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DCIT Circle-8 Kolkata Versus M/s W.B. Lottery Stockists Syndicate Pvt. Ltd. And Vice-Versa

Prize money winning out of unsold lottery tickets - business income OR income from other sources - A.O. treated this income separately and assessed the income as income from other sources and assessed tax accordingly - CIT(A) deleted the additions - Held that:- in the other years the Revenue has not disputed the winning from the lottery which was subject to TDS as income from other sources. We also find that there is a clear finding of AO with regard to the income arising to an agent in respect .....

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ertinent to note that the AO accepted a business loss at 2,56,31,331.00 as claimed by the assessee for the assessment year under consideration as against the business loss sustained by the assessee of ₹ 2,08,32,311.00 vide profit and loss account and such loss can be attributed was mainly due to unsold tickets. In view of the above discussion, that the prize money on unsold tickets is a business income and not the income from other sources as held by the AO. Therefore, the order of CIT-A i .....

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n the year 2012 and all the three parties either closed the business or changed to other business and we also find force in the arguments of the Ld.AR that the parties in the lottery ticket business are illiterate and doing their business in villages in unorganized manner. Therefore, we are of the view that the assessee submitted all the details of the seven parties and offered its explanation that the said amounts were received from debtors as security deposit before the AO as required under se .....

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of assessee - ITA No. 1163/Kol/2012, C.O. No. 89/Kol/2012 - Dated:- 22-6-2016 - Shri Waseem Ahmed, A. M. And Shri S. S. Viswanethra Ravi, J. M. For the Department : Shri Snehotpal Datta, JCIT, Sr. DR For the Assessee : Shri D. K. De Sarkar, FCA ORDER Per Shri S.S.Viswanethra Ravi, J.M. This appeal by the Revenue and the Cross Objection by the assessee are arising out of common order dated 17.05.2012 passed by the CIT(A)-VIII, Kolkata for the assessment year 2004-05 framed under section 143(3) of .....

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sale dealer in lottery tickets and filed its return of income on 29.10.2004 declaring a total loss of ₹ 2,08,32,311/- and on scrutiny notices under section 143(2)(ii) was issued and thereafter, notice under section 142(1) of the Act was issued with detailed questionnaire. 4. Ground No-1 relating to addition of ₹ 69,59,120/- made by the AO considering the income determined from unsold lottery wining (prize) money. 5. The assessee is a dealer of lottery tickets and won some prize money .....

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essee and its stock position thoroughly while conducting the Audit required as per companies Act and u/s. 44AB of the Income Tax Act, 1961. As the assessee failed to establish that the prize-winning money on which tax was to be deducted at source and as no tax was deducted by the State Lotteries on prize-winning as shown on Prize Winning Ticket and on Bulk tickets of about ₹ 26 Crores and @30% being ₹ 69,59,120/- of lottery prize money u/s. 56(2) and The A.O. treated this income sepa .....

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e prizes were won on such unsold tickets (unsold stock remaining after salesreturn to the State Lottery Commission). 6. The assessee challenged the addition made by the AO in first appeal before the CIT-A contending that the Assessee is engaged in the business of lottery ticket business with Director of State lottery, Government of West Bengal. As per the sole selling agreement with Director of State Lottery, the Assessee was duty bound to sell 90% of the ticket purchased and the balance 10% may .....

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to actual seller (retailers) and to be reimbursed from WBSL). At the end of the year the payment on bulk tickets but not reimbursed by WBSL 3. Prize winning tickett (PWT)- Balance Sheet item (Prize amount paid to actual winner and to be reimbursed from WBSL- Prize money below ₹ 5.000/-). At the end of the year the payment on PWT but not reimbursed by WBSL. 4. Unsold means the lottery ticket remain in stock after the draw date. Unlike other stock, lottery tickets become scrap and value les .....

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se shown in the profit and loss account. The assessee also returned the unsold ticket to the extent of 10%, as stipulated in the sole selling agreement. The assessee, being a business unit of lottery ticket quite understands that purchase cost or lottery ticket would be must more than the prize money, if any. Lottery winning is a contingent factor and no business merit would invest their money to such chance factor. The Assessing Officer did not point out any other eventuality for such winning t .....

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remaining unsold tickets have to be submitted to the Directorate. From the above, it is clear that unsold tickets, more than 10% of the bought tickets have to be consumed by the company. It is also clear that the company doing the business of lottery ticket by virtue of' an agreement with Director of Slate lottery, Govt. of West Bengal. From the audited profit & loss a/c., it is clear that the company purchased and sold lottery tickets only and did not do any other business. Thus, it is .....

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considering the submission of the assessee, perusing the facts or the case including the observation of the AO and other materials on record, I am of the considered view that the lottery winning income of the assessee is assessable as business income. The A.O. is, therefore, directed not to treat the lottery winning income separately u/s 56(2)(ib) and treat the lottery winning income of ₹ 69,59,120/- as business income. As a result, this ground of appeal of the assessee is allowed 8. Havin .....

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ney won in lottery is a business income and it cannot be treated as separate income u/s 56(2)(ib) of the Act for the reason that the assessee has paid total cost for the 90% of the tickets for each draw and the assessee is eligible to return 10% of tickets of each draw of remained unsold. Ld.AR argues that the assessee has to bear the cost of 90% if the ticket sales were not achieved to that extent. The assessee only enjoys the fruits of lottery business, if any, in the form of prize money from .....

