In the Income Tax Appellate Tribunal (Delhi Bench ‘G’), the case DCIT vs. Satya Prakash Gupta, ITA 1278/DEL/2021, was heard and the final order was pronounced on March 9, 2022. The case involved the Deputy Commissioner of Income Tax, Central Circle-19, New Delhi (the appellant) and Satya Prakash Gupta, New Delhi (the respondent). The assessment year in question was 2014-15. The case was filed on September 29, 2021, and dealt with issues of undisclosed income and international transactions. This article provides an in-depth analysis of the tribunal’s findings and conclusions.
Satya Prakash Gupta, an individual, operated a sole proprietorship under the name Sterling Security System. Gupta had a contract with an Italy-based non-resident entity, Cartiere Milani Fabriano (CMF), part of the Fedrigoni SPA International group, which specialized in producing bank note paper. The agreement, initially valid until December 31, 2007, and later extended to December 31, 2012, involved Gupta providing services related to tenders and supplies of bank note paper to the Reserve Bank of India (RBI). Gupta was entitled to a share of the net profit margin or a percentage of the payment received by Fedrigoni from RBI.
However, no payments were recorded from FY 2011-12 onwards, as per Gupta’s claims and return of income. This led to the search and seizure operation under Sections 132 and 133A of the Income-tax Act, 1961, conducted on December 26, 2016, at Gupta’s premises. During the search, the Assessing Officer (AO) found discrepancies in the turnover and profit details, suspecting undisclosed income routed through foreign entities controlled by Gupta.
The AO’s primary contention was that Gupta continued to earn commission income from CMF, which was not disclosed. Based on the turnover and net profit details from previous years, the AO estimated the undisclosed income for the assessment years from 2012-13 to 2017-18. The total estimated undisclosed income was calculated at Rs. 157.65 crores, further proportioned based on actual credits received in foreign bank accounts.
Gupta argued that no profits or payments were received from CMF after FY 2010-11 due to losses incurred by CMF in its transactions with RBI. He provided a letter dated January 4, 2018, from Fedrigoni confirming that no amounts were payable to him post-2011. Gupta also contested the AO’s reliance on post-search inquiries and information from foreign tax authorities, which suggested income accrued outside India for services rendered to CMF.
The tribunal, comprising Shri N.K. Billaiya (Accountant Member) and Shri Amit Shukla (Judicial Member), analyzed the case in detail. The key findings included:
Based on the lack of conclusive evidence and the speculative nature of the AO’s additions, the tribunal ruled in favor of Satya Prakash Gupta. The tribunal emphasized the need for concrete evidence when alleging undisclosed income, especially involving international transactions and foreign entities.
This case highlights the complexities in assessing international transactions and the importance of substantiating claims with solid evidence. The tribunal’s detailed analysis underscores the judiciary’s role in ensuring fair and just assessment processes.
The final judgment stated: “In the absence of any extension of the agreement beyond December 31, 2012, the appellant had no legal entitlement to claim a share of any profit from CMF beyond this period. The estimation of income made by the AO, presuming the continuation of terms and conditions of this agreement, is not based on any facts or evidence but only on conjecture and surmises.”
Thus, the appeals by the revenue were dismissed, providing relief to Satya Prakash Gupta.
DCIT vs. Satya Prakash Gupta, ITA 1278/DEL/2021: Analysis of Tribunal’s Final Order
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