TaxTMI 
TaxTMI 
2016 (3) TMI 878
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....r. Madhu Dandavate, Mr. Ajit Singh etc. left to form the Janata Dal. It is stated that on 12th November 1990, Dr. Subramanian Swamy was elected as the President of the party and he appointed new office bearers. It is stated that Dr Swamy opened an account of the central office of the 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. 3. On 10th October 1990, the Assessing Officer ('AO') wrote to the Assessee demanding production of the accounts from AY 1986-1987 onwards till AY 1990-1991. It is stated that since the party had different office bearers and different bank accounts, some of which the President was not aware of, the said request could not be given effect to. It is stated that when it was found that no income-tax return had ever b....
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....tral 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. 10. It is stated that as regards AY 1995-96, the information sought by the AO was provided on 3rd June 1996. On 3rd July, 1996 notices under Sections 143(2) and 142(1) of the Act were issued calling for the following details: i. Complete books of accounts and other documents pertaining to AY 1995-96. ii. Complete details of voluntary contributions in excess of Rs. 10,000/- received during AY 1995-96 along with the names of donors and their complete addresses. 11. The Assessee claimed that since the Chennai based Treasurer of the Assessee had left the party, it took considerable time to locate and reconstruct the accounts. Adjournments were sought, at least, on ten occasions between 16th July 1996 and 23rd March 1998, all of which were granted by the AO. On 2nd February, 1998, the AO served the Assessee with a letter drawing its attention to the fact that an account of the Party had been opened with the Vijaya Bank, Ch....
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....anation offered by the AR that the collections are made by respective State units and each collection/contribution was less than Rs. 10,000/-. Whenever sizeable amount was accumulated, the same was remitted to Delhi through political workers and Executives of the Party to be deposited in Vijaya Bank, Delhi. The collections in the State units were made by way of issue of receipts and every receipt was less than Rs. 10,000/-. Further a copy of collection books showing accumulation of collections was also maintained. 16. The AO then examined the counterfoils of the receipts from the Tamil Nadu, Karnataka, Mumbai, New Delhi units. The AO noted the following facts: i. The receipts were all manually numbered. ii. All of them were of denomination less than Rs. 10,000/-. iii. All the receipts were signed by the party volunteers. 17. The AO then directed the ARs to furnish - (i) the name and address of the party functionaries who had received the aforementioned amounts in the various States; and (ii) the name, date and mode of transport of persons who purportedly brought the money to Delhi. The central office ledger showed that no expenses for travelling had been booked. This was true ....
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....e cash deposits were merely deposits of earlier withdrawals was devoid of merit since the bank account (account No.1327) showed that there were very few withdrawals prior to the cash deposits on various dates. Considering that according to the Assessee it had received voluntary contributions in Chennai unit only to the extent of Rs. 2,970/-, there was no plausible explanation for the cash entries. 22. The AO also found that the Assessee had failed to disclose its receipts truly at the time of filing of the return. It was only after the Department conducted inquiries that the Assessee came forward, virtually at the fag end of the limitation period, to furnish fresh audited accounts. The return was not filed voluntarily by the Assessee under Section 139(1) read with Section 139 (4B) of the Act. Since omission to file the return was not discovered by the Assessee, it was not bona fide. The revised statement of income and accounts filed by the Assessee, purportedly consolidating the accounts of other units of the Assessee could not be accepted in terms of Section 139(5) of the Act. There was a failure by the Assessee to comply with the statutory requirements under the Act. 23. More s....
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....counts were not maintained in the manner that would enable the AO to deduce the Assessee's income therefrom. Consequently, the AO was justified in coming to the conclusion that the Assessee had not fulfilled the conditions laid down for availing the exemption under Section 13A of the Act. 27. The CIT (A) held that the contention of the Assessee that it was under the bona fide belief that only the accounts of the central office were to be filed, could not, on the face of it, be accepted. Prior to notice being issued by the AO to the Assessee under Section 142(1) of the Act on 20th September 1995 and even prior to the filing of the return by the Assessee on 14th February 1996, the Gujarat High Court had given its decision in CIT v. Gujarat Pradesh Congress Samiti (1994) 207 ITR 622 which made it plain that the conditions to be fulfilled for availing exemption were not mere machinery provisions, but were mandatory. Thus the Assessee, as a political party, could not claim to be unaware of its statutory obligation to file income tax returns, particularly if it wanted to avail the benefit under Section 13A of the Act. The order of the ITAT 28. The further appeal by the Assessee being ....
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.... Assessee deserved to succeed. The present appeal 29. While admitting the present appeal on 15th January 2004, the following question was framed: "Whether the finding is perverse and contrary to evidence on record in so far as applicability of Section 13A of the Income-tax Act, 1961 is concerned?" Summary of the Court's decision in the INC case 30. In a detailed judgement delivered today in Commissioner of Income Tax, Delhi-XI v. Indian National Congress (I)/All India Congress Committee and the cross-appeal (ITA Nos. 145 and 180 of 2001), this Court has elaborately discussed the scope of Section 13A of the Act and has come to the following conclusions: (i) For understanding and interpreting Section 13A of the Act, it would serve no purpose to compare it with Section 11 of the Act which applies to Trusts. (ii) Section 13A of the Act is not a computation section. Income by way of voluntary contributions would be excluded only subject to fulfilment of the conditions stipulated under Section 13A of the Act. (iii) It could never have been the legislative intention that voluntary contributions received by a political party that does not satisfy the requirement of Section 13A ....
