Section 80GGC Political Donation Deduction Disallowed: Key Takeaways from ITAT Ahmedabad in Ankit Atulkumar Shah Vs ITO
The decision of the ITAT Ahmedabad in Ankit Atulkumar Shah Vs ITO offers important guidance on two core issues:
- Validity of reassessment under
Section 147,Section 148,Section 148A,Section 149andSection 151in cases triggered by search information relating to third parties; and - Allowability of deduction under Section 80GGC where the donation to a political party is alleged, on the basis of search and investigation material, to be part of an accommodation entry arrangement.
The Tribunal ultimately upheld both the reassessment and the disallowance of deduction of Rs. 1,00,000/- claimed under Section 80GGC, confirming the approach of the Assessing Officer (AO) and the National Faceless Appeal Centre (NFAC) / CIT(A).
Background of the Dispute
For Assessment Year 2019-2020, the assessee had claimed a deduction of Rs. 1,00,000/- under Section 80GGC in respect of a donation to a political party. Subsequently, information emerging from a search action on a political party and related entities indicated that certain donations might be accommodation entries, involving routing of funds and return of cash to donors after retaining commission.
Based on this information, reassessment proceedings under Section 147 were initiated. A notice under Section 148 was issued, preceded by the procedure prescribed under Section 148A, including issuance of a notice under Section 148A(b) and opportunity to respond.
The assessee challenged:
- The jurisdiction and legality of reopening, and
- The disallowance of the Section 80GGC deduction on the ground that the donation was made through banking channels and was supported by a receipt.
The CIT(A) rejected the assessee’s contentions and sustained the reassessment and disallowance. The assessee carried the matter in appeal before the ITAT Ahmedabad.
Grounds Raised Before the Tribunal
The assessee put forward seven grounds of appeal, broadly falling into two categories.
A. Jurisdictional and Procedural Grounds (Grounds 1 to 6)
The assessee argued that the reassessment was void for multiple reasons:
Non-compliance with Explanation 2(iv) to Section 148
- It was contended that since the case was reopened based on third-party search material, the AO was required to follow the deeming fiction under
Explanation 2(iv) to Section 148only after obtaining the specific prior approval from the competent authority. - In the assessee’s view, failure to obtain such approval before invoking the deeming fiction invalidated the reassessment.
- It was contended that since the case was reopened based on third-party search material, the AO was required to follow the deeming fiction under
Improper use of Section 148A
- The assessee asserted that the AO had wrongly resorted to
Section 148Ain a situation where, according to him, the provision did not apply because the case fell within the search-related deeming provisions that would bypassSection 148A. - It was further argued that reopening was time-barred, and that recourse to
Section 148Acould not cure that defect.
- The assessee asserted that the AO had wrongly resorted to
Limitation under Section 149(1)(b)
- The assessee claimed that the notice under Section 148 had been issued after the expiry of three years from the end of AY 2019-2020, implying that only
Section 149(1)(b)could apply. - Since the alleged escaped income was less than Rs. 50,00,000/-, the assessee maintained that no notice could be issued beyond three years, and therefore the entire reopening was barred by limitation.
- The assessee claimed that the notice under Section 148 had been issued after the expiry of three years from the end of AY 2019-2020, implying that only
Sanction from incorrect authority under Section 151
- According to the assessee, the AO had invoked Section 149(1)(b) in the approval form, and therefore sanction ought to have been obtained from the Principal Chief Commissioner of Income Tax (PCCIT).
- Obtaining approval from the Principal Commissioner of Income Tax (PCIT) instead, in the assessee’s view, rendered the sanction incompetent, vitiating the reassessment proceedings.
Alleged invalidity of electronic approval (Section 282A, DSC Policy, 2018)
- The assessee challenged the validity of the approval, asserting that it was effectively unsigned and did not conform to the requirements of
Section 282Aand the DSC Policy, 2018.
- The assessee challenged the validity of the approval, asserting that it was effectively unsigned and did not conform to the requirements of
Jurisdiction of NFAC versus Central Circle
- Another limb of challenge was that since the matter arose out of search-related information, jurisdiction allegedly lay with the Central Circle, and not with an AO acting through NFAC.
- Consequently, the assessee argued that the assessment order passed through NFAC was void ab initio.
B. Substantive Ground on Deduction under Section 80GGC (Ground 7)
On merits, the assessee contended that the donation of Rs. 1,00,000/- was:
- Paid through banking channels; and
- Supported by a donation receipt issued by the political party.
On that basis, the assessee submitted that the deduction under Section 80GGC had been wrongly disallowed, and that the CIT(A) had failed to properly appreciate the evidence produced.
Tribunal’s Analysis on Jurisdiction and Limitation (Grounds 1–6)
The Tribunal examined the relevant chronology, statutory provisions and the material available on record, and addressed each jurisdictional objection.