In a recent case, the Delhi High Court dismissed the Income Tax Department’s appeal as there was no evidence to prove receipt of commission from foreign entities. It was viewed that the Revenue was not able to show any indelible link that the payments received from the foreign entities were about the agreement between CMF and the assessee for the supply of banknote paper in India.
The revenue challenged the common order passed by the Income Tax Appellate Tribunal [“ITAT”]. Shri Satya Prakash Gupta, the assessee, through his sole proprietorship firm namely, “Sterling Security System” entered into a contract with a non-resident entity called Cartiere Milani Fabriano [“CMF”] for sharing of profits instead of services to CMF on supply of currency paper by CMF to Reserve Bank of India [“RBI”] including its subsidiaries.
The assessee was required to assist and aid CMF in procurement of tenders and carrying out supplies related to banknote paper to concerned buyers and in return, the assessee received a certain commission or share in profits. The agreement was initially valid up to 31.12.2007 and thereafter, it was extended up to 31.12.2012. From AYs 2007-08 to 2011-12, the assessee received the commission from CMF which was also duly reflected in his Income Tax Return [“ITR”]. For AY 2012-13, the assessee had not received any commission from CMF and eventually, the contract was terminated on 31.12.2012.
A search and seizure operation was conducted in the case of the assessee under Sections 132 and 133A of the Income Tax Act, 1961 [“Act”]. A notice under Section 153A of the Act was served on the assessee and the assessee responded that he did not receive any commission from CMF under such agreement.
The Income Tax assessing officer [“AO”] passed an assessment order wherein, it was observed that the assessee continued to receive commissions from CMF through other foreign entities of CMF’s parent group and since CMF does not have any other agent in India for supply of currency notes, therefore, the said amount was received under that agreement only. The AO added a certain amount as undisclosed income. The CIT(A) partly allowed the appeal and deleted the addition. However, for AYs 2012-13 and 2013-14, it upheld the decision of the AO and added a certain amount to the total income of the assessee.
Both Revenue and the assessee preferred an appeal before the ITAT, whereby, vide common order dated 09.03.2022, while deleting the additions for AYs 2012-13 and 2013-14, the ITAT allowed the appeal of the assessee and dismissed the appeal of the Revenue.
Mr Prashant Meharchandani, counsel appearing on behalf of the Revenue, submitted that the ITAT has grossly erred in deleting the additions and argued that during search proceedings, incriminating materials like email exchanges between the assessee and foreign entities from which the assessee received the amount and the agreement between the assessee and CMF, clearly showed that the assessee was planning to evade taxes in India.
Mrs Vibhooti Malhotra, counsel appearing on behalf of the assessee, vehemently opposed the submissions and argued that the instant appeals do not raise any substantial questions of law. Further submitted that the material recovered during the search proceedings was not incriminating as the agreement between the assessee and CMF was already in the knowledge of the Revenue. She also argued that the ITAT was correct in holding that the Revenue was not able to show any indelible link that the payments received from the foreign entities were about the agreement between CMF and the assessee for the supply of banknote paper in India.
The Court observed that the agreement between the assessee and CMF was already in the knowledge of the Revenue and the commission received by the assessee under that agreement was duly reflected in his ITR.
It was viewed that the ITAT has rightly concluded that on the conspectus of the replies furnished by the assessee and the factual matrix of the case, the Revenue was not able to show any indelible link that the payments received from the foreign entities were about the agreement between CMF and the assessee for the supply of banknote paper in India. A division bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav concluded that the instant appeals do not raise any substantial questions of law that would merit consideration and refused to interfere with the judgement rendered by the ITAT. The Court dismissed the appeal.
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