Appeal Details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 4497 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-07-2016
Appeal Filed By
Assessee
Bench Allotted
A
Assessment Year
2010-2011
Appeal Filed On
24-02-2016
Judgement Text
I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 1 OF 38 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 277/KOL/ 2016 ASSESSMENT YEAR: 2010-2011 M/S. FUTURE DISTRIBUTORS,.......................... ............................APPELLANT P-46, HIDE ROAD EXTENSION, BRACE BRIDGE, TARATALA, KOLKATA-700 088 [PAN: AACFF 0828 R] -VS.- PRINCIPAL COMMISSIONER OF INCOME TAX-9,............ ................RESPONDENT KOLKATA, AAYAKAR BHAWAN DAKSHIN, GARIAHAT ROAD, KOLKATA APPEARANCES BY: SHRI SACHCHIDANANDA SRIVASTAVA, CIT, D.R., FOR THE DEPARTMENT SHRI S.K. TULSIYAN, ADVOCATE, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : JUNE 08, 2016 DATE OF PRONOUNCING THE ORDER : JULY 29, 2016 O R D E R PER SHRI P.M. JAGTAP :- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX-9, KOLKATA DATED 30.03.2015 PASSED UNDER SECTION 263, WHEREBY HE REVISED THE OR DER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) TREATING THE SAME ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE FAILURE TO MAKE THE DISALLOWANCE UNDER SECTION 40(A)(IA) ON ACCOUNT OF PAYMENT OF DISBURSED PRIZE MONIES. 2. AT THE OUTSET, IT IS NOTED THAT THERE IS A DELAY OF 75 DAYS ON THE PART OF THE ASSESSEE IN FILING THIS APPEAL BEFORE THE TR IBUNAL. IN THIS REGARD, THE ASSESSEE HAS FILED AN APPLICATION SEEKING CONDO NATION OF THE SAID I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 2 OF 38 DELAY AND KEEPING IN VIEW THE REASONS GIVEN THEREIN , WHICH ARE DULY SUPPORTED BY AN AFFIDAVIT FILED BY THE ASSESSEE AFF IRMING THE RELEVANT FACTS ON OATH, WE ARE SATISFIED THAT THERE WAS A SU FFICIENT CAUSE FOR THE DELAY ON THE PART OF THE ASSESSEE IN FILING ITS APP EAL BEFORE THE TRIBUNAL. EVEN THE LD. D.R. HAS NOT RAISED ANY OBJECTION IN T HIS REGARD. WE, THEREFORE, CONDONE THE DELAY ON THE PART OF THE ASS ESSEE IN FILING ITS APPEAL BEFORE THE TRIBUNAL AND PROCEED TO DISPOSE O F THE SAME ON MERIT. 3. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE AS FOLLOWS:- THE ASSESSEE IS A PARTNERSHIP FIRM, WHICH CARRIED O N THE BUSINESS OF BUYING, SELLING, TRADING OR OTHERWISE DEALING IN AL L KINDS OF LOTTERY TICKETS DURING THE PERIOD FROM 01.06.2009 TO 31.05.2011. A SURVEY UNDER SECTION 133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF TH E ASSESSEE ON 27.01.2010, DURING THE COURSE OF WHICH CERTAIN BOOK S OF ACCOUNT AND LOOSE PAPERS WERE IMPOUNDED. THEREAFTER THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 12.10.2010, WHEREIN PROFIT FROM THE BUSINESS OF DEALING IN LOT TERY TICKETS WAS SHOWN BY THE ASSESSEE AT RS.88,00,00,000/- BEFORE DEPRECI ATION AND INTEREST AND AFTER CLAIMING DEPRECIATION AND INTEREST, TOTAL INC OME OF RS.63,96,81,915/- WAS DECLARED BY THE ASSESSEE. ON THE BASIS OF THE DOCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY, TH E EVIDENCES COLLECTED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS AND THE STATEMENT RECORDED UNDER SECTION 131 OF ONE SHRI SHANTILALN V IRA, PARTNER OF THE ASSESSEE-FIRM, THE ASSESSING OFFICER ARRIVED AT A C ONCLUSION THAT THE BUSINESS OF CONDUCTING OF LOTTERIES WAS VIRTUALLY O UTSOURCED BY THE ROYAL GOVERNMENT OF BHUTAN TO THE PRIVATE GROUP TO WHICH THE ASSESSEE-FIRM BELONGED ON ROYALTY BASIS. HE HELD THAT THE ENTIRE CHAIN OF INCOME, FROM THAT ACCRUING TO THE DIRECTORATE OF LOTTERIES, BHUT AN, THE SOLE PURCHASER, THE WHOLESALER AND THE MAIN SELLER WAS SO ARRANGED ON THE BASIS OF BERNOULLIS THEOREM THAT THE LOTTERY BUSINESS CONDUC TED BY THE GROUP WOULD ALWAYS GIVE A NET PROFIT OF 8 TO 10% OF THE T OTAL SIZE OF LOTTERY TICKETS. HE HELD THAT THE ASSESSEE-FIRM, HOWEVER, C REATED A WEB OF I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 3 OF 38 TRANSACTIONS ROUTED THROUGH BOGUS/PAPER/FRONT ENTIT IES TO DISTANCE ITS ACTUAL PROFITS FROM THE LOTTERY BUSINESS OF 8% TO 1 0% AND MASTER MINDED A COMPLEX TAX EVASION NETWORK. IN THIS REGARD, THE OBJECTION RAISED BY THE ASSESSEE THAT THE BERNOULLIS THEOREM IS NOT APPLICA BLE IN CASE OF THE LOTTERY BUSINESS WAS NOT FOUND TO BE SUSTAINABLE BY THE ASSESSING OFFICER AND OVERRULING THE SAME, HE PROCEEDED TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE UNDER SECTION 145(3) OF THE ACT AND ES TIMATED THE INCOME OF THE ASSESSEE BY APPLYING THE SAID THEOREM. ACCORDIN GLY, THE GROSS PROFIT FROM THE ENTIRE BUSINESS OF BHUTAN LOTTERIES WAS ES TIMATED BY THE ASSESSING OFFICER AT RS.400 CRORES AS UNDER:- FACE VALUE OF LOTTERY TICKETS PRINTED AND CLAIMED TO HAVE BEEN PURCHASED FROM THE ROYAL GOVT. OF BHUTAN-RS.3,800 C RORES (TOTAL NO. OF LOTTERY TICKETS IS ALSO TAKEN AS AROUND 3800 AS MORE THAN 99% OF THE DRAWS CONSISTED OF RUPEE 1 PER TICKET. THE DISCOUNTED RATE OF INVOICE VALUE OF THE TICKETS OF RS.3,800 CRORES IS SHOWN AS RS.2,800 CRORES I.E. (74% OF THE FACE VALUE). THE ROYAL GOVT. OF BHUTAN IS TO DECLARE AND SHOWN T O HAVE DECLARED PRIZE WINNINGS AT 70% OF THE GROSS LOTTERY SIZE I.E. (70% OF RS.3800 CRORES) WHICH IS RS.2660 CRORES. FACTS AND FIGURES OF M/S. FUTURE DISTRIBUTORS, M.A. V. ASSOCIATES (ALIAS VIRA ENTERPRISE). ANGELICA DISTRIBUTOR, TEES TA DISTRIBUTOR (MARKETING COMPANIES I.E. MAIN SELLERS WHO ACTUALLY COLLECT THE MONEY FROM THE PUBLIC THROUGH DEALERS AND STOCKISTS ) LOTTERY TICKETS ACTUALLY SOLD 62% OF 3800= 2356 TIC KETS, SALES REALIZATION @ 86.5 PRISA AVERAGE PER TICKET= RS.2050 CRORES (SALE PRICES SHOWN TO VARY FROM 81 PAISE TO 94 PAISE PER TICKET) PRIZE WINNINGS TICKETS ATTRIBUTABLE TO THE SOLD TIC KETS IS 62% OF 2660 I.E. THE TOTAL PRIZE WINNING TICKETS OF RS.165 0 CRORES, WILL GO TO THE HOLDERS OF THE TICKETS ACTUALLY SOLD BY T HESE MARKETING ENTITIES. GROSS PROFIT RS.2050 CRORES MINUS RS.1650 CRORES = RS.400 CRORES (TOTAL EARNINGS FROM THE ENTIRE BUSINESS OF BHUTAN LOTTERIES). 4. FROM THE ABOVE GROSS PROFIT ESTIMATED AT RS.400 CRORES, ROYALTY PAID TO ROYAL GOVERNMENT OF BHUTAN AMOUNTING TO RS. 110 CRORES AND THE ACTUAL SELLING EXPENSES SPENT BY THE MARKETING ENTI TIES AMOUNTING TO RS.20 CRORES WERE DEDUCTED BY THE ASSESSING OFFICER AND THE NET PROFIT I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 4 OF 38 FROM THE ENTIRE BUSINESS OF BHUTAN LOTTERIES WAS WO RKED OUT BY HIM AT RS.270 CRORES. THE NET PROFIT OF RS.270 CRORES SO W ORKED OUT WAS DIVIDED BY THE ASSESSING OFFICER BETWEEN THE ASSESSEE-FIRM AND THE OTHER DISTRIBUTORS IN THE RATIO OF THEIR SALES AND ACCORD INGLY, THE NET PROFIT OF THE ASSESSEE FROM THE BUSINESS OF DEALING IN LOTTER Y TICKETS WAS ARRIVED AT BY THE ASSESSING OFFICER AT RS.197 CRORES BEING 73% OF RS.270 CRORES (BEFORE DEPRECIATION AND INTEREST) AS AGAINST THE N ET PROFIT OF RS.88 CRORES SHOWN BY THE ASSESSEE IN THE RETURN OF INCOM E. AFTER ALLOWING DEDUCTION ON ACCOUNT OF DEPRECIATION AND INTEREST, THE TOTAL INCOME OF THE ASSESSEE FROM THE BUSINESS OF DEALING IN LOTTERY TI CKETS WAS DETERMINED BY THE ASSESSING OFFICER AT RS.1,72,96,81,920/- FOR THE YEAR UNDER CONSIDERATION IN THE ASSESSMENT COMPLETED UNDER SEC TION 143(3)/144 VIDE AN ORDER DATED 22.03.2013. 