Political Party Denied Section 13A Exemption for Non-Compliance: ITAT Directs Income Taxable at 6% Commission Rate [Read Order]

The Assessee, Public Political Party, a Registered Unrecognized Political Party (RUPP) under Section 29A of the Representation of the People Act, 1951, filed appeals and stay applications against orders of the CIT(Appeals), Delhi, challenging assessment orders passed under Sections 147/144/143(3) of the Income-tax Act, 1961 for assessment years 2015-16 to 2022-23. All eight appeals were heard together by the Tribunal.

TheSection 13A of the Income Tax Act, 1961 explained that: Special provision relating to incomes of political parties.

“Any income of a political party which is chargeable under the head "Income from house property" or "Income from other sources" or "Capital gains" or any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party:

Provided that-(a)such political party keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom;(b) in respect of each such voluntary contribution other than contribution by way of electoral bond in excess of twenty thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution;(c) the accounts of such political party are audited by an accountant as defined in the Explanation below sub-section (2) of section 288.”

The Assessee conducted a search and seizure operation under Section 132 of theIncome Tax Act, 1961, on 07.09.2022. This operation was part of an investigation conducted by the Election Commission regarding tax evasion and fraudulent donations associated with RUPPs. During the operation, Income Tax officials confiscated books of account, bank statements, donation records, cash vouchers, and other incriminating materials.

The Assessing Officer reopened the case for Assessment Year 2015-16 to complete reassessment under Section 143(3) on 27.03.2024. The AO added Rs. 19,15,269/- to the assessee's income under Section 68 as unexplained cash credits, citing failure to substantiate the nature and source of these alleged donations.

The AO observed non-compliance with Section 13A requirements for tax exemption and relied on seized materials and the treasurer's statement recorded under Section 132(4). Further, the assessee appealed to the CIT(A), stating that the credits were legitimate donations exempt under Section 13A and challenging procedural irregularities.

The Counsel for the Assessee, Mohan Lal Sharma, submitted that Assessing Officer wrongfully invoked Section 68 of the Income Tax Act to treat the credits as unexplained cash credits, arguing that these represented legitimate donations exempt under Section 13A and all mandatory compliances required under Section 13A were substantially fulfilled, with only minor procedural delays in certain filings.

Further, the Counsel argued that the credits of Rs. 19,15,269/- in the bank account were genuine donations duly reported to the Election Commission in contribution reports and therefore qualified for tax exemption, making the provisions of Section 68 inapplicable to such donations.

On the other hand, the Departmental Representative for the Respondent, Dayainder Singh Sidhu, supported the orders passed by the lower tax authorities, upholding the findings of both the Assessing Officer and the Commissioner of Income Tax (Appeals).

The Tribunal consisted of Judicial Member, Anubhav Sharma and Accountant Member, Amitabh Shukla, heard and reviewed the matter.

The Tribunal, after considering the submissions made, examined the Assessing Officer's remand report which established that across assessment years 2015-16 to 2022-23, the assessee consistently failed to fulfill mandatory Section 13A conditions, including timely filing of returns under Section 139(4B), maintenance of audited books, and filing contribution reports with the Election Commission.

The Tribunal relied on Delhi High Court decision in Commissioner of Income Tax Delhi-Xi vs Indian National Congress (I) and others decided on 23 March, 2016 vide ITA 145/2001 stating that Section 13A compliance was mandatory and voluntary contributions not meeting these requirements constitute taxable income as "income from other sources" under Section 56(1). The High Court had ruled that filing audited accounts was mandatory, not directory, and expenditure deductions were disallowed upon non-compliance.

Further, the Tribunal agreed that Section 68, unexplained cash credits, was wrongly invoked, as deeming provisions cannot apply to rejected donation claims. Thus, the assessee was held ineligible for Section 13A exemption.

Based on the admitted commission arrangement of 5-7%, the Tribunal directed taxation of 6% of total donations as "income from other sources" under Section 56(1).

Accordingly, the Tribunal partly allowed the appeals of the assessee and the stay applications filed by assessee were dismissed. The Order was pronounced in the open court on 17.12.2025

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