2001 (4) TMI 182 - AT - Income Tax

Summary

Issues Involved:
1. Compliance with Section 13A of the IT Act, 1961.
2. Estimation of receipts and expenditure by the AO.
3. Admission of additional evidence by CIT(A).
4. Allowability of expenditure on political activities.
5. Charging of interest under Sections 234A and 234B of the IT Act.

Detailed Analysis:

1. Compliance with Section 13A of the IT Act, 1961:
The assessee, a political party, filed returns for the assessment years 1993-94 to 1995-96 claiming exemption under Section 13A of the IT Act, 1961. The AO noted that the assessee failed to furnish complete accounts and details as required under Section 13A. Specifically, the assessee did not provide complete addresses of donors for donations exceeding Rs. 10,000, and the accounts of several state units were incomplete or not produced for verification. Consequently, the AO held that the assessee did not satisfy the conditions for exemption under Section 13A and proceeded to estimate receipts, expenditure, and income.

2. Estimation of Receipts and Expenditure by the AO:
The AO estimated the total receipts of the party, including those of state units, at Rs. 26,33,57,696. The AO allowed only a portion of the expenditure shown by the Central office, amounting to Rs. 1,20,89,616, and computed the total income at Rs. 25,12,68,081. The CIT(A) partially upheld the AO's estimation but allowed additional expenditure, including employees' expenses and depreciation. However, the CIT(A) restricted the allowance of expenditure on political activities to 60%.

3. Admission of Additional Evidence by CIT(A):
The assessee challenged the AO's order, submitting additional evidence, including audited accounts of state units, before the CIT(A). The CIT(A) declined to admit the additional evidence, citing non-compliance with Rule 46A and the absence of reasonable cause for the assessee's failure to produce the evidence before the AO. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had ample opportunity to furnish the required documents during the assessment proceedings.

4. Allowability of Expenditure on Political Activities:
The AO disallowed expenditure related to political activities, allowing only establishment expenses related to earning income from other sources. The CIT(A) allowed 60% of the political expenditure. The Tribunal held that there is a close nexus between voluntary contributions and political activities, and expenditure incurred for political activities should be allowed as it is intertwined with the party's aims and objects. The Tribunal directed the AO to allow expenditure subject to establishing a nexus between the expenditure and voluntary contributions.

5. Charging of Interest under Sections 234A and 234B of the IT Act:
The Tribunal directed the AO to delete the interest charged under Sections 234A and 234B, citing the overall excess of expenditure over income (deficit) and the Supreme Court decision in CIT & Ors. vs. Ranchi Club Ltd.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing the AO to reassess the allowability of expenditure related to political activities and to delete the interest charged under Sections 234A and 234B. The Revenue's appeal was dismissed, upholding the CIT(A)'s allowance of depreciation and 60% of the political expenditure.