed is answered in the affirmative by holding that the finding of the ITAT is perverse and contrary to evidence on record in so far as applicability of Section 13A of the Act is concerned, i.e., in favour of the Revenue and against the Assessee.”

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