As per the reports, the IT department has alleged that the AAP has not disclosed donations worth Rs 13 crore received during 2014-15 and revealed details of 461 donors to the Election Commission.
The party has been asked to pay the penalty by 7 December.
The AAP, however, termed the IT department's assessment as bogus and mala fide adding that they have full confidence in law and order.
"Every single donation has been deemed as illegal and cited as taxable income. And thus an attempt has been made to fix a tax liability. AAP has always ensured and shown commitment towards maintaining a transparent donation list which is hailed across the world," AAP leader Deepak Bajpai told media.
"Despite this, targeting our party shows that this step has been taken out of vendetta. We have full confidence in law and order and judicial bodies. It is a mala fide move and will be quashed in the court," he added.