Mr Quattrocchi has always maintained his innocence India's income tax department has ruled that illegal commissions were paid to an Italian businessman accused over an arms scandal which ended Rajiv Gandhi's term as prime minister 20 years ago.
It found over $9m was paid as commissions to Ottavio Quattrocchi and an Indian arms dealer, Win Chadha.
In 2009, India dropped a graft case against Mr Quattrocchi and withdrew his name from the Interpol "wanted list".
The main opposition BJP has now demanded reopening of the case.
Mr Quattrocchi was an accused in the Bofors corruption case.
The Bofors case has been one of the highest-profile and longest-running criminal investigations in India.
It involved the Swedish firm AB Bofors, which was alleged to have paid $1.3bn in bribes over the sale of 400 howitzers to India in 1986, when Rajiv Gandhi of the Congress party was prime minister.
The Bofors issue is extremely sensitive politically for the governing Congress party as Mr Quattrocchi was known to be a friend of party leader Mrs Sonia Gandhi, who is Italian-born.
Now an income tax investigation has found that commissions were paid to Mr Quattrocchi and a deceased Indian arms dealer Win Chadha, and that tax should be paid on such income.
"Inaction in this regard may lead to a non-existent undesirable and detrimental notion that India is a soft state and one can meddle with its tax laws with impunity," the Income Tax Appellate Tribunal said in its order.
Correspondents say the ruling comes as as embarrassment to the ruling Congress party.
A party spokesman told reporters it will give a response only after examining the income tax ruling.
The main opposition BJP demanded that the case against Mr Quattrocchi should be re-opened, insisting that there had been a "huge cover-up operation" while closing the case against him.
Mr Quattrocchi was allegedly the intermediary in the Bofors deal and received $7m in bribes and other illegal payments.
Indian investigators have tried unsuccessfully for much of the past decade to get Mr Quattrocchi extradited to India.
The Italian businessman has always denied any involvement, arguing he was the victim of a political vendetta in India.
The case contributed to the election defeat of Rajiv Gandhi in 1989, two years before he was assassinated.
In 2004, he was posthumously cleared of any wrongdoing in the deal.
This article is from the BBC News website. � British Broadcasting Corporation, The BBC is not responsible for the content of external internet sites.
Source: http://www.bbc.co.uk/go/rss/int/news/-/news/world-south-asia-12109932
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