5. THE RECORDS OF THE ASSESSMENT MADE UNDER SECTION 143(3)/144 IN THE CASE OF THE ASSESSEE THEREAFTER CAME TO BE EXAM INED BY THE LD. PR. CIT AND ON SUCH EXAMINATION, HE FOUND THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD MADE AN AGGREGATE PAYMENT O F RS.551.30 CRORES TO THE VARIOUS STOCKISTS BY WAY OF PRIZE WINNING MO NEY ATTRIBUTABLE TO THE UNSOLD LOTTERY TICKETS. HE ALSO FOUND THAT NO TAX A T SOURCE WAS DEDUCTED BY THE ASSESSEE FROM THE SAID PAYMENTS, WHICH WERE FORMING PART OF THE TOTAL PURCHASES DEBITED BY IT TO THE PROFIT & LOSS ACCOUNT. ACCORDING TO HIM, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURC E FROM THE SAID PAYMENT UNDER SECTION 194G OF THE ACT AND SINCE THE RE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DO SO, THE PRIZE WINNIN G MONEY WAS LIABLE TO BE DISALLOWED UNDER SECTION 40(A)(IA). SINCE NO SUC H DISALLOWANCE UNDER SECTION 40(A)(IA) WAS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) IN THE CASE OF THE A SSESSEE, THE LD. PR. CIT WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) WAS ERRONEOUS AS WELL AS PREJU DICIAL TO THE INTEREST OF THE REVENUE. HE, THEREFORE, ISSUED A NOTICE UNDE R SECTION 263 ON 18.03.2015 FOLLOWED BY A CORRIGENDUM NOTICE DATED 2 3.03.2015 REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY THE ORDER PASSED BY THE ASSESSING I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 5 OF 38 OFFICER UNDER SECTION 143(3) SHOULD NOT BE REVISED BY EXERCISING THE POWERS CONFERRED UPON HIM UNDER SECTION 263. 6. IN REPLY TO THE NOTICE ISSUED BY THE LD. CIT UND ER SECTION 263, A DETAILED SUBMISSION IN WRITING WAS FILED BY THE ASS ESSEE, WHICH AS REPRODUCED BY THE LD. CIT IN THE IMPUGNED ORDER, IS EXTRACTED BELOW:- IN THIS CONNECTION, WE REFER TO YOUR SAID IMPUGNED NOTICE DATED 18 TH MARCH, 2015 PURPORTEDLY ISSUED BY YOU UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 ASKING US TO SHOW CAUSE AS TO WHY THE PROVISIONS OF THE SAID SECTION SHOULD NOT BE INVOKED IN OUR CASE FOR THE A SSESSMENT YEAR 2010-11, AS IT APPEARS TO YOU THAT THE ASSESSING OFFICER (AO ) ALLEGEDLY OMITTED TO CONSIDER CERTAIN ISSUES VIZ. ALLEGED PAYMENT OF COM MISSION IN THE SUM OF RS. 551,30,41,569/- TO RETAILERS ON ACCOUNT OF 'PRI ZE WINNING TICKETS', WHICH ACCORDING TO YOU CAME WITHIN THE AMBIT OF SEC TION 194G OF THE SAID ACT; AND THAT SINCE SUCH PAYMENT WAS MADE WITHOUT D EDUCTING ANY TAX AT SOURCE, THE SAME, ACCORDING TO YOU, WAS NOT ALLOWAB LE AS AN EXPENDITURE IN VIEW OF THE PROVISIONS CONTAINED IN SECTION 40(A)(I A) OF THE SAID ACT. 2. YOU HAVE ALSO ALLEGED IN YOUR SAID PURPORTED NOT ICE DATED 18 TH MARCH, 2015 THAT SINCE THE ASSESSING OFFICER DID NOT DISAL LOW THE SAID SUM OF RS.551,30,41,569/-, WHILE PASSING THE ASSESSMENT OR DER IN OUR CASE ON MARCH, 2013 UNDER SECTION 143(3)/144 OF THE SAID AC T IN RESPECT OF THE ASSESSMENT YEAR 2010-11, THE SAID ASSESSMENT ORDER, ACCORDING TO YOU, WAS ALLEGEDLY ERRONEOUS AS WELL AS PREJUDICIAL TO THE I NTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE SAID ACT. 3. AT THE VERY OUTSET, WE DENY AND DISPUTE EACH AND EVERY ALLEGATION MADE BY YOU IN YOUR SAID PURPORTED NOTICE DATED 18TH MAR CH, 2015; AND WE SAY AND SUBMIT THAT THE SAID IMPUGNED ASSESSMENT ORDER DATED 22ND MARCH, 2013 PASSED BY THE LEARNED AO UNDER SECTION 143(3} / 144 OF THE SAID ACT, ALTHOUGH ERRONEOUS IN LAW IN RESPECT OF VARIOUS ISS UES ALREADY RAISED BY US IN THE APPEAL FILED BY US AND PENDING BEFORE THE LE ARNED CIT(A)- XXXIII, KOLKATA (NOW RENUMBERED AS CIT(A)-VII], IS NOT PREJ UDICIAL TO THE INTEREST OF THE REVENUE, AS ALLEGED OR OTHERWISE OR AT ALL. 4. WE REPEAT AND REITERATE THAT THE SAID IMPUGNED A SSESSMENT ORDER DATED 22ND MARCH, 2013 PASSED IN OUR CASE IS IN FACT PREJ UDICIAL TO THE INTEREST OF THE ASSESSEE FIRM HEREIN, AND NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. WE ALSO SAY AND SUBMIT THAT THE ISSUE RAISED BY YOU IN YOUR SAID IMPUGNED NOTICE DATED 18TH MARCH, 2015 HAD ALREADY BEEN EXAMINED BY THE AO, IN COURSE OF THE ASSESSMENT PROCEEDINGS IN OUR CASE FOR THE ASSESSMENT YEAR 2010-11. 6. WE THEREFORE SAY AND SUBMIT THAT THE CONDITIONS PRECEDENT FOR INVOKING THE POWERS AND JURISDICTION UNDER SECTION 263 OF TH E SAID ACT ARE NOT SATISFIED IN THE INSTANT CASE; AND THEREFORE THE IM PUGNED PROCEEDINGS SOUGHT TO BE INITIATED BY YOU THROUGH YOUR SAID IMP UGNED NOTICE DATED I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 6 OF 38 18TH MARCH, 2015 IS WHOLLY WITHOUT JURISDICTION, IL LEGAL, INVALID AND VOID AB-INITIO. 7. WITHOUT PREJUDICE TO THE ABOVE, WE DEAL HEREUNDE R ON MERITS THE ISSUES RAISED BY YOU IN YOUR SAID PURPORTED NOTICE DATED 1 8TH MARCH, 2015: 8. THE MODUS OPERANDI OF THE BUSINESS CARRIED ON BY THE ASSESSEE FIRM MAY BE BRIEFLY SUMMARIZED AS UNDER: I. THE ASSESSEE FIRM WAS, AT ALL MATERIAL TIMES, EN GAGED IN THE BUSINESS OF BUYING, SELLING, TRADING OR OTHERWISE D EALING IN ALL KINDS OF LOTTERY TICKETS IN TERMS OF CLAUSE 5 OF ITS PART NERSHIP DEED DATED 1ST JUNE, 2009. IT STARTED DEALING IN PAPER LOTTERI ES ONLY OF THE ROYAL GOVERNMENT OF BHUTAN AS WELL AS THE STATE OF WEST B ENGAL SINCE JUNE, 2009; II. THE ASSESSEE FIRM WAS APPOINTED BY PEMA LHADEN ENTERPRISE AS 'MAIN SELLER' OF BHUTAN PAPER LOTTERIES, IN TERMS O F AN AGREEMENT EXECUTED ON 1 ST JUNE 2009, A COPY WHEREOF IS ALREADY ON THE ASSESSMENT RECORDS OF THE ASSESSEE FIRM. III. IN TERMS OF THE SAID AGREEMENT DATED 1ST JUNE, 2009, ENTERED INTO BY THE ASSESSEE FIRM WITH PLE, THE BHUTAN PAPER LOT TERY TICKETS WERE, AT ALL MATERIAL TIME, BEING PURCHASED BY IT I N BULK FROM PLE ON 'ACTUAL SOLD BASIS'; IV. THE ASSESSEE FIRM, IN ITS TURN HAD APPOINTED MO RE THAN 100 STOCKISTS IN THE SOUTH BENGAL AREA, FOR ULTIMATE SA LE OF THE PAPER LOTTERY TICKETS, TO GENERAL PUBLIC, IN TERMS OF STA NDARD AGREEMENTS, A SAMPLE COPY WHEREOF IS ALREADY ON THE ASSESSMENT RECORDS; V. THE STOCKISTS APPOINTED BY THE ASSESSEE FIRM, IN THEIR TURN, ENGAGED VARIOUS PERSONS AS SUB-STOCKISTS, WHO IN TU RN, ENGAGED RETAILERS, AND THE RETAILERS USED TO SELL THE PAPER LOTTERY TICKETS TO THE GENERAL PUBLIC, EITHER