2016 (3) TMI 878 - HC - Income Tax

Entitlement to exemption under Section 13A - Held that - The finding of the ITAT that the Assessee satisfied the mandatory conditions for availing the exemption under Section 13A of the Act is nothing short of perverse as it is wholly contrary to and unsupported by the documents on record. A political party which seeks to avail of the exemption cannot be heard to say that it is not possible for it to maintain its accounts on a consolidated basis. As long as a political party continues to avail the exemption from payment of income tax, there can be no excuse for not maintaining its account whether it has one or more state units. Where in any particular FY, a political party is unable to maintain its accounts for any reason whatsoever, or satisfy the pre-conditions set out in the proviso to Section 13A of the Act, an exemption cannot be possibly be granted from payment of income tax for that FY. The Court finds that no valid reasons have been given by the ITAT for overturning the reasoned and detailed orders of the AO and CIT (A). In the circumstances, the question framed is answered in the affirmative by holding that the finding of the ITAT is perverse and contrary to evidence on record in so far as applicability of Section 13A of the Act is concerned, i.e., in favour of the Revenue and against the Assessee.

Summary

Issues Involved:
1. Applicability of Section 13A of the Income Tax Act, 1961.
2. Maintenance and audit of accounts by the Assessee.
3. Compliance with statutory requirements under the Act.
4. Validity of the ITAT’s findings and their overturning of the AO and CIT(A) orders.

Detailed Analysis:

1. Applicability of Section 13A of the Income Tax Act, 1961:
The Assessee, a political party, claimed exemption under Section 13A of the Income Tax Act for voluntary contributions received. The AO found that the Assessee failed to maintain proper books of accounts and did not disclose all bank accounts, which was a mandatory requirement under Section 13A. The ITAT, however, allowed the exemption, stating that the Assessee had maintained audited accounts and none of the voluntary contributions exceeded ?10,000.

2. Maintenance and Audit of Accounts by the Assessee:
The AO and CIT(A) found that the Assessee did not maintain proper books of accounts as required under the Act. The accounts presented were incomplete and did not include the state units. The auditor’s report was based only on the records produced, which did not include all the accounts. The ITAT’s acceptance of the Assessee’s accounts was found to be perverse as it contradicted the evidence on record.

3. Compliance with Statutory Requirements under the Act:
The Assessee filed returns only after receiving a notice under Section 142(1). The returns were incomplete and did not include accounts of state units. The consolidated accounts filed later revealed higher voluntary contributions than initially disclosed. The Assessee’s failure to maintain proper accounts and disclose all contributions violated the statutory requirements for exemption under Section 13A.

4. Validity of the ITAT’s Findings and Their Overturning of the AO and CIT(A) Orders:
The ITAT’s findings were overturned as they were found to be perverse and contrary to the evidence. The ITAT failed to justify why it accepted the Assessee’s incomplete accounts and manual receipts without proper verification. The AO and CIT(A) had provided detailed reasons for rejecting the Assessee’s claim for exemption, which the ITAT did not adequately address.

Conclusion:
The High Court restored the AO’s and CIT(A)’s orders, rejecting the Assessee’s claim for exemption under Section 13A due to non-compliance with statutory requirements. The ITAT’s order was set aside as it was found to be perverse and unsupported by the evidence on record. The Assessee was required to maintain proper books of accounts and disclose all voluntary contributions to qualify for the exemption.