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siness as sole selling agent of Director of State Lottery, Govt. of West Bengal. We find from the record that the assessee company has entered into an agreement with Directorate of West Bengal of State Lotteries. As per the agreement the assessee shall sell 90% of total tickets as minimum guarantee and the remaining unsold tickets have to be returned to the Directorate and draw is held on sold tickets. The assessee produced a statement of such tickets purchased from WB State Lotteries to show th .....

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ate Lottery, West Bengal on receipt of the claim in the prescribed format. The Ld. AR argued that the AO did not raise any objection to the different heads of accounts and corresponding figures and the debit items along with their corresponding figures including the amounts involving purchase of lottery tickets. 10. We find that in the other years the Revenue has not disputed the winning from the lottery which was subject to TDS as income from other sources. We also find that there is a clear fi .....

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the closing stock audited financial statement is not tenable. It is pertinent to note that the AO accepted a business loss at 2,56,31,331.00 as claimed by the assessee for the assessment year under consideration as against the business loss sustained by the assessee of ₹ 2,08,32,311.00 vide profit and loss account and such loss can be attributed was mainly due to unsold tickets. In view of the above discussion, that the prize money on unsold tickets is a business income and not the income .....

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osited ₹ 21,00,000/- into its bank and assessee explained that the amount was received from debtors as security deposit and the AO did not accept the explanation and treated the same as unexplained investment under section 69 of the Act. 12. In first appeal, the CIT-A found that the finding of the AO that The assessee was asked to explain the source of cash deposited into bank account but no explanation has been offered by the assessee. For which the assessee submitted that during the cour .....

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s of the cash depositors were doubted. Subsequently, your honour has called for another Remand Report vide your letter dated 01.08.2011 after verification of the 7 cash depositors. Pursuant to your directions, summons u/s 131 were issued to the following 7 parties requiring their personal attendance on 23.08.2011 along with (i) copy of the return for A. Y. 2004-05 and (ii) Income & Expenditure A/c or P&L A/c and Balance Sheet as on 31.03.2004 : (i) Shri Jahar Saha (Prop. Shree Guru lotte .....

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appeared in person and in respect of other parties none appeared in person. Shri Tushar Kanti Ghosh could not recollect if any security deposit was given by his Firm to M/s.West Bengal Lottery Syndicate Pvt. Ltd. in the year 2003-04. He also fumbled to say that there could be a security deposit of ₹ 1 lakh made by his Firm, whereas in the letter of confirmation filed before the Ld. CIT(A), the said deposit is shown to be of' ₹ 2.5 lakh. In the confirmation of A. Dutta submitted b .....

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Saha have both been shown before the ld. CIT(A) as Proprietor of some Shree Guru Lottery Centre, which is quite unusual as there cannot be more than one proprietor for a single proprietary concern. In view of the above, it appears that the assessee has not disclosed its particulars truly and fully. The genuineness of the impugned cash deposits is not proved by the assessee. The assessee s appeal may kindly be dismissed on this ground." 13. On confrontation, the assessee filed its rejoinder .....

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Officer took the trouble to send summons u/s 131 to all the seven parties but four parties were appeared before the Assessing Officer. Kindly note that the matter was in respect of F.Y. 2003-04 when lottery ticket business was in boom and the summons were sent in 2012 when lottery ticket business is at the lowest possible stream due to ban imposed by many states on lottery ticket. Most of the lottery ticket business firm either close the business or change to other business. Moreover, most of t .....

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ansactions arc confirmed now and no party denied the fact of transactions, the ld. CIT(A) is requested to kindly delete the addition. 14. The CIT-A considered the remand report and rejoinder filed by the assessee and deleted the additions made on account of Smt. Archana Nandi, Smt. Aparna Saha and M/s. New Kalpataru Agency, the observations of which reproduced here under: After carefully going through the AO' s remand report and the reply of the assessee and perusing the facts of the case, I .....

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y deposit of ₹ 1,00,000/- as against ₹ 2,50,000/- claimed to have deposited should be considered us genuine and the AO is directed to accept it. Similarly, in the case of A. Dutta, deposit of ₹ 2,10,000/- as against the claim of ₹ 2,60,000/- to be considered as genuine being reflected in the balance sheet. As per report of the A.O., no security deposit is reflected in the balance sheet of Archana Nandi and New Kalpataru Agency and therefore the deposit in their names cann .....

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stage also after providing enough opportunity to the assessee. Thus, the addition made in respect of these persons arc confirmed. Accordingly, the A.O. is directed to suitably modify the extent of addition made u/s.69 of the Act keeping in view my above observation. Thus, this ground of appeal of the assessee is partly allowed. 15. The CIT-A did not accept the copies of returns and accounts details as per required by the AO in remand proceedings of both Shri Jahar Saha and Shri Dhiren as they ha .....

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lanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the 59 [Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. 16. A reading of the above provision explains that the value of investments would be treated as unexplained investments when the assessee fails to record such investments in the books of account and offers no explanation about the nature and .....

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