DIRECTLY OR THROUGH THEI R AGENTS. IT MAY BE NOTED THAT THE ASSESSEE FIRM HAS OR HAD NO CONNECTI ON WHATSOEVER EITHER WITH THE SUB-STOCKISTS AND/OR WITH THE RETAI LERS AND/OR WITH THEIR RESPECTIVE AGENTS; VI. THE ASSESSEE FIRM, ON THE BASIS OF REQUIREMENTS PLACED BY ITS STOCKISTS, USED TO SUPPLY THE SPECIFIED REQUIRED NU MBER OF PAPER LOTTERY TICKETS TO EACH OF THEM FROM TIME TO TIME O N FOR BASIS, WITH AN OPTION TO INTIMATE TO THE ASSESSEE FIRM, FULL DE TAILS OF UNSOLD TICKETS. IN OTHER WORDS, HERE TOO THE SALE AND SUPP LY OF LOTTERY TICKETS BY THE ASSESSEE FIRM TO ITS STOCKISTS HAS A LWAYS BEEN ON 'ACTUAL SOLD BASIS' ONLY; VII. IT MAY BE NOTED THAT PLE SUPPLIED ALL LOTTERY TICKETS TO THE ASSESSEE FIRM ON CREDIT; AND THE ASSESSEE FIRM ALSO SUPPLIED LOTTERY TICKETS TO ITS OWN STOCKISTS ON CREDIT ONLY, SAVE A ND EXCEPT THE FACT THAT THE ASSESSEE FIRM HAD ARRANGED TO RECEIVE SUBS TANTIAL TRADE ADVANCES FROM EACH OF ITS STOCKISTS; I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 7 OF 38 VIII. IT MAY ALSO BE NOTED THAT THE ADVANCES MADE B Y EACH OF THE STOCKISTS TO THE ERSTWHILE 'MAIN SELLER', MAV ASSOC IATES WERE TRANSFERRED TO THE ASSESSEE FIRM ON 1ST JUNE, 2009, WHEN THE ASSESSEE FIRM WAS APPOINTED BY PLE TO BE THE 'MAIN SELLER' IN PLACE OF THE ERSTWHILE MAV ASSOCIATES; IX. THE BHUTAN PAPER LOTTERIES, OF DIFFERENT DENOMI NATIONS WITH DIFFERENT TYPES, WERE BEING CONDUCTED ON WEEKLY BAS IS. THE DRAWS, IN SOME NAME OF THEM WERE BEING CONDUCTED BY THE ROYAL GOVERNMENT OF BHUTAN (RGB), ON DAILY BASIS, AT BHUTAN; AND THE INFORMATION ABOUT RESULTS OF THE DRAWS WAS CONVEYED TO ALL CONC ERNED FROM BHUTAN THROUGH WEBSITE /EMAIL; X. THE INFORMATION ABOUT THE UNSOLD PAPER LOTTERY T ICKETS WAS REQUIRED TO BE CONVEYED BY THE STOCKISTS TO THE ASS ESSEE FIRM AT LEAST 45 MINUTES BEFORE THE RESPECTIVE DRAWS, THROU GH ITS WEBSITE/EMAIL; AND THE ASSESSEE FIRM, IN ITS TURN, CONVEYED SUCH INFORMATION BACK TO PLE, THROUGH THEIR AUTHORIZED R EPRESENTATIVES, PHYSICALLY IN THE FORM OF CD, BEFORE THE RESPECTIVE DRAWS CONDUCTED BY THE ROYAL GOVERNMENT OF BHUTAN, AT BHUTAN; XI. PLE USED TO DRAW WEEKLY BILLS/ INVOICES UPON TH E ASSESSEE FIRM HEREIN, ONLY IN RESPECT OF ACTUALLY SOLD PAPER LOTT ERY TICKETS; AND THE ASSESSEE FIRM, IN ITS TURN, ALSO DREW WEEKLY BI LLS/INVOICES UPON EACH OF THE STOCKISTS, AGAIN ONLY IN RESPECT OF ACT UALLY SOLD PAPER LOTTERY TICKETS; XII. SINCE PRIZES DECLARED ON THE PAPER LOTTERY TIC KETS, NOT EXCEEDING RS.5,000/-, WERE REQUIRED TO BE DISBURSED TO THE GENERAL PUBLIC DIRECTLY BY THE SUB-STOCKISTS/RETAILERS/AGEN TS, AS THE CASE MAY BE, THE STOCKISTS APPOINTED BY THE ASSESSEE FIR M, USED TO SEEK REIMBURSEMENTS OF DISBURSAL OF SUCH PRIZE MONIES, T HROUGH THEIR RESPECTIVE WEEKLY BILLS DRAWN BY THE ASSESSEE FIRM UPON EACH OF THEM; XIII. THE NET AMOUNT PAYABLE BY THE STOCKISTS TO TH E ASSESSEE FIRM ON WEEKLY BASIS, AS PER THE WEEKLY BILLS REFERRED TO H EREINABOVE, WAS BEING ACTUALLY PAID BY EACH OF THEM MOSTLY BY A/C P AYEE CHEQUES/DRAFTS/RTGS TRANSFERS. XIV. WHILE MAKING SUCH PAYMENTS, THE STOCKISTS WERE ALSO REQUIRED TO RETURN THE PRIZE WINNING TICKETS AGAINST WHICH T HEY HAD DISBURSED PRIZES OF THE VALUE NOT EXCEEDING RS.5,000/- PER TI CKET; AND SUCH PRIZE WINNING TICKETS, IN ITS TURN, WERE ALSO HANDE D OVER BY IT TO PLE, WHILE SEEKING REIMBURSEMENTS THEREFOR, AGAINST THE PURCHASE CONSIDERATION OF LOTTERY TICKETS PAYABLE BY IT TO P LE; XV. THE STOCKISTS WERE ALSO REQUIRED TO RETURN TO T HE ASSESSEE FIRM, ALL UNSOLD PAPER LOTTERY TICKETS, WHICH THE ASSESSE E FIRM, IN ITS TURN, USED TO RETURN TO PLE, FOR ULTIMATE DESTRUCTI ON THEREOF BY THE ROYAL GOVERNMENT OF BHUTAN; I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 8 OF 38 XVI. THE PRIZE WINNING TICKETS AGAINST WHICH THE ST OCKISTS SOUGHT REIMBURSEMENT FROM THE ASSESSEE FIRM, WERE ALSO RET URNED BY THE ASSESSEE FIRM TO PLE, WHILE SEEKING SIMILAR CORRESP ONDING REIMBURSEMENTS FROM PLE; XVII. SOMETIMES, DISPUTES AROSE RELATING TO PRIZE W INNING TICKETS, WITH REFERENCE TO WHICH THE STOCKISTS SOUGHT REIMBU RSEMENTS FROM THE ASSESSEE FIRM. THESE DISPUTES MOSTLY RELATED TO TAMPERING OF WINNING TICKETS AND/OR WRONG CLAIM OF PRIZES, BASED ON WRONG READING OF PRIZE WINNING NUMBER PRINTED ON THE TICK ETS. AT THE TIME, WHEN THE BILLS INITIALLY RAISED BY THE ASSESSEE FIR M UPON THE STOCKISTS, WERE SOUGHT TO BE SETTLED, IT WAS NOT PO SSIBLE AT ALL TIMES TO CHECK ALL SUCH TAMPERING AND/OR WRONG CLAIMS REC EIVED BY THE ASSESSEE FIRM FROM THE STOCKISTS. IN SUCH CASES, AS AND WHEN SUCH TAMPERING AND/OR WRONG CLAIMS MADE BY THE STOCKISTS WERE DETECTED BY THE ASSESSEE FIRM, WHICH WAS REQUIRED TO BE DONE WITHIN 15 DAYS FROM THE RECEIPT OF CLAIMS FROM THE CONCERNED STOCK ISTS, THE ASSESSEE FIRM RAISED DEBIT NOTES UPON THE STOCKISTS FOR THE RELEVANT AMOUNTS ATTRIBUTABLE TO SUCH TAMPERING / WRONG CLAIM, AS TH E CASE MAY BE. 9. DURING THE FINANCIAL YEAR ENDING 31ST MARCH, 201 0 CORRESPONDING TO THE ASSESSMENT YEAR 2010-11, THE ASSESSEE FIRM PURCHASE D AND SOLD BHUTAN LOTTERY TICKETS ORGANIZED AND CONDUCTED BY THE ROYA L GOVERNMENT OF BHUTAN, AS PER AUDIT CERTIFICATE DATED 15TH MARCH, 2013, A COPY WHEREOF, WHICH IS ALREADY ON THE ASSESSMENT RECORDS, IS ANNE XED HERETO FOR READY REFERENCE AND MARKED WITH THE LETTER 'A'. 10. THE BREAK-UP DETAILS OF PURCHASES OF PAPER LOTT ERY TICKETS MADE BY THE ASSESSEE FIRM FROM PLE, DURING THE SAID FINANCIAL Y EAR ENDING 31ST MARCH, 2010, DRAW DATE WISE, ARE ALSO GIVEN IN THE ENCLOSE D STATEMENT, A COPY WHEREOF, WHICH IS ALREADY ON THE ASSESSMENT RECORDS , IS ANNEXED HERETO FOR READY REFERENCE AND MARKED WITH THE LETTER 'B': 11. IN ANY LOTTERY DRAW, THE PRIZES MAY BE WON WITH REFERENCE TO THE DENOMINATION PRINTED ON THE VARIOUS TICKETS FORMING PART OF ONE OR OTHER BUNDLES. WHEN A PRIZE IS WON ON ANYONE OR MORE PART ICULAR TICKET FORMING PART OF ANY BUNDLE, THE 'SUPER/GOLD/SPECIAL TICKET' CONTAINED IN THE RESPECTIVE BUNDLE WOULD ALSO BECOME ENTITLED TO A P RIZE, AS CLEARLY PRINTED IN THE SCHEME ITSELF. 12. THE EXPRESSION 'PWT' WAS USED TO DESCRIBE THOSE PAPER LOTTERY TICKETS, ON WHICH PRIZES WERE DECLARED, IN THE USUAL COURSE, AS PER SCHEME FRAMED BY THE ROYAL GOVERNMENT OF BHUTAN; AND THAT THE EXP RESSION PWT-1/PWT- 2WAS UED TO DESCRIBE THOSE SUPER AND SPECIAL LOTT ERY TICKETS, WHICH WERE SEPARATELY PRINTED AND ON WHICH PRIZE AMOUNTS WERE DIFFERENT, AS PER SCHEME FRAMED BY THE ROYAL GOVERNMENT OF BHUTAN, AS COMPARED TO THE PWT PAPER LOTTERY TICKETS. 