This article delves into the intricacies of the legal case Satya Prakash Gupta vs. DCIT Central Circle-19 (ITA 724/DEL/2021) pertaining to the assessment year 2013-14. The case, filed on June 16, 2021, reached a conclusion with the Income Tax Appellate Tribunal’s (ITAT) final order pronounced on March 9, 2022.
Satya Prakash Gupta, an individual engaged through his sole proprietorship, Sterling Security System, entered into a contract with Cartiere Milani Fabriano (CMF), part of the Fedrigoni SPA International Group, specialized in producing bank note paper. The agreement, initially valid until December 31, 2007, and later extended until December 31, 2012, involved Gupta providing services for tenders and supplies of currency paper to the Reserve Bank of India (RBI) and its subsidiaries. In return, Gupta was to receive 41% of the net profit margin or 14% of payments received by CMF, whichever was higher.
Gupta claimed exemption under Section 10AA of the Income-tax Act for profits earned between FY 2006-07 to 2010-11, as the services were rendered from a Special Economic Zone (SEZ). However, post FY 2011-12, no payments were received from CMF, a fact substantiated by Gupta’s returns and observations by the Assessing Officer (AO).
The key contention arose from the AO’s assumption that Gupta continued to earn commission from CMF’s sales to RBI beyond 2011-12, despite no documented receipts. This led to an estimated undisclosed income calculated based on the payments made by RBI to CMF during FY 2012-13 to 2017-18.
On December 26, 2016, a search and seizure operation at Gupta’s premises unearthed documents but no direct evidence of undisclosed income or foreign payments was found. The AO relied on information from FTTR division of CBDT, alleging foreign payments to entities controlled by Gupta, which were undisclosed to the Income Tax Department.
The AO deduced that payments received by Gupta in foreign bank accounts were likely connected to services rendered for CMF’s ongoing supply of bank note paper to RBI. The AO applied an average net profit rate from past years to estimate Gupta’s income for AYs 2012-13 to 2017-18, arriving at substantial figures deemed as undisclosed income.
The ITAT, comprising Shri N.K. Billaiya (Accountant Member) and Shri Amit Shukla (Judicial Member), scrutinized the AO’s findings, submissions from both parties, and the consolidated order passed by CIT(A). The Tribunal highlighted the lack of concrete evidence linking Gupta’s foreign income to the alleged commission from CMF post-2012. Additionally, it noted inconsistencies in the AO’s assumptions and estimations.
The ITAT ruled in favor of Satya Prakash Gupta, emphasizing the need for concrete evidence to substantiate claims of undisclosed income. The Tribunal’s decision underscored the importance of clear, verifiable documentation in tax assessment cases, especially when foreign transactions and alleged income from past business agreements are involved.
This case highlights the complexities in establishing undisclosed income in the context of international business operations and the critical role of thorough evidence and legal documentation in tax litigation.
Satya Prakash Gupta vs. DCIT Central Circle-19: An Examination of Tribunal’s Final Order
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