Facts of the Case

The Revenue challenged a common order of the Income Tax Appellate Tribunal (ITAT) relating to Assessment Years 2012-13 to 2017-18 in the case of the respondent, Shri Satya Prakash Gupta. The assessee, through his proprietorship firm, had entered into an agreement with a non-resident entity, Cartiere Milani Fabriano (CMF), to assist in procurement of tenders and supply of currency paper to the Reserve Bank of India and its subsidiaries in exchange for commission.

The agreement was initially valid until 31 December 2007 and later extended to 31 December 2012. The assessee received commissions until AY 2011-12, which were duly disclosed in the income tax returns. A search operation under Sections 132 and 133A was conducted on 26 December 2016, during which a copy of the agreement was found.

Subsequently, assessment orders were passed adding amounts as undisclosed income for AYs 2012-13 to 2017-18 on the premise that the assessee continued to receive commissions through foreign entities even after termination of the agreement.

Issues Involved

  1. Whether additions under Section 153A can be made for completed assessments in the absence of incriminating material found during search.
  2. Whether alleged receipt of funds through foreign entities could justify additions as undisclosed income without evidence linking them to Indian operations.
  3. Scope of assessment powers of the Revenue in search cases for unabated assessment years.

Petitioner’s (Revenue’s) Arguments

The Revenue contended that materials seized during the search, including email exchanges and agreements, indicated that the assessee continued to receive funds routed through foreign entities despite termination of the agreement with CMF. It argued that these payments constituted undisclosed income arising from services related to supply of currency paper in India.

Respondent’s (Assessee’s) Arguments

The assessee argued that no commission was received after AY 2011-12 pursuant to the agreement, which had been terminated in December 2012. It was submitted that the alleged incriminating material pertained only to later years and did not establish any nexus with the earlier assessment years.

The assessee relied on judicial precedents, particularly CIT (Central) v. Kabul Chawla, asserting that additions for completed assessments under Section 153A are permissible only when supported by incriminating material found during search.

Court Order / Findings

The Delhi High Court upheld the ITAT’s decision deleting the additions. The Court reiterated the settled legal principle that completed (unabated) assessments cannot be disturbed under Section 153A unless incriminating material relating to those years is discovered during search.

The Court relied on authoritative precedents including:

  • CIT v. Kabul Chawla — additions for completed assessments require incriminating material
  • PCIT v. Abhisar Buildwell Pvt. Ltd. (Supreme Court) — reaffirmed the same principle

It was observed that:

  • The agreement between the assessee and CMF had already been disclosed and was known to the Revenue.
  • No evidence showed continuation of services or receipt of income in India after termination of the agreement.
  • Allegations of payments routed through foreign entities were based on presumptions without proof of business connection in India.
  • For certain years, the assessee had become a non-resident, further weakening the Revenue’s case regarding Indian taxability.

 Important Clarification

The judgment reinforces that the extraordinary powers under search provisions are not intended to permit arbitrary reassessment of completed cases. Additions under Section 153A must be founded on concrete incriminating material discovered during search, not on conjectures, presumptions, or previously disclosed information.

It also clarifies that where assessments have attained finality and no new material emerges, the Revenue must resort to regular reassessment provisions (Sections 147/148) if permissible under law.

Link to download the order – https://www.mytaxexpert.co.in/uploads/1772176301_PR.COMMISSIONEROFINCOMETAXCENTRAL2VsSHRISATYAPRAKASHGUPTA.pdf 

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