13. IT HAS ALSO BEEN CONFIRMED BY SHRI MARTIN IN RE PLY TO QUESTION NO.17 PUT TO HIM, WHILE RECORDING HIS STATEMENT ON 23'D N OVEMBER, 2013, THAT EACH BUNDLE OF 100 PAPER LOTTERY TICKETS CONTAINED ONE 'SUPER / GOLD TICKET' (WITH RANGE OF PRINTED NUMBER OF THE ENTIRE BUNDLE OF 100 TICKETS); AND EACH BUNDLE OF 1000 PAPER LOTTERY TICKETS [IN ADDIT ION TO TEN 'SUPER / GOLD I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 9 OF 38 TICKETS'] CONTAINED ONE 'SPECIAL TICKET' (WITH RANG E OF PRINTED NUMBER OF THE ENTIRE BUNDLE OF 1000 TICKETS); 14. ANY BUYER OF EITHER OF THE SAID TWO BUNDLES GET THESE 'SUPER / GOLD / SPECIAL TICKETS' ALONG WITH THE BUNDLE OF 100/1000 TICKETS. THE 'SUPER / GOLD / SPECIAL TICKETS' ALSO PARTICIPATE IN THE DRA W, THROUGH THE INDEPENDENT NUMBERS OF 100/1000 TICKETS. THE NUMBER PRINTED ON THESE TICKETS IS ONLY THE 'RANGE OF THE ENTIRE BUNDLE OF 100 / 1000 LOTTERY TICKETS', AS THE CASE MAY BE. IF AN INDIVIDUAL BUYE R BUYS THE WHOLE BUNDLE, HE AUTOMATICALLY GETS THE 'SUPER / GOLD / SPECIAL T ICKETS' ALREADY CONTAINED IN THE BUNDLE. WHEN A RETAILER BUYS THE BUNDLES, HE MAY SELL THE ENTIRE BUNDLE TO ANYONE PERSON; OR IN THE ALTERNATIVE, HE MAY SELL ONE OR MORE TICKETS, IN LOOSE FORM, TO ONE OR MORE PERSONS. IN SUCH CASES, THE RETAILER HIMSELF MAY RETAIN THE 'SUPER! GOLD / SPECIAL TICKE T'. BUT SUCH 'SUPER / GOLD / SPECIAL TICKETS' ARE NOT MEANT TO BE RETAINED BY THE DISTRIBUTOR / STOCKIST / AGENT / SUB-AGENT / RETAILER BY WAY OF THEIR COMM ISSION OR REMUNERATION, AS THE CASE MAY BE; THE SUPER / GOLD / SPECIAL TICK ETS ARE MEANT FOR THE PUBLIC, WHO BUY IN LARGE QUANTITY SUCH AS 100/1000 TICKETS. 15. THE ASSESSEE FIRM STATES THAT IT DOES NOT PAY T HE PRIZE MONIES DIRECTLY TO ANY PERSON WHO POSSESSES THE PRIZE WINNING LOTTE RY TICKET. THE AGENTS / SUB-AGENTS / RETAILERS CONCERNED MAKE PAYMENTS OF P RIZE MONIES (ALWAYS NOT EXCEEDING RS.5,OOO/- PER TICKET), BOTH BY WAY O F PWT AND ALSO PWT-1 / PWT-2 (SUPER / GOLD / SPECIAL) TICKETS, ON PRODUCTI ON OF THE PRIZE WINNING TICKET BEFORE EITHER OF THEM; AND THE ASSESSEE FIRM MAKES REIMBURSEMENTS ON BEHALF OF PLE / RGB BY WAY OF ADJUSTMENTS OF THE ACCOUNTS, AS AND WHEN SUBMITTED BY THE STOCKISTS TO IT. THE ASSESSEE FIRM DEALS ONLY WITH THE STOCKISTS. THE STOCKISTS, IN THEIR TURN DEAL WITH T HE AGENTS, THE AGENTS DEAL WITH SUB-AGENTS AND THE SUB-AGENTS DEAL WITH THE RE TAILERS, ALL IN THE FORM OF A CHAIN. 16. THE ASSESSEE FIRM STATES THAT IT DID NOT PAY AN D/OR DISTRIBUTE ANY PRIZES ON ANY PRIZE WINNING TICKETS TO ANY PERSON W HATSOEVER. IN SO FAR AS, THE PRIZE MONEY OF THE VALUE NOT EXCEEDING RS.5,000 /- IS CONCERNED, THE SAME WAS PAID AND/OR DISTRIBUTED DIRECTLY TO THE PR IZE WINNERS BY AGENTS / SUB-AGENTS / RETAILERS FOR AND ON BEHALF OF RGB, AN D NOT BY THE ASSESSEE FIRM, WHO WAS MERELY A DISTRIBUTOR. IN ANY EVENT TH E RESPONSIBILITY TO DEDUCT TAX AT SOURCE UNDER SECTION 194B OF THE SAID ACT, IF AT ALL APPLICABLE, WAS UPON RGB; AND NOT ON THE DISTRIBUTO R / STOCKIST / AGENT / SUB-AGENT / RETAILER ETC., AS THE CASE MAY BE, WHO ONLY CLAIMED REIMBURSEMENTS. THIS IS FOR THE REASON THAT THE RGB IS THE 'PERSON RESPONSIBLE' FOR MAKING THE PAYMENT AS PROVIDED FOR UNDER THE RELEVANT PROVISION OF THE INCOME TAX ACT, 1961. 17. THE PAYMENT OF PRIZE MONEY WAS THE SOLE RESPONS IBILITY OF RGB AND SO FAR AS THE ASSESEE FIRM IS CONCERNED THE SAME WAS R EQUIRED TO BE ADJUSTED AGAINST THE PURCHASE PRICE PAYMENT BY THE ASSESSEE FIRM IN TERMS OF CLAUSE 12 OF THE SAID AGREEMENT DATED 1ST JUNE, 2009. IN O THER WORDS, PAYMENT OF PRIZE MONEY IS NOT THE EXPENDITURE OF THE ASSESSEE FIRM; THE EXPENDITURE OF THE ASSESSEE FIRM, WHICH IS DEBITED IN ITS PROFIT & LOSS ACCOUNT, IS THE COST OF PURCHASE OF SUCH TICKETS (RS.1,393.22 CRORES) IN BULK FROM PLE. I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 10 OF 38 18. THE PRIZE MONIES PAID ON THE WINNING TICKETS IS THE EXPENDITURE OF RGB, AND NOT OF A DISTRIBUTORS / STOCKISTS / AGENTS / SU B-AGENTS / RETAILERS ETC. FURTHER, THE ASSESSEE FIRM DID NOT PAY AND/OR DISTR IBUTE ANY PRIZES ON ANY PRIZE WINNING TICKETS TO ANY PERSONS WHATSOEVER. IN SO FAR AS, THE PRIZE MONEY OF THE VALUE NOT EXCEEDING RS.5,000/- IS CONC ERNED, THE SAME WAS PAID AND/OR DISTRIBUTED DIRECTLY TO THE PRIZE WINNE RS BY THE AGENTS / SUB- AGENTS / RETAILERS FOR AND/OR ON BEHALF OF RGB, AND NOT BY THE ASSESSEE FIRM, WHO WAS MERELY A DISTRIBUTOR. 19. THE ASSESSEE FIRM DID NOT DEBIT ITS PROFIT & LO SS ACCOUNT WITH THE PRIZE MONEY PAID ON THE WINNING TICKETS. WHAT IS DEBITED IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE FIRM IS THE PURCHASE CONSID ERATION PAYABLE BY IT TO M/S. PEMA LHADEN ENTERPRISE FOR PURCHASE OF LOTTERY TICKETS. 20. THE ASSESSEE FIRM STATES THAT THE SUM OF RS.551 ,30,41,569/- REPRESENTING PAYMENTS MADE BY STOCKISTS / AGENTS / SUB-AGENTS / RETAILERS BY WAY OF PRIZES WON ON 'SUPER / GOLD / SPECIAL TIC KETS' FOR AND ON BEHALF OF RGB, HAS NOT BEEN DEBITED BY THE ASSESSEE FIRM, IN ITS BOOKS OF ACCOUNTS, AS AN EXPENDITURE. THE PRIZE MONIES PAID ON THE WINNIN G TICKETS IS THE EXPENDITURE OF RGB, AND NOT OF THE DISTRIBUTORS / S TOCKISTS / AGENTS / SUB-AGENTS / RETAILERS ETC. THE SAID AMOUNT HAS BEE N CLAIMED BY THE STOCKISTS FROM THE ASSESSEE FIRM, BY WAY OF ADJUSTM ENTS, AGAINST THE DUES PAYABLE BY THEM TO THE ASSESSEE FIRM, FOR PURCHASE OF LOTTERY TICKETS IN BULK. THE SAME HAS BEEN REIMBURSED BY RGB THROUGH T HEIR CHAIN OF DISTRIBUTORS BY WAY OF ADJUSTMENT AGAINST INVOICES RAISED BY RGB. 21. SINCE THE AMOUNT OF PRIZES PAID ON SUCH 'SUPER / GOLD / SPECIAL TICKET' ARE NOTHING BUT 'WINNINGS FROM LOTTERY' WITHIN THE MEANING OF SECTION 1946 OF THE INCOME TAX ACT, 1961, AND THE AMOUNT OF PRIZE IS RS.5,000/- OR LESS PER TICKET, NO TAX WAS AT ALL REQUIRED TO BE D EDUCTED AT SOURCE AT ANY RELEVANT TIME WHATSOEVER. THE SAID LIMIT OF RS.5,00 0/- IS NOW INCREASED TO RS.10,000/- BY THE FINANCE ACT, 2010 W.E.F. 01.07.2 010. 22. IN ANY EVENT, THERE IS NO LIABILITY TO DEDUCT T AX AT SOURCE WHEN THE PERSON MAKING THE PAYMENT SEEKS REIMBURSEMENT FROM THE PRINCIPAL (PLE / RGB, IN THE INSTANT CASE); AND THE PRIZE MONIES H AVING BEEN REIMBURSED, THE SAME DOES NOT ENTER THE PROFIT & LOSS ACCOUNT O F THE PERSON SEEKING REIMBURSEMENT, AS IT IS NOT HIS/THEIR EXPENDITURE. RELIANCE IN THIS CONNECTION IS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CIT- V. HARDARSHAN SINGH (2013) 350 ITR 427 (DEL), AS WELL AS OF THE HON'BLE GUJARAT HIGH COURT IN CIT V. GUJARAT NARMAD A VALLEY FERTILIZERS CO. LTD. (2014) 361ITR 192 (GUJ), THE SLP FILED BY THE REVENUE AGAINST THE LATER JUDGMENT WAS DISMISSED BY THE HON'BLE SUPREME COURT ON 17TH JANUARY, 2014 (ITA 315 OF 2013 & CC NO. 175 OF 2014 ). 