2016 (7) TMI 202 - AT - Income Tax

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 of prize on unsold/unclaimed lottery tickets is business income. There is no doubt that the assessee is an authorized agent of Government of West Bengal. Further, we also find that the tickets which have not be sold during the year, there is no need to mention the stock of these tickets as it has no value at all. So the reason for not allowing the claim of the assessee that the tickets which won the prize are not reflecting in 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 from other sources as held by the AO. Therefore, the order of CIT-A is justified in deleting the addition made by the AO - Decided in favour of assessee Cash deposits found in bank account as unexplained investment under section 69 - Held that - The assessee discharged its duty in giving details regarding the identity of all the parties before the authorities, now onus shifts to revenue authorities to bring evidence contrary to submissions of the assessee. We also conscious of the fact that the concerned financial year is 2003-04 and the summons were sent in 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 section 69 of the Act and there was no evidence contrary to assessee except the summons were not served and in our view it is not sufficient to attract the provision under section 69 of the Act, thus, the order of CIT-A is not justified with regard to three parties i.e Archana Nandi, New Kalpataru Agency, Shri Jahar Saha and Shri Dhiren and addition made by the AO to an extent of ₹ 21,00,000/-is deleted and sole ground raised by the assessee in cross objection is allowed.- Decided in favour of assessee

Summary

Issues Involved:
1. Classification of ?69,59,120/- prize money from unsold lottery tickets as business income or income from other sources.
2. Treatment of ?21,00,000/- cash deposits found in the assessee's bank account as unexplained investment under section 69 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Classification of ?69,59,120/- Prize Money:

- Facts and Proceedings:
- The assessee, a wholesale dealer in lottery tickets, declared a total loss of ?2,08,32,311/- in its return for the assessment year 2004-05.
- The Assessing Officer (AO) treated ?69,59,120/- prize money from unsold lottery tickets as income from other sources under section 56(2)(ib) of the Income Tax Act, 1961, and taxed it at 30%.
- The AO noted discrepancies in the audit reports and observed that the prize money should be taxed separately as it was not established that the prize-winning tickets were part of the unsold stock.

- Assessee's Argument:
- The assessee contended that the prize money was part of its business income as it was won on unsold lottery tickets, which is an incidental activity of its business.
- The assessee highlighted the agreement with the Director of State Lottery, which required the sale of 90% of purchased tickets and allowed the return of 10% unsold tickets.

- CIT-A's Findings:
- The CIT-A found that the prize money was indeed part of the unsold tickets and should be treated as business income.
- The CIT-A noted that the assessee did not purchase additional tickets beyond what was shown in the profit and loss account and that the unsold tickets, which won the prize, were part of the business activity.

- Tribunal's Decision:
- The Tribunal upheld the CIT-A's decision, agreeing that the prize money from unsold lottery tickets should be treated as business income.
- It was noted that the AO had accepted the business loss claimed by the assessee, and the prize money was an incidental part of the business.

2. Treatment of ?21,00,000/- Cash Deposits:

- Facts and Proceedings:
- The AO found ?21,00,000/- deposited in the assessee's bank account and treated it as unexplained investment under section 69 of the Act, as the assessee failed to provide satisfactory explanations during the assessment.

- Assessee's Argument:
- The assessee explained that the amount was received from debtors as security deposits and provided confirmations from the depositors during the appellate proceedings.

- CIT-A's Findings:
- The CIT-A sought remand reports from the AO, who verified the depositors. The CIT-A accepted the explanations for some depositors but not for others, leading to partial deletion of the addition.

- Tribunal's Decision:
- The Tribunal found that the assessee had discharged its duty by providing details and explanations regarding the cash deposits.
- It was noted that the AO did not bring any contrary evidence, and the Tribunal accepted the assessee’s explanation, deleting the entire addition of ?21,00,000/-.

Conclusion:
- The appeal by the Revenue was dismissed, and the cross-objection by the assessee was allowed.
- The Tribunal concluded that the prize money from unsold lottery tickets is business income, not income from other sources.
- The Tribunal also deleted the addition of ?21,00,000/- as unexplained investment, accepting the assessee's explanation and evidence.