By Abhishek Jha:
Long Delays In Submission Of Audit Report
In August 2014, the Election Commission issued guidelines for transparency and accountability in funding of political parties. These guidelines drew on already existing legislation in the form of the Income Tax Act and the Representation of the People Act as well as earlier guidelines and amendments to requirements made by the Commission itself. The guidelines, therefore, made, as they were meant to, the existing legislation clearer. A significant change was perhaps the new requirement that all political parties submit a copy of the audited Annual Accounts with Auditor’s report for each financial year to the Election Commission. The guidelines also asked parties to maintain the names and addresses of all donors except those donating petty sums, “donated by the public only during its public rallies”.
In a November 2014, letter meant to clarify these guidelines, the Commission reiterated these above mentioned guidelines as necessary and further explicated other guidelines. This letter also stated that failing to follow the guidelines may entail action under the Commission’s Election Sybmols (Reservation and Allotment) Order. Yet only three national parties – the CPM, the BSP, and the CPI – had submitted their annual audit report to the Commission by the due date of 30th November. The NCP submitted its report on February 2 this year while the BJP submitted its report on March 14 this year. The Congress hasn’t submitted the report so far.
Unknown Sources Of Income
The guideline on submission of audited accounts was issued to ensure that political parties don’t receive donations from sources prohibited by the Representation of the People Act, which are basically foreign sources as defined in the Foreign Contribution (Regulation) Act. Apart from that, political parties also get tax exemptions under the Income Tax Act provided they maintain books of account so that its income can be correctly calculated, maintain records of donors and their addresses when they are making a voluntary contribution exceeding twenty thousand rupees, and provided their account is audited by an accountant.
The guideline’s significance can also be assessed from a recent Delhi High Court judgment in an old case, where the INC was seeking tax exemptions despite not having properly audited accounts. The Court, according to reports, had found that the auditor had certified the balance sheet and statement of income despite irregularities. It was of the opinion that such failure should invite taxation of such income. The annual scrutiny of audited accounts is then a necessary step towards preventing such irregularities.
The submission of these accounts has shed some light now on a peculiar irregularity noted by ADR in its report. While the IT returns of the CPI show that it earned only 0.72 crores from donations, elections fund, and party fund in 2014-15, its contribution report to the Commission shows that it has declared donations of above Rs. 20,000 alone amounting to Rs. 1.33 crores.
The BJP earned 90% of its income from voluntary donations, of which 50% contributions were above Rs. 20,000. The NCP earned 57% from such donations and grants and all of it was from contributions above Rs. 20,000. The BSP and CPM earned 83% and 48% from donations or coupon sale respectively, with less than 10% contributions above Rs. 20,000 to each party. The concern raised by the ADR report is that a huge chunk of the income of political parties comes from unknown sources, as only the income from donations above Rs. 20,000 need to be put down under a specific source. This income from unknown sources amounts to Rs. 685.36 crores, 54% of the total income of all national parties (except the Congress, which is yet to submit its report on contributions to the EC).
Huge Expenditure On Elections And Publicity
The link between income and expenditure is what prompts the EC from regulating the flow of money in elections. It had issued the guidelines precisely “to curb the abuse of money power during elections.” The private election watchdog’s report also highlights where this tax-free income coming majorly from unknown sources was spent. Election and publicity expenditure was the top priority for expenditure for all parties except the CPM, which, the ADR report says, spent more on meeting employee cost (23.24 crores) than on elections (20.78 crores). The largest advertisement and publicity expenditure was by the BJP, which spent Rs. 471.89 crores (51.69% of its total expenditure) on it. The BSP, NCP, and CPI spent 31.04 crores (82.88%), 67.7 crores (80.93%), and 0.88 crores (40.93%) on elections respectively.
ADR’s report ends with a set of recommendations to further the objective of free and fair elections. It has asked for mandatory declaration of full details of all donors under RTI, scrutiny of those parties that do not follow ICAI guidelines for auditing of reports, and availability of all information on the finances of National political parties under RTI, and complete filling of Form 24A providing details of donations above Rs. 20,000.
While these recommendations cannot be immediately enforced without new guidelines being issued by the EC, another recommendation made by the ADR can be implemented if the EC is willing to do so. The report asks for cancelling tax-exemption and de-recognising parties that default on submission of donation statements to the ECI. The above-mentioned Delhi HC judgment and EC’s own powers under the Election Symbols order allow for both these steps. With the biggest parties themselves setting a bad trend with respect to their income and expenditure, reform can be expedited only with express action.