Income Tax Department will issue a Notice Under Section 148A to the Donors of the Registered Unrecognized Political Parties (RUPP)

Search on 23 Registered Unrecognized Political Parties (RUPP)

The search u/s 132 of the Act was conducted upon various Registered Unrecognized Political Parties (RUPP) during the month of September 2022 at Ahmedabad and various other locations. In this search, a total of 23 Registered Unrecognized Political Parties (RUPP) were detected and it was alleged that those parties were involved in providing bogus donation entries.

The raids were conducted on the recommendation of the Election Commission, which recently struck off 87 entities from its list of RUPP after they were found non-existent during physical verification.

Documents Seized form Registered Unrecognized Political Parties (RUPP)

During the course of search action, large number of incriminating documents related to bogus donation receipts, diaries containing details of commission charged, loose papers containing vital information and WhatsApp chats in the mobile phones of the office bearers of the RUPPs and their key handlers confirming the allegations, were found. Documentary and digital evidences collected during the course of search action, were confronted with the key persons of the group and subsequently seized.

Further, during the course of pre as well as post search it has been established that these RUPPs were involved in the activity of providing accommodation entry by way of bogus donation. Thereafter, on the basis of bank account statements of these RUPPs, beneficiaries/donors who had availed deduction for the bogus donation made to these RUPPs have been identified.

Reassessment Proceedings on the Beneficiaries / Donors

Based on such information, the Income Tax Department is set to issue a notices under section 148A of Act will initiate the reassessment proceedings on the beneficiaries.

Section 147 of the Income Tax Act empower the Income Tax Authorities to assess or reassess the income which escaped assessment.

Section 147 of the Income Tax Act:

If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).

Explanation.—For the purposes of assessment or reassessment or recomputation under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with.]

Section 148A of the Income Tax Act:

[Conducting inquiry, providing opportunity before issue of notice under section 148.

148A. The Assessing Officer shall, before issuing any notice under section 148,—

(a)  conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b)  provide an opportunity of being heard to the assessee, 1[***] by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c)  consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

(d)  decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in a case where,—

(a)  a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or

(b)  the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(c)  the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, 2[relate to, the assessee; or

(d)  the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.]

Explanation.—For the purposes of this section, specified authority means the specified authority referred to in section 151.]

Whether Notices u/s 148A can be issued to the Donors of the Political Parties?

Section 147 read with section 148 to 153 empower the assessing officer to initiate the reassessment proceedings to assess or reassess the income which is escaped assessment. The entire reassessment scheme was revamped in the year 2021 and various litigations were surrounded post enactment of new reassessment scheme. So, depending on the circumstances of each case, objections can be raised before the Income Tax Department for challenging the reassessment proceedings.

Consequences of the Reassessment?

Consequent to reassessment proceedings, the Donation u/s 80GGC may be disallowed and charged to the tax at applicable tax rate or applicable slab. The applicable interest u/s 234B, 234C will also be charged and the interest received (if any) u/s 244A will also be recovered from the Assessee.

Defense and arguments to contest alleged bogus donation case

Since the AO may propose to initiate the reassessment proceedings. In response thereto, the assessee, apart from factual grounds, may also raise legal grounds to defend his case. As submitted above, the new regime of reassessment is not free from litigation. The assessee may raise the grounds challenging the reassessment proceedings as well as the assessee may also argue based on cash trail, validity of the notice u/s 148, incriminating material recovered from the political parties, statement recorded, cross examination of the witnesses etc. Apart from these, the assessee may raise further grounds to defend his case.

Whether Penalty will be imposed on Donations made to Registered Unrecognized Political Parties (RUPP)

Section 270A empowers the assessing officer to impose a penalty on under reporting of income and mis-reporting of income. The rate of penalty in the case of under reporting is imposed at 50% of the tax and the rate of penalty in the case of mis-reporting of the income is 200% of the tax.