23. IT MAY BE APPRECIATED THAT SECTION 194G OF THE SAID ACT APPLIES ONLY TO PAYMENT OF COMMISSION, REMUNERATION OR PRIZE (BY WHATEVER NAMED CALLED) ON LOTTERY TICKETS, TO ANY PERSON WHO IS TH E STOCKIST, DISTRIBUTOR OR SELLER OF THE LOTTERY TICKETS. THE WORD 'PRIZE' APP EARING IN SECTION 194G MUST BE UNDERSTOODEJUSDEM GENERIS OF THE NATURE OF PRECEDING WORDS VIZ. 'COMMISSION' OR 'REMUNERATION'. IN OTHER WORDS, SEC TION 194G WOULD APPLY ONLY WHEN PRIZES BY WAY OF COMMISSION OR REMUNERATI ON, IS PAID TO ANY STOCKIST, DISTRIBUTOR OR SELLER OF THE LOTTERY TICK ETS. IT DOES NOT, AND IN OUR I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 11 OF 38 RESPECTFUL SUBMISSION, CANNOT APPLY TO PRIZES WON O N ANY TICKET, AS PER PRE DECLARED PRIZE DISTRIBUTION SCHEME OF ANY LOTTERY. WE THEREFORE SAY AND SUBMIT THAT SECTION 194G OF THE SAID ACT HAS NO APP LICATION WHATSOEVER IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. 24. WE SAY AND SUBMIT THAT NO PORTION OF THE SUM OF RS.551,30,41,569/- REFERRED TO BY YOU IN YOUR IMPUGNED SHOW CAUSE NOTI CE DATED 18 TH MARCH, 2015 PURPORTEDLY ISSUED UNDER SECTION 263 OF THE SA ID ACT IS PAYMENT OF COMMISSION WITHIN THE MEANING OF SECTION 194G OF TH E SAID ACT, AS ARBITRARILY AND WRONGLY ALLEGED BY YOU, OR OTHERWIS E OR AT ALL. 25. WE SAY AND SUBMIT THAT THE SAID SUM OF RS.551,3 0,41,569/- IS PART OF RS.1326,81,63,490/- (KINDLY SEE COLUMN 6 OF THE STA TEMENT ANNEXED HERETO AND MARKED WITH THE LETTER '8') BEING THE VALUE OF PRIZES WON ON THE SOLD TICKETS, WHICH AMOUNT WAS REIMBURSED BY US TO THE S TOCKISTS, WHO IN TURN MADE REIMBURSEMENTS TO THEIR AGENTS / SUB-AGENTS / RETAILERS ETC. THE SAID SUM OF RS.1326,81,63,490/- WAS DEDUCTED BY US FROM THE NET PURCHASE VALUE IN THE AGGREGATE SUM OF RS.1393,22,38,446/- ( KINDLY SEE COLUMN 5 OF THE STATEMENT ANNEXED HERETO AND MARKED WITH THE LE TTER 'B'), PAYABLE BY US TO PLE FOR PURCHASE OF BHUTAN PAPER LOTTERY TICK ETS IN TERMS OF THE AGREEMENT EXECUTED ON 1ST JUNE, 2009 BETWEEN THE AS SESSEE FIRM AND PLE, A COPY WHEREOF IS ALREADY ON OUR ASSESSMENT RECORDS . 26. AS ALREADY STATED EARLIER, SINCE OUR PROFIT AND LOSS A/C FOR THE FINANCIAL YEAR ENDING 31ST MARCH, 2010 CORRESPONDING TO THE A SSESSMENT YEAR 2010- 11 IS DEBITED ONLY WITH THE PURCHASE VALUE OF LOTTE RY TICKETS IN THE SAID SUM OF RS.1393,22,38,446/-, AND NOT WITH ANY COMMIS SION AND/OR ANY PRIZE PAYABLE ON THE LOTTERY TICKETS, WE SAY AND SUBMIT T HAT THERE WAS NO REQUIREMENT OF ANY DEDUCTION OF TAX AT SOURCE EITHE R UNDER SECTION 194G AND/OR SECTION 194G OF THE SAID ACT; AND THEREFORE THERE WAS NO QUESTION OF APPLYING SECTION 40(A)(IA) OF THE SAID ACT, IN O UR CASE, IN RESPECT OF THE ASSESSMENT YEAR 2010-11. 27. WE THEREFORE SAY AND SUBMIT THAT IN THE FACTS A ND CIRCUMSTANCES OF THE INSTANT CASE, THE ASSESSMENT .ORDER DATED 22ND MARC H, 2013, CANNOT BY ANY STRETCH OF IMAGINATION, CAN BE SAID TO BE ERRONEOUS IN LAW AND/OR PREJUDICIAL TO THE INTEREST OF THE REVENUE, IN RESP ECT OF THE MATTERS RAISED BY YOU IN YOUR SAID IMPUGNED SHOW CAUSE NOTICE DATE D 18TH MARCH, 2015. 28. PLEASE ALSO NOTE THAT THE AFORESAID ISSUES HAVE ALREADY BEEN EXAMINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -XXXIII, KOLKATA IN APPEAL NO.45/CIT(A)-XXXIII, JCIT, R-53 OF 2013-14 F ILED BY US AGAINST THE SAID IMPUGNED ASSESSMENT ORDER DATED 22ND MARCH, 20 13 PASSED IN OUR CASE UNDER SECTION 143(3) /144 OF THE SAID ACT IN R ESPECT OF THE ASSESSMENT YEAR 2010-11. 29. THE SAID ISSUE IN QUESTION HAD ALREADY BEEN RAI SED BY THE AO IN HIS REMAND REPORT DATED 12TH MARCH, 2014 FILED BY HIM B EFORE THE LEARNED CIT(A), IN THE COURSE OF HEARING OF THE SAID APPEAL ; AND OUR FIRM HAS ALSO DEALT WITH THE SAID ISSUE IN OUR REPLY DATED IH APR IL, 2014 TO THE SAID REMAND REPORT FILED BEFORE THE LEARNED CIT(A). I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 12 OF 38 30. PLEASE ALSO NOTE THAT WE HAD MADE OUR FULL SUBM ISSIONS BEFORE THE LEARNED CIT(A), BUT NO FINAL ORDER COULD BE PASSED BY HIM, SINCE HE HAS BEEN WAITING TILL DATE FOR FURTHER COMMENTS FROM TH E AO, IN REGARD TO VARIOUS OTHER ISSUES RAISED BY HIM TO THE AO. 31. WE THEREFORE SAY AND SUBMIT THAT THE INITIATION OF IMPUGNED PROCEEDINGS UNDER SECTION 263 OF THE SAID ACT, IN T HE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, IS WHOLLY WITHOU T JURISDICTION, ILLEGAL, INVALID AND VOID AB-INITIO 7. IN ADDITION TO THE ABOVE SUBMISSION, THE FOLLOWI NG DOCUMENTS WERE ALSO FILED BY THE ASSESSEE BEFORE THE LD PR. CIT IN RESPONSE TO THE CORRIGENDUM ISSUED BY THE LD. PR. CIT DATED 23.03.2 015:- I. .A COPY OF THE LEDGER ALE OF PEMA LHADEN ENTERP RISE (PLE) APPEARING IN OUR BOOKS OF ACCOUNTS FOR THE FINANCIA L YEAR ENDING 31ST MARCH, 2010 CORRESPONDING TO THE ASSESSMENT YEAR 20 10-11; II. A COLUMNAR STATEMENT GIVING COLUMN WISE DETAILS OF THE ENTRIES APPEARING IN OUR LEDGER IN THE ACCOUNT OF PEMA LHAD EN ENTERPRISE (PLE) DURING THE SAID PERIOD; III. A COLUMNAR STATEMENT GIVING COLUMN WISE DETAIL S OF THE ENTRIES APPEARING IN OUR BOOKS OF ACCOUNTS IN RESPECT OF 12 6 STOCKISTS TO WHOM LOTTERY TICKETS OF BOTH BHUTAN AND WEST BENGAL WERE SOLD BY US DURING THE SAID FINANCIAL YEAR FOR ONWARD SALE TO GENERAL PUBL IC THROUGH AGENTS/ SUB- AGENTS/RETAILERS ETC.; IV. A COPY OF THE LEDGER ACCOUNTS OF TEN OF OUR STO CKISTS (BY WAY OF SAMPLE) TO WHOM LOTTERY TICKETS OF BOTH BHUTAN AND WEST BEN GAL WERE SOLD BY US DURING THE SAID FINANCIAL YEAR, FOR ONWARD SALE TO GENERAL PUBLIC THROUGH AGENTS/SUB-AGENTS/RETAILERS, ETC. V. A RECONCILIATION STATEMENT OF AMOUNTS PAYABLE / RECEIVABLE IN RESPECT OF PAPER LOTTERY TICKETS PURCHASED / SOLD DURING THE F INANCIAL YEAR ENDING 31ST MARCH, 2010, AS ALSO OF PRIZES PAID ON PWT & P WT-1 LOTTERY TICKETS DURING THE SAID PERIOD. VI. PHOTOCOPY OF TWO PAGES OF THE LOTTERY SCHEME BY WAY OF SAMPLE. 8. THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AS WELL AS THE DOCUMENTS FILED IN SUPPORT WERE CONSIDERED BY THE L D. CIT IN THE LIGHT OF MATERIAL ALREADY AVAILABLE ON RECORD AND AFTER DISC USSING THE SAME IN DETAIL, HE HELD THAT THERE WAS NO MERIT IN THE CASE OF THE ASSESSEE. ACCORDINGLY, HE REJECTED THE STAND OF THE ASSESSEE AFTER RECORDING HIS I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 13 OF 38 FINDINGS/OBSERVATIONS IN PARAGRAPH NO. 3 OF HIS IMP UGNED ORDER, WHICH IS REPRODUCED HEREUNDER:- 3. THE ARGUMENTS PUT FORWARD BY THE ID A.R.S HAVE CAREFULLY BEEN EXAMINED IN THE LIGHT OF THE DOCUMENTS FURNISH ED BY THEM AND THE EVIDENCES COLLECTED BY THE A.O. IN THE COURSE O F THE ENQUIRY DURING THE ONGOING REMAND PROCEEDING BEFORE THE LD. CIT(A)-7, KOLKATA (ERSTWHILE CIT(A)-XXXIII, KOLKATA). IT IS S EEN THAT SHRI SANTIAGO MARTIN ACQUIRED THE RIGHT TO MARKET THE BH UTAN LOTTERY TICKETS THROUGH HIS COMPANY M/S MARTIN LOTTERY AGEN CIES LTD. WHICH WAS SUBSEQUENTLY RENAMED AS M/S. FUTURE GAMING SOLU TIONS INDIA PVT LTD.(FGSIPL). INSTEAD OF APPOINTING THE STOCKIS TS DIRECTLY HE CREATED A NEW INTERMEDIARY TAX ENTITY EVERY TWO YEA RS FOR THE PURPOSE OF APPOINTING A LARGE CHAIN OF STOCKISTS. T HESE INTERMEDIARY TAX IDENTITIES WERE M/S. TIGER ASSOCIATES (2005-200 7), M/S VIRA ENTERPRISE ALIAS M/S M.A.V. ASSOCIATES (2007-2009), M/S FUTURE DISTRIBUTORS, I.E. THE ASSESSEE FIRM (2009-2011) AN D M/S FUTURE PLUS ENTERPRISE PVT. LTD. (2011-2013). THESE CONCERNS AC TED AS THE MAIN SELLERS OF THE BHUTAN LOTTERIES. THE BUSINESS OF SE LLING BHUTAN LOTTERY TICKETS CHANGED' HANDS EVERY TWO YEARS WITH OUT ANY VALID REASON. IT WAS FOUND THAT THE CHANGING OVER OF HAND S WOULD NEVER BE WITH THE REFERENCE TO THE F.Y. PERIOD AND IT WOULD ALWAYS BE AFTER TWO OR THREE MONTHS INTO A NEW FINANCIAL YEAR.' THI S MADE THE RECONCILIATION 'OF THE BALANCES OF THE DIFFERENT EN TITIES (FLOATED BY SHRI MARTIN) BY ANY TAX OFFICER A VIRTUAL IMPOSSIBI LITY AND THEREBY GAVE THE ASSESSEE A FREE HAND TO CLAIM JOURNAL ENTR Y ADJUSTMENTS WHENEVER CAUGHT IN A TAX BIND. THE NEW ENTITY WOULD TAKE OVER THE EARLIER ENTITY WITH THE ASSETS AND LIABILITIES WHIC H REMAINED UNSETTLED EVEN TILL THE TIME THE NEW ENTITY WOULD F URTHER BE TAKEN OVER BY ANOTHER NEW ENTITY. THE OUTGOING ENTITY WOU LD NOT CLOSE ITS MULTIPLE BANK ACCOUNTS AND KEEP RECEIVING MONEY FRO M THE STOCKISTS IN THOSE ACCOUNTS LONG AFTER IT HAD STOPPED ITS BUS INESS AND THE SAID MONEY WOULD BE TRANSFERRED MAINLY TO THE MULTIPLE B ANK ACCOUNTS OF M/S. BEST & COMPANY, THE PROPRIETORSHIP CONCERN OF SHRI S. MARTIN. IN THE COURSE OF THE ASSESSMENT PROCEEDING, NO SATI SFACTORY EXPLANATION COULD BE ADDUCED BY SRI MARTIN REGARDIN G THE AFORESAID FREQUENT CHANGE OF ENTITIES AND NON-CLOSURE OF THEI R MULTIPLE BANK ACCOUNTS. AS A RESULT OF A THOROUGH PROBE BY THE AS SESSING OFFICER ABOUT THE MODUS OPERANDI OF THE ENTIRE CHAIN OF BHU TAN LOTTERY BUSINESS STARTING FROM BHUTAN TO THE FINAL LOTTERY BUYING PUBLIC IN WEST BENGAL, IT STOOD ESTABLISHED THAT SHRI S. MART IN ALONG WITH HIS CAHOOTS SHRI VIRA AND SRI CHOWRASIA HAD MASTERMINDE D A COMPLEX TAX EVASION NETWORK. THE ASSESSEE GROUP HAS REFUSED TO GIVE ANY EXPLANATION AS TO WHY THE INTERMEDIARY CONCERNS IN THE WHOLE CHAIN (PERIODICALLY DISCONTINUED) WERE NOT FORMALLY DISSO LVED AND THE REQUISITE INTIMATION PROVIDED BY THE CONCERNED ASSE SSING OFFICER. IT HAS BEEN OBSERVED THAT M/S. PEMA LHADEN ENTERPRISE (PROPRIETOR MS. PEMA LHADEN WAS APPOINTED THE ASSESSEE GROUP WI TH THE PRIOR CONCURRENCE OF THE ROYAL GOVT OF BHUTAN (RGB) AS TH E SOLE PURCHASER (AGAIN IN THE NATURE OF AN INTERMEDIARY) WITH THE P RIMARY OBJECTIVE OF AVOIDANCE OF THE PAYMENT OF SERVICE TAX INTRODUC ED BY THE FINANCE BILL, 2008. THE SAME HAS BEEN ADMITTED BY S HRI S. MARTIN IN HIS STATEMENT RECORDED BY THE A.O. IT HAS COME TO T HE NOTICE THAT MS. I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 14 OF 38 PEMA LHADEN CLAIMED TO HAVE PAID HUGE AMOUNT OF COM MISSION TO HER STOCKISTS BASED IN INDIA AND PAID TDS @ 3% THER EON AS SHOWN IN HER RETURNS FILED WITH THE BHUTAN INCOME-TAX DEPART MENT. IT WAS LATER ON DISCOVERED THAT NONE OF SUCH INDIA-BASED S TOCKISTS DECLARED ANY SUCH COMMISSION INCOME IN THEIR LT. RETURNS FIL ED IN INDIA. IT, THEREFORE, TRANSPIRED THAT MS. PEMA LHADEN CLAIMED BOGUS COMMISSION EXPENDITURE TO REDUCE HER TAXABLE INCOME ARISING OUT OF THE ILLEGAL TRANSFER OF MONEY GENERATED BY THE LOTT ERY BUSINESS 'CONDUCTED BY THE MARTIN GROUP. THAT SHRI MARTIN OP ERATED AS A LOTTERY SCAMSTER HAS BEEN ESTABLISHED BY THE CHARGE SHEET FILED BY THE CBI, COCHIN BRANCH AGAINST SHRI MARTIN. THE PRE SS REPORTS ALSO HIGHLIGHTED AT THE RELEVANT POINT OF TIME THE DETAI LS OF THE BHUTAN LOTTERY SCAM. IT IS TO BE NOTED THAT ON BEING INFOR MED BY THE GOVT. OF INDIA ABOUT THE FLAGRANT VIOLATIONS OF THE LOTTERIE S REGULATION ACT, 1998, THE ROYAL GOVT. OF BHUTAN WAS COMPELLED TO SH UT DOWN ITS DIRECTORATE OF LOTTERIES IN AUGUST, 2011. THE CBI C HARGE-SHEET MATTER HAS BEEN CONFESSED BY SHRI MARTIN. IT IS EST ABLISHED BEYOND DOUBT THAT THE WEB OF ENTITIES IN VARIOUS TAX JURIS DICTIONS' WAS CREATED AND CONTROLLED BY THE MARTIN GROUP (OF WHIC H THE ASSESSEE FIRM WAS AN ACTIVE MEMBER) EITHER DIRECTLY OR THROU GH ITS STOOGES FOR AVOIDING THE DETECTION OF THE JUGGLING OF FIGUR ES OF THE NUMBER OF LOTTERY TICKETS SOLD AND UNSOLD SO AS TO APPROPRIAT E THE ENTIRE PRIZE WINNINGS FROM THE UNSOLD TICKETS WITHOUT PAYING ANY TAX THEREON. THE DIRECTORATE OF LOTTERIES OF THE RGB HAD ACTUALL Y OUTSOURCED THE CONDUCTING OF BHUTAN LOTTERIES TO THE MARTIN GROUP ON A FIXED ROYALTY I GUARANTEE PAYMENT OF RS. 23 CRORES AS EVI DENCED BY THE WEEKLY PAYMENTS MADE TO IT BY FGSIPL. IT HAS BEEN C ONTENDED BY THE ID. A.RS THAT THE BHUTAN LOTTERY TICKETS USED TO BE RECEIVED BY THE ASSESSEE FROM THE SOLE PURCHASER, I.E. PLE AND SUBS EQUENTLY TRANSMITTED TO ITS STOCKISTS ON 'ACTUAL SOLD BASIS' ONLY. IN THIS REGARD A COPY OF THE AGREEMENT DATED 15-05-2008 BET WEEN THE ROYAL GOVT. OF BHUTAN AND M/S MARTIN LOTTERY AGENCIES LTD . (NOW M/S FUTURE GAMING SOLUTIONS INDIA PVT. LTD.) HAS BEEN E XAMINED: IN THE COURSE OF THE RECORDING OF HIS DEPOSITION SHRI MART IN INTIMATED THE DEPARTMENT THAT THE SAID AGREEMENT WAS ENTERED THRO UGH A TENDER PROCESS FLOATED BY THE RGB. AS PER THIS AGREEMENT, THE TICKETS WERE TO BE PURCHASED BY THE MARTIN GROUP FROM THE RGB ON 'ALL SOLD BASIS' WHICH ENTITLED THE GROUP TO A DISCOUNTED PRI CE OF 26% OF THE M.R.P. ALONG WITH THE RISK OF PAYING FOR THE UNSOLD TICKETS AND SIMULTANEOUSLY GAINING THE WINNINGS FROM THE UNSOLD TICKETS. BY THE OWN ADMISSION OF SHRI MARTIN, VARIOUS STATE GOVTS., I.E. TAMIL NADU, ANDHRA PRADESH, ARUNACHAL PRADESH, MAHARASHTRA, PUN JAB AND WEST BENGAL USED TO SELL TICKETS TO HIM ON 'ALL SOLD BAS IS' ONLY AND THAT TOO FOR A MUCH LESSER DISCOUNT THAN ALLOWED BY THE RGB. IT IS, THEREFORE, ESTABLISHED THAT WHERE THE LOTTERIES ARE CONDUCTED BY THE GOVTS. (SUBJECTED TO A HIGH DEGREE OF REGULATION AN D TRANSPARENCY) THE 'ALL SOLD BASIS' IS THE USUAL NORM. SHRI S. MAR TIN IN HIS DEPOSITION DATED 30-12-2013 HAD CONTENDED THAT THE BASIS OF SALE WAS SUBSEQUENTLY CHANGED BY THE RGB TO THE 'ACTUAL SOLD BASIS' THROUGH INTRODUCTION OF AN ADDENDUM IN THE ORIGINAL AGREEMENT WHICH WAS STATED TO HAVE BEEN EFFECTED WITHOUT ANY RE-TENDERING PROCESS. IT IS PERTINENT TO MENTION THAT THE ORIGIN AL AGREEMENT WHICH OPERATED ON 'ALL SOLD BASIS' DID NOT HAVE ANY CLAUSE REQUIRING I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 15 OF 38 THE SOLE PURCHASER TO INTIMATE THE DETAILS THE UNSO LD LOTTERY TICKETS TO THE RGB BEFORE THE ACTUAL DRAW. HAD THE ADDENDUM IN THE AGREEMENT BEEN GENUINE, THEN THE CHANGING OF THE TE RMS FROM 'ALL SOLD BASIS' TO 'ACTUAL SOLD BASIS' COULD NOT TAKE P LACE WITHOUT SUCH A PRECONDITION OF REPORTING THE UNSOLD TICKETS BEFO RE THE HAPPENING OF THE ACTUAL DRAW. THE ABSENCE OF SUCH A CLAUSE IN THE REVISED AGREEMENT CONFIRMS THAT THE ADDENDUM WAS MERELY A F ACADE TO' HOODWINK THE SERVICE-TAX DEPARTMENT, WHILE IN REALI TY THE TRANSACTIONS WERE CARRIED OUT ON 'ALL SOLD BASIS' A S STIPULATED IN THE ORIGINAL AGREEMENT. THE FACT THAT BOTH THE AGRE EMENT AND THE ADDENDUM DID NOT HAVE ANY CLAUSE AS TO HOW THE UNSO LD TICKETS WOULD BE RETURNED TO THE RGB FOR DESTRUCTION ALSO C ORROBORATES THAT THE GOVT. AND THE ASSESSEE GROUP HAD SOLD LOTTERY T ICKETS ONLY ON 'ALL SOLD BASIS'. THE FINDINGS POINT TO A GRAND COLLUSIO N BETWEEN THE DEFACTO CONDUCTOR (THE ASSESSEE GROUP) AND THE DEJU RE CONDUCTOR (RGB) OF THE LOTTERY OPERATION. THE RGB BY OUTSOURC ING THE PURPORTED DESTRUCTION OF THE UNSOLD TICKETS IS FOUN D TO HAVE ABDICATED ITS SOVEREIGN AND STATUTORY RESPONSIBILIT Y. AS PER THE LOTTERIES REGULATION ACT, 1998, THE PROCEEDS FOR TH E SALE OF LOTTERY TICKETS CAN BE CREDITED ONLY IN THE PUBLIC ACCOUNT OF THE STATE. THE RGB HAD BASICALLY TAILED TO COMPLY WITH THE SAME. T HE DIRECTORATE OF LOTTERIES, BHUTAN WITHOUT OBTAINING ANY FEMA PER MISSION HAD OPENED A CURRENT ACCOUNT WITH THE IOB, CANNAUGHT PL ACE BRANCH, NEW DELHI LIKE A PRIVATE CITIZEN AND ALLOWED THE BE NAMI OPERATION OF THE SAME BY THE MARTIN GROUP. THIS ACCOUNT WAS S UBSEQUENTLY SHIFTED TO THE IOB, PALAKKAD BRANCH, KERALA IN JULY , 2010. THIS ACCOUNT HAS BEEN FOUND TO CONTAIN TRANSACTIONS OF O NLY TWO TYPES, I.E., RECEIPTS OF ALL KINDS OF ODD AMOUNTS FROM MAR TIN LOTTERY AGENCIES LTD. AND IMMEDIATE PAYMENTS TO THE VARIOUS LOTTERY PRINTERS THROUGH RTGS. IT PROVES THAT THE PRINTING WORK WAS ALSO SUPERVISED BY THE MARTIN GROUP. THOUGH IT WAS THE D UTY OF THE RGB TO DELIVER THE LOTTERY TICKETS FROM THE HIGH SECURI TY PRINTING PRESS TO THE SOLE PURCHASER, THE EVIDENCES CORROBORATE THAT THE TRANSPORTATION CHARGES FOR THE LOTTERY TICKETS WERE NEVER PAID BY THE RGB. ON THE CONTRARY, THE FREIGHT CHARGES WERE BORNE BY THE DIFFERENT MARKETING ENTITIES CONTROLLED BY SHRI MAR TIN. THE ABOVE FACTS CLINCHINGLY ESTABLISHED THAT SHRI S. MARTIN A ND HIS BUSINESS CONCERNS WERE THE DEFACTO CONDUCTORS OF THE BHUTAN LOTTERIES. THEREFORE, THE ARGUMENTS OF THE ID. A.RS THAT THE L OTTERY OPERATION WAS EXCLUSIVELY CONTROLLED BY THE RGB AND THAT THE LOTTERY TICKETS WERE SOLD BY IT ON 'ACTUAL SOLD BASIS' ARE NOT ACCE PTABLE. THE PERUSAL OF THE VARIOUS DOCUMENTS IMPOUNDED DURI NG SURVEY OPERATION REVEALED THAT THE SAME CONTAINED P AYMENTS TO VARIOUS STOCKISTS AGAINST THE ENTRIES HAVING NARRAT IONS PWT AND PWT-1. WHEN REQUIRED TO EXPLAIN THE EXACT NATURE AN D SIGNIFICANCE OF SUCH PAYMENTS, THE ASSESSE FIRM HAD COME OUT WIT H VARIOUS CONTRADICTORY SUBMISSIONS AND IT KEPT ON CHANGING I TS STAND VIS-A- VIS THE ISSUE. PWT BASICALLY REPRESENTED THE PRIZE WINNING TICKETS. HENCE THE FIGURES INDICATED AGAINST THE SAID ABBREV IATION IMPLIED PAYMENTS RELATING TO THE TICKETS WHICH WON THE PRIZ ES. IT HAS BEEN THE CONTENTION OF THE ID. A.RS THAT THE PRIZES NOT EXCEEDING RS. 5000/- DECLARED ON THE PAPER LOTTERY TICKETS ARE RE QUIRED TO BE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 16 OF 38 DISBURSED TO THE GENERAL PUBLIC DIRECTLY BY THE STO CKISTS / SUB- STOCKISTS / RETAILERS / AGENTS APPOINTED BY ASSESSE E AND THE STOCKISTS AND THAT THE PRIZE MONEY EXCEEDING RS. 5000/- WAS T O BE PAID BY THE RGB ONLY. IT HAS BEEN CONTENDED THAT STOCKISTS USED TO SEEK ONLY REIMBURSEMENT OF DISBURSAL OF THE PRIZE MONEY FROM THE ASSESSEE THROUGH COMISSION OF THEIR RESPECTIVE WEEKLY BILLS RAISED ON THE ASSESSEE. THE ID. A.RS AVERRED THAT THE EXPRESSION 'PWT' HAS BEEN USED IN THE ASSESSEE'S BOOKS TO DESCRIBE THE PAPER LOTTERY TICKETS ON WHICH PRIZES WERE DECLARED IN THE USUAL COURSE AS P ER THE SCHEME FRAMED BY THE RGB AND THAT THE EXPRESSION 'PWT-1 / PWT-2' HAS BEEN USED TO DESCRIBE THE 'SUPER, GOLD AND SPECIAL LOTTERY TICKETS' WHICH ARE SEPARATELY PRINTED AND WHICH CARRIED DIFF ERENT PRIZE AMOUNTS AS COMPARED TO THE ORDINARY PWT LOTTERY TIC KETS. IN THE WRITTEN SUBMISSION THE ASSESSEE HAS SOUGHT TO EXPLA IN THE COMPOSITION OF THE SUPER, GOLD AND SPECIAL LOTTERY TICKETS IN THE BUNDLES OF 100/ 1000 ORDINARY TICKETS WHICH PARTICI PATE IN THE DRAW. THE 'SUPER, GOLD AND SPECIAL LOTTERY TICKETS' ALONG WITH THE OTHER TICKETS OF THE BUNDLES ARE STATED TO BE PARTI CIPATING IN THE LOTTERY DRAW THROUGH THE INDEPENDENT NUMBERS PRINTE D ON THEM. IT WAS POINTED OUT THAT IF ANY INDIVIDUAL BUYER PURCHA SES THE WHOLE BUNDLE, HE AUTOMATICALLY GETS THE 'SUPER, GOLD AND SPECIAL LOTTERY TICKETS' ALREADY FORMING A PART OF THE BUNDLE. IT H AS BEEN CLAIMED THAT THE 'SUPER, GOLD AND SPECIAL LOTTERY TICKETS' ARE NOT MEANT TO BE RETAINED BY THE DISTRIBUTOR/STOCKIST/AGENT/SUB-AGEN T/RETAILER BY WAY OF THEIR COMMISSION OR REMUNERATION, BUT THE SA ME ARE MEANT FOR THE PUBLIC WHO BUY TICKETS IN LARGE QUANTITY SU CH AS BUNDLES OF 100/1000 TICKETS. THE ID A.R.S HAVE EMPHASIZED THAT THE ASSESSEE NEVER PAYS THE PRIZE MONEY DIRECTLY TO ANY PERSON W HATSOEVER WHO POSSESSES THE PRIZE WINNING TICKETS. IT WAS AVERRED THAT THE PRIZE MONEY BELOW RS. 5000/- WAS PAID AND/OR DISTRIBUTED DIRECTLY TO THE PRIZE WINNERS BY AGENTS/SUB-AGENTS/RETAILERS FOR AN D ON BEHALF THE RGB AND NOT BY THE ASSESSEE FIRM WHICH ACTS AS A ME RE DISTRIBUTOR. IT IS THEIR SUBMISSION THAT THE STOCKISTS WHO MAKE THE PAYMENTS TO THE PRIZE WINNERS CLAIM THE REIMBURSEMENTS FROM THE ASSESSEE BY WAY OF ADJUSTMENT IN THEIR ACCOUNTS PERIODICALLY SU BMITTED. ACCORDING TO THE ID. A.RS, THE PAYMENT OF THE PRIZE MONEY WAS THE SOLE RESPONSIBILITY OF THE RGB PRIMARILY CONSTITUTE D AN EXPENDITURE OF THE RGB AND NOT OF A DISTRIBUTOR/STOCKIST/AGENT/ SUB- AGENT/RETAILER AND HENCE THE RESPONSIBILITY, IF ANY , TO DEDUCT TAX AT SOURCE U/S 194B OF THE I.T. ACT DEVOLVED ON THE RGB WHICH IS THE 'PERSON RESPONSIBLE' FOR MAKING THE PAYMENT. THE AB OVE CONTENTIONS OF THE ID. A.R.S REGARDING THE PAYMENTS ON THE PRIZE WINNING TICKETS AND THE CONSEQUENT DISBURSEMENTS TA KING PLACE AMONG THE PLE, THE ASSESSEE, STOCKISTS, SUB-STOCKIS TS, AGENTS ETC. HAVE CAREFULLY BEEN EXAMINED VIS-A-VIS THE FINDINGS OF THE A.O. DURING THE ASSESSMENT PROCEEDING AND SUBSEQUENTLY O N THE BASIS OF THE DOCUMENTS OBTAINED AND THE STATEMENTS OF THE MA JOR PARTNER OF THE ASSESSEE. THE LEDGER ACCOUNT OF THE RGB (DIRECT ORATE OF LOTTERIES) AS APPEARING IN THE BOOKS OF A/CS OF FGS IPL BHUTAN BRANCH REVEALED THAT EVEN THE PRIZES ABOVE RS. 5000 /- WERE ALL PAID BY FGSIPL FROM ITS A/C NO. 5002 MAINTAINED WITH THE BHUTAN NATIONAL BANK AND NOT BY THE RGB. NOT A SINGLE PRIZ E WAS FOUND TO HAVE BEEN PAID BY THE RGB. AS PER THE ACCOUNT OF TH E RGB APPEARING I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 17 OF 38 IN THE BOOKS OF M/S MARTIN LOTTERIES AGENCIES LTD., IT HAS BEEN DEBITED BY PASSING ENTRIES PRIZE MONEY RECEIVED BY WAY OF JOURNAL ENTRIES. IN FACT, THE SAID COMPANY NEVER RECEIVED A NY PRIZE MONEY FROM THE RGB, THE SAME BEING ONLY A BOOK ENTRY. IN THE SAID ACCOUNT THERE WAS NO MENTION OF PWT AND PWT-L. THE AGREEMEN T DATED 15- 05-2008 DOES NOT STATE THAT THE RGB WILL BE DECLARI NG TWO DIFFERENT TYPES OF PRIZES, I.E. ONE FOR THE WINNING TICKET HO LDER AND THE OTHER FOR THE SELLER OF THE TICKET. THE ASSESSEE FIRM IN REPLY TO THE AO.'S SHOW CAUSE NOTICE HAS SUBMITTED THAT FOR THE SAKE O F EASY ACCOUNTING THE ASSESSEE HAD TERMED THE SUPER TICKET PRIZE AND SPECIAL TICKET) PRIZE AS PWT-1 AND THAT THE SAME WA S NOTHING BUT THE GENERAL PRIZE WINNING TICKETS AS MENTIONED IN T HE SCHEME OF THE LOTTERIES. HOWEVER, PERUSAL OF THE SCHEMES INDICATE D THAT NOWHERE IT STIPULATED THAT SUPER TICKETS AND SPECIAL TICKETS A RE PWT-L AND THEY ARE PAYABLE TO THE SELLERS OF THE TICKETS. SUBSEQUE NT TO THE COMPLETION OF THE ASSESSMENT PROCEEDING SHRI S. MAR TIN IN HIS DEPOSITION DATED 23-11-2013 CATEGORICALLY STATED TH AT PWT-1 ARE SEPARATE TICKETS IN SEPARATE BUNDLES GIVEN TO THE S TOCKISTS AND WERE THUS NOT TRANSFERRABLE LIKE THE WINNERS OF PWT. IN THAT DEPOSITION SHRI MARTIN ALSO INDICATED THAT PWT-I CONSTITUTED A PART OF THE TOTAL WINNING DRAW OF THE LOTTERY SCHEME. IN A SUBSEQUENT LETTER DATED24- 02-2014 SHRI MARTIN OFFERED A COMPLETELY DIFFERENT VERSION, WHEREIN HE CLARIFIED THAT PWT AND PWT-L (SUPER, SPECIAL AND BULK) WERE SUPPOSED TO BE MEANT FOR THE PURCHASER OF THE TICKE T BEARING THE LUCKY DRAW NUMBER AND THAT NO AMOUNT ATTRIBUTABLE T O PWT AND PWT-1 WAS PAYABLE TO ANY SELLER OF THE TICKETS. THI S VERSION OF SHRI MARTIN CLEARLY MILITATES AGAINST THE STATEMENTS GIV EN BY THREE STOCKISTS AND A RETAILER [ I.E. SHRI MANOJ HALDER O F M/S NIRALA AGENCY, SHRI ANUP KHASNOBIS OF MLS PUJA AGENCY, SHR I SRICHAND BANSAL OF M/S RISHI LOTTERY AGENCY PVT. LTD AND THE RETAILER SHRI UMA SHANKAR DAS) WHOSE DEPOSITIONS WERE RECORDED BY THE A.O, THESE STOCKISTS AND THE RETAILER HAD CATEGORICALLY SUBMITTED THAT THE PRIZE MONEY RELATING TO PWT-L WAS EXCLUSIVELY F OR THE SELLERS. SHRI MARTIN ALSO FAILED TO EXPLAIN AS TO WHY THE SC HEMES HAD THREE DIFFERENT PRIZES FOR THE SAME PRIZE WINNING TICKETS , IF THE SAME WERE ALL MEANT TO BE GIVEN TO THE ULTIMATE HOLDER OF THE PRIZE WINNING TICKET. IT HAS BEEN FOUND BY THE A.O. THAT WEEKLY P AYMENT STATEMENT SUMMARY OF THE 125 STOCKISTS CONTAINED ONLY THE DET AILS OF THE SUPER AND SPECIAL TICKETS (PWT-I) WITH NO MENTION OF PWT AT ALL THEREIN. THIS FACT VINDICATED THAT PWT-1 WERE NOT MEANT FOR THE ULTIMATE PRIZE WINNER. IN THE COURSE OF THE ENQUIRY CONDUCTE D BY THE A,O, IT HAS COME TO THE FORE THAT THE MAJORITY OF THE STOCK ISTS WERE BASICALLY THE COLLUDING BENEFICIARIES OF THE ASSESS EE FIRM, BECAUSE WITHOUT THEIR ACTIVE HELP THE ASSESSEE FIRM AND FOR THAT MATTER THE MARTIN GROUP WOULD NOT HAVE BEEN IN A POSITION TO F UDGE THE ACCOUNTS BY SHIFTING THE PRIZE WINNING TICKETS OF T HE UNSOLD LOT TO THE SOLD LOT. AS A RESULT, THESE STOCKISTS HAVE ALS O BEEN FOUND TO BE CHANGING THEIR VERSIONS FREQUENTLY REGARDING THE PH YSICAL FEATURES OF THE SUPER AND SPECIAL TICKETS AS WELL AS THE PER SONS WHO CAN CLAIM THE SAME. AT TIMES THEY STATED THAT THE SUPER AND S PECIAL TICKETS ARE PART OF THE SALEABLE LOTTERY TICKET BOOKLETS AND AT OTHER TIMES THEY CLAIM THE SAME TO BE A SEPARATE BOOKLET BY ITSELF. THIS CHANGE IN VERSIONS WAS PROMPTED WHEN THE A.O. RAISED THE QUES TION OF I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 18 OF 38 DEDUCTION OF TAX AT SOURCE IN TERMS OF THE PROVISIO NS OFS.194G OF THE I.T. ACT. IN ORDER TO ASCERTAIN THE CORRECT NATURE OF PWT-1 THE A.O. ALSO CONDUCTED ENQUIRIES WITH THE DIRECTOR OF LOTTE RIES, WEST BENGAL. AS PER HIS REPLY DATED 21-05-2014, IT HAS B EEN GATHERED THAT THOUGH THE NOMENCLATURE 'SUPER AND SPECIAL TICKETS' IS GIVEN TO PWT-1, THE SAME ARE BASICALLY IN THE NATURE OF INCE NTIVES FOR THE SELLERS AND NOT PAYABLE TO THE WINNERS OF THE LOTTE RY TICKETS. IT IS, THEREFORE, ESTABLISHED BEYOND DOUBT THAT THE PWT-1 PAYMENTS WERE BASICALLY MADE BY THE ASSESSEE TO ITS STOCKISTS, WH ICH, IN TURN, WERE NOT SUPPOSED TO PART WITH ANY PART OF THE SAID MONE Y BY WAY OF THE OTHER PAYMENTS TO ANY LOTTERY PLAYING PUBLIC. IT HA S BEEN FOUND (ON THE BASIS OF THE ENTRIES RECORDED IN COMPUTERISED L EDGER A/CS OF THE PRIZE WINNING TICKETS AS EXTRACTED FROM THE IMPOUND ED HARD DISK FDA-1 AND ALSO ON THE BASIS OF THE DETAILS SUBSEQUE NTLY FURNISHED BY THE ASSESSEE) THAT DURING THE RELEVANT ACCOUNTING Y EAR THE TOTAL PAYMENTS MADE BY THE ASSESSEE AGAINST PWT-1 STOOD A T RS. 551,30,41,569/-. THE SAID AMOUNT WAS ALSO FOUND TO BE A PART OF THE TOTAL PURCHASE AMOUNT OF RS.1393,22,38,446/- DEBITE D TO THE PROFIT & LOSS A/C. SINCE THE ENTIRE SUM OF RS.551,30,41,56 9/- REPRESENTED THE INCENTIVE PAYMENT / PRIZE MONEY GIVEN TO THE ST OCKISTS BY THE ASSESSEE, THE SAME CONSTITUTED INCOME IN THE HANDS OF THE FORMER. THEREFORE, THE QUESTION OF DEDUCTION OF TAX AT SOUR CE U/S 194G FROM THE SAID PAYMENT NATURALLY AROSE. WHEN CONFRONTED I N THIS REGARD, THE ID. A.RS VEHEMENTLY ASSAILED THE INTERPRETATION OF THE DEPARTMENT IN THIS REGARD AND CONTENDED THAT THE IM PUGNED SUM OF RS.551.30 CRORE WAS A PART OF A SUM OF RS.1326.82 C RORE BEING THE VALUE OF THE PRIZES WON ON THE SOLD TICKETS WHICH A MOUNT WAS REPORTEDLY REIMBURSED BY THE ASSESSEE TO THE STOCKI STS. THEY ALSO SUBMITTED THAT THE SAID SUM OF RS.1326.82 CRORE WAS DEDUCTED BY THE ASSESSEE FROM THE NET PURCHASE VALUE IN THE AGG REGATE SUM OF RS.1393.22 CRORE 'PAYABLE BY THE ASSESSEE TO M/S PE MA LHADEN ENTERPRISE FOR PURCHASE OF THE BHUTAN PAPER LOTTERY TICKETS. ANOTHER ARGUMENT HAS BEEN ADVANCED BY THE ID. A.RS THAT SIN CE THE SUM OF RS.551.30 CRORE WAS BASICALLY IN THE NATURE OF REIM BURSEMENT TO THE STOCKISTS IT CANNOT COME WITHIN THE AMBIT OF THE PR OVISIONS OF S. 194G OF THE I.T. ACT. THEY ALSO ARGUED THAT IF THE SAID SUM BE TREATED AS A PART OF THE PURCHASE FIGURE DEBITED TO THE P&L A/C, THEN ALSO IT CANNOT BE HIT BY THE MISCHIEF OF THE PROVISIONS OF S. 194G. AFTER CAREFUL CONSIDERATION, I DO NOT FIND FORCE IN THE A