Khalsa, who is the Lok Sabha MP from Fatehgarh Sahib (SC seat) in Punjab, said if the party has violated law, it should be punished.
Asked if Aam Aadmi Party should be derecognised, he said, "Yes, it will be a good thing. It's a party based on dishonesty and a party of frauds."
In a report submitted to the Election Commission, the Income Tax department, which has been scrutinising the donations list of the party for the last over an year, has said the records of donations made to the AAP during 2013-14 and 2014-15 had "factual discrepancies".
The taxman claimed the donatioons did not match the actual funds received by the party from various donors.
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"Arvind Kejriwal punishes everybody, sometime he says he will do something to Narendra Modi sometime for somebody else. And he says these things in a very improper way. If he has the right to insult everybody, then he should also be punished if he has violated any law," the MP said.
He alleged the party "indulges only in theatrics".
"At the age of 67-68, I got duped by these people, these crooks, these AAP people. They are all frauds. I am ashamed that an educated man like me, at this age, influenced by their talks, joined their party.
I-T officials also said the party treasurer has acknowledged "certain errors" in the audit records in their communication with the taxman.
Asked if AAP can win the Punjab elections, Khalsa said, "If that happens, Punjab will be finished."
Polling will be held tomorrow to elect 117 members for Punjab Assembly new-entrant Aam Aadmi Party is making the poll a three-cornered contest with SAD-BJP combine, battling anti-incumbency after a 10-year rule, and Congress.