New Delhi: The Nationalist Congress Party (NCP) has been claiming the income tax (I-T) exemption that political parties are eligible for provided they meet one criterion—without doing so.
The condition involves submitting to the Election Commission (EC) a list of donors who contributed at least Rs20,000 to the party, or certifying that there are no such donors.
It isn’t just the NCP; the returns filed by several other parties, including the Communist Party of India (Marxist), or CPM, and the Bahujan Samaj Party (BSP) show discrepancies.
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These findings are based on a Mint analysis of information on tax filings of seven parties between 2001-02 and 2005-06 provided by the I-T department in response to a Right To Information application filed last year by the Association for Democratic Reforms, an Ahmedabad-based non-political group which aims at bringing about government and electoral reforms.
The NCP, part of the ruling United Progressive Alliance government, “has never submitted a contribution report”, said a senior official at EC, a statutory body that conducts elections in India.
Also See: CPM’s returns for 2005-06 were filed with a balance sheet that didn’t balance (PDF)
The official, who did not want to be named added that the party “submitted one earlier this year for the first time, pertaining to fiscal year 2006-07, but even that was done after the due date and hence, is of no use.”
According to the Representation of the People Act, political parties are to submit a contribution report for every financial year ending March to EC on or before the deadline for filing I-T returns for that year. EC issues a certificate to political parties that submit these reports, and this certificate has to be attached to the parties’ I-T filings.
Mint couldn’t independently ascertain whether the NCP failed to submit the report to EC or submitted it directly to the I-T department.
It also isn’t clear how the company could have filed its tax returns without a certificate from EC.
Y.P. Trivedi, treasurer, NCP, claimed that the party had been satisfying all required norms. “We have not received any complaints from the EC nor has there been any assessment order against us. All our accounts are properly audited.”
“If they (NCP) have not filed the contribution report with the Election Commission their exemption can be withdrawn. The Election Commission should have informed the income tax department,” said an official in the tax department who did not wish to be named.
EC and the I-T department, however, do not share information. Election commissioner S.Y. Quraishi said that the only consequence of a party not filing a report on contributions with it was that the party would not get any tax relief. “It is up to the I-T department to check that (whether they have filed a contributory report or not).”
Any party that fails to “file the contribution report for that financial year” would not “be eligible for exemption, in which case all contributions they have collected that year or any other income will get fully taxable”, said Amitabh Singh, partner, at audit and consulting firm Ernst and Young.
Yet, NCP’s filings for the years 2001-02 to 2005-06 show no tax payments.
If NCP’s tax returns show that it paid no tax while it should have, CPM’s return for 2005-06 were filed with a balance sheet that didn’t balance. The asset side of the sheet showed Rs107.88 crore, while the liabilities side showed Rs107.68 crore—a gap of Rs20 lakh. This wasn’t a printing error as the aggregates added up to these numbers. The balance sheet bears the stamp and signature of the auditor BM Sharma and Associates, and has been countersigned by senior party officials.
“The basic rule of a balance sheet is that its assets and liabilities sides should match. This is an instance of utmost carelessness and there is no reason why it should happen,” said a senior tax and audit expert who did not want to be named. The party, however, claimed this was merely a “clerical mistake”.
“It is a mistake on the liabilities side. It would have been worrying if there was a problem on the assets side,” said Sitaram Yechury, politbureau member of the CPM.
“Some figures had been wrongly punched while typing. It is not as if the balance sheet is not actually tallying. Even in the next balance sheet, there is no problem, which goes to show that this particular problem is merely a typographical error,” said Sharma.
The I-T department, which usually returns erroneous filings, seems to have missed this one. “We have not received any notice from the I-T department regarding this balance sheet,” Sharma added.
Losses in a boom
The I-T department also seems to have missed some unusual transactions in BSP’s tax returns.
The party’s return for 2005-06 shows that it bought and sold properties the same year at a loss. Three properties in the New Civil Lines area in Lucknow were sold at a loss the same year they were bought, as was another property in another neighbourhood.
According to real estate consultants who do not want to be named because a political party is involved, this seems inexplicable given that property prices have only been on the rise and the BSP has enough of a bank balance to not need liquid cash urgently to the extent of selling prime properties at a loss. “I am not sure which properties these are. I must check the market price at that time,” said BSP’s treasurer Rajan, who uses only one name.
“2005-06 was one of the best years for the Indian real estate market, with property prices witnessing a boom. Since then, the market has been good and it is impossible that property bought in a posh locality (or any locality) could have been sold at a loss. In fact, nobody sells property at a loss, unless in dire need of liquid cash,” said an executive at a real estate advisory who did not want to be named.
BSP auditor Ajay Shekhar declined to comment on the issue, claiming it was “confidential information” and that speaking about it was against his “code of conduct”.