1996 (10) TMI 124 - AT - Income Tax

Summary

Issues Involved:
1. Adequate opportunity of being heard by the first appellate authority.
2. Addition made by the Assessing Officer regarding the sale of lottery tickets at a lesser price.
3. Disallowance of expenses in Coolie and Cartage Account and Advertisement expenses.
4. Taxability of prize money from unsold lottery tickets under section 115BB of the IT Act, 1961.

Detailed Analysis:

1. Adequate Opportunity of Being Heard:
The first appellate authority decided the matter ex parte, as detailed in pages 1 and 2 of his order. The assessee's counsel contended that there was no proper and sufficient opportunity of being heard. However, this issue was not seriously pressed, and the case was submitted on the merits of the issues in dispute. Therefore, Ground No. 1 was disposed of accordingly.

2. Addition Regarding Sale of Lottery Tickets at Lesser Price:
The Assessing Officer and the first appellate authority rejected the assessee's claim regarding the sale of lottery tickets at a lesser price, resulting in a trading account loss of Rs. 8,32,934. The authorities noted that the loss arose due to the expiry of tickets and the sale of tickets at a reduced price without proper evidence. The assessee's counsel argued that the assessee had actually shown a gross profit of Rs. 8,32,933, and thus, the authorities' presumption of a trading account loss was factually incorrect. The Tribunal restored this issue to the file of the Assessing Officer to pass a fresh order after giving the assessee a proper opportunity to be heard and to collect all necessary information.

3. Disallowance of Expenses:
- Coolie and Cartage Account: The Assessing Officer disallowed Rs. 20,000 out of Rs. 14,24,126 claimed for day-to-day expenses like Coolie charges and Cartage, citing insufficient evidence of payment. The first appellate authority deemed the disallowance reasonable. The Tribunal found no further evidence to contest the disallowance and confirmed the order of the first appellate authority.
- Advertisement Expenses: Out of Rs. 56,21,889 claimed for advertisement expenses, Rs. 15,000 was disallowed due to unverifiable publication expenses. The first appellate authority confirmed this disallowance as reasonable. The Tribunal, finding no further evidence, also confirmed the addition.

4. Taxability of Prize Money from Unsold Lottery Tickets:
The assessee, a sole-selling agent of lottery tickets, argued that the prize money from unsold tickets should not be taxed under section 115BB of the IT Act, 1961, as the tickets were not purchased with the intention of winning a lottery. The Assessing Officer, however, treated the income as lottery income taxable under section 115BB, noting that similar receipts were previously claimed as lottery income.

The Tribunal examined the clauses of the agreement and concluded that the assessee did not participate in the lottery by purchasing tickets. The prize money refunded to the assessee was due to the terms of the agreement, not from winning a lottery. The Tribunal referenced the Bombay High Court's decision in *Commercial Corpn. of India Ltd v. ITO* and the Karnataka High Court's decision in *Mysore Sales International Ltd v. CIT*, which supported the view that such income is business income and not lottery income. Consequently, the Tribunal directed the Assessing Officer to recompute the income, excluding the application of section 115BB.

Conclusion:
The appeal filed by the assessee was partly allowed, with specific directions for the Assessing Officer to reassess the issues as per the Tribunal's findings.