2022 (11) TMI 459 - AT - Income Tax

Correct head of income - income earned from unsold lottery tickets as income from other sources OR income from business - HELD THAT - As per the assessee, all the transactions relating to its business has resulted in income from business. The purchases, losses, unsold stock of lottery tickets, expenditure and all the activities are pertaining to business only. Further, the assessee being a seller / trader, all/any income generated from lottery tickets is exclusively in the nature of business income, unlike in case where the person earned income from lottery tickets by winning the prize. As per the assessee, it has not purchased the lottery tickets with a chance to win the prize and the same were purchased in the course of business for the purpose of trading and, therefore, income arising therefrom can be taxed only under the head Income from Business . Also submitted that in the course of lottery dealing, every dealer ends up with some quantity of lottery tickets unsold at the end of draw, which are not taken back by the main distributor. In such circumstances, purchase price paid by the lottery dealer to the extent of unsold lottery tickets is loss. However, this loss is mitigated by prize money attributed to prize winning lottery tickets out of unsold lottery tickets lying with the trader. We find that in Pooja Marketing 2021 (5) TMI 793 - ITAT MUMBAI dealt with a case, wherein the taxpayer was carrying out business as a Sole State Level Distribution for distributing lottery tickets in the State of Maharashtra and in this process has won prize from unsold lottery tickets, which were not taken back by the main distributor. Thus held such prize money from unsold lottery tickets as income from business of the taxpayer firm. A.R. during the course of hearing placed reliance upon the agreement entered with the Government of Maharashtra, which was filed by way of an application seeking admission of additional evidence. The assessee also placed on record its appointment letter as Stockists , inter alia, for the State of Maharashtra, as part of the compilation of additional evidences. As per the assessee, these documents could not be filed before the lower authorities as the hearing before the learned CIT(A) was concluded only on the basis of partial submissions filed by the assessee. In view of the above, we admit the aforesaid additional evidences filed by the assessee. We find that since these documents were not available with the lower authorities, therefore, no findings have been rendered on them. Accordingly, we deem it fit and appropriate to restore this issue to the file of the Assessing Officer for de novo adjudication after considering the additional evidences filed by the assessee before us and in the light of the aforesaid decision of the Co ordinate Bench of the Tribunal rendered in Pooja Marketing (supra). Grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Justification of changing the income head by the computerized system.
2. Violation of principles of natural justice by not providing a proper hearing.
3. Double counting of income due to the impugned addition in "IFOS" without corresponding deduction in "Business income".
4. Classification of income from unsold lottery tickets as "Income from other sources" instead of "Income from business".

Detailed Analysis:

1. Justification of changing the income head by the computerized system:
The assessee contested the change of income head by the computerized system. The Centralized Processing Centre (CPC) processed the return of income, determining the taxable income after making adjustments on account of income by way of winnings from lottery tickets under section 115BB of the Income Tax Act. The CPC justified the adjustment under section 143(1)(a)(vi) based on the data from Form 26AS, which showed receipts in the nature of winnings from lottery or crossword puzzles. The assessee argued that the income should be classified under "business income" as it was a lottery dealer, and the income arose from trading activities.

2. Violation of principles of natural justice by not providing a proper hearing:
The assessee argued that the National Faceless Appeal Centre (NFAC) did not provide a proper opportunity for hearing and submissions, violating the principles of natural justice. The NFAC dismissed the appeal without calling for any details or allowing the assessee to file further details. The assessee contended that the CPC ignored judicial precedents and did not seek necessary information before making the adjustment.

3. Double counting of income due to the impugned addition in "IFOS" without corresponding deduction in "Business income":
The assessee claimed that the impugned addition was made in "Income from Other Sources" (IFOS) without a corresponding deduction in "Business income," resulting in double counting of income. The assessee argued that all transactions, including purchases, losses, unsold stock, and expenditures, pertained to business activities, and any income generated from lottery tickets should be classified as business income.

4. Classification of income from unsold lottery tickets as "Income from other sources" instead of "Income from business":
The primary issue was whether the income from unsold lottery tickets should be classified as "Income from other sources" or "Income from business." The assessee relied on a decision by the Co-ordinate Bench of the Tribunal in the case of M/s. Pooja Marketing v/s PCIT, where income from prize received from unsold lottery tickets was held to be taxable under "Income from Business." The Tribunal in the present case found that the assessee, being a lottery dealer, purchased lottery tickets for trading purposes, and any income arising therefrom should be taxed under "Income from Business." The Tribunal referred to the agreement with the Government of Maharashtra, which stated that lottery tickets sold to the assessee as a bulk agent were not required to be taken back by the government under any circumstances. The Tribunal restored the issue to the file of the Assessing Officer for de novo adjudication after considering the additional evidence and the decision in Pooja Marketing.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to consider the additional evidence and adjudicate the issue afresh. The assessee was given the liberty to file any other supporting documents, and the Assessing Officer was instructed to provide an opportunity for a hearing before passing the order. The appeal was thus allowed for statistical purposes.