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....reafter. 31. In the aforementioned decision involving the Indian National Congress ('INC'), the Court has held, on the facts of that case, inter alia, that since the Assessee failed to place before the AO, or even before the CIT (A), acceptable audited accounts, from which the AO could deduce the taxable income of the assessee, the mandatory requirement of the proviso to Section 13 A of the Act was not fulfilled by the Assessee. Facts not in dispute 32. Turning to the case on hand, certain facts are not in dispute at all. Crucially there is no denial by the Assessee that it filed its returns for AY 1995-96 and the earlier two AYs, i.e., 1993-94 and 1994-95, only pursuant to the notice issued to it under Section 142 (1) of the Act. Further there is no denial that what was filed by it was the incomplete accounts. It pertained to the central office and not to the State units of the Assessee. A third factor that is not denied is that it was only after the Chennai bank account of the Assessee was detected that the Assessee came forward to make a disclosure of the bank accounts of its Mumbai and Bangalore units. In other words, the accounts that were produced were not consolid....
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....f total income for income tax purposes, appended to the income tax return signed by Dr. Swamy as President of the Assessee, to understand the above conclusion. The said statement reads as under: Name of the Assessee: Janata Party Address: No. 5, Pandity Pant Marg, New Delhi. Assessment Year : 1995-1996 Status: Political Party "Statement of Total Income for Income Tax Purpose Income from other sources: Gross receipts: Voluntary contributions : 68,64,800 Less : Exemption u/S 13A : 68,64,800 Taxable income : NIL Note: Assessee is a political party registered with the Election Commissioner of India and Election Symbols (Reservation and Allotment) Order, 1968. The entire income of political party by way of voluntary contributions are exempt under Section 13A of the IT Act. Sd/- (Dr. Subramanian Swamy) President" 36. Enclosed with the income tax returns, the auditor's report reads as under: "I have carried out the audit of the accounts of JANATA PARTY for the year ended 31st March 1995 and state that as per the records produced to me and to the best of my knowledge and belief, the party had receipts only from Voluntary contributions during the year under refe....
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....sed. Even as regards the Receipts and Payments (R & P), the auditor only states that it "is in accordance with the records maintained by the Party." It is plain that the auditor had no access to the entire accounts of the party and therefore, the above statement was false to his knowledge. 39. It is also not in dispute that it is only during the course of the assessment proceedings and, in fact, towards the end thereof, that the Assessee on 31st March 1998, filed a consolidated return incorporating the accounts of the four state units, which showed voluntary contributions in the aggregate of Rs. 1,17,10,370/- (i.e. Rs. 68,84,800/- declared by the central office and the amounts in the accounts of the Mumbai and Bangalore units). This was at variance with the figure disclosed in the statement appended to the original return where only a sum of Rs. 68,84,800 was disclosed as the voluntary contribution. 40. At this stage it requires to be noticed that a CA can possibly give four kinds of audit reports. First is to state that the complete accounts have been produced and it represents the 'true and fair view' of the financial affairs of the Assessee. The second is to give a qua....
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....d, the objectives of accountability and transparency seem to be of great importance. Transparent accounting and financial reporting are also central to the fulfilment of new age governance, The introduction of acceptable accounting practices and disclosure norms are not just technical practices but the foundations for the integrity and maturity of the Political Parties. Political Parties would, therefore, need to reflect their 'financial position' and 'financial performance' which should indicate their ability to achieve their developmental goals, meet their programme targets, their efficiency in the use of resources. 106. The covering note of the President ICAI acknowledges that "the present system of accounting and financial reporting followed by political parties in India does not adequately meet the accountability concerns of the stakeholders." The 'Illustrative format of Auditor's report' appended to the note requires the auditors to state inter alia that: ''In our opinion and to the best of our information and according to the explanations given to us, the said accounts give a true and fair view in conformity with the accounting principl....
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....y accumulations of the donations at the various places and its actual deposit in the bank account of the central office. No regular books of accounts had been maintained except at the central office. The bank account at Chennai showed that a sum of Rs. 6,62,000 was deposited in cash on five/six occasions for which there was no explanation as regards sources. It was sought to be explained that these were out of prior withdrawals but the bank accounts did not reveal any such withdrawal prior to the deposits. There were small amounts of cheque withdrawals in the name of the different persons but there was no correlation between such withdrawals and the deposits of cash. 47. The Assessee also did not offer any explanation as to why donations collected by the various state units were not remitted to the central office either by the bank draft or telegraphic transfer. The assertion that each donation was less than Rs. 10,000 was a desperate one and not at all convincing. The documents produced did not support such an assertion. It was not enough that documents in support of voluntary contributions ought to have been preserved but they ought to have the names and addresses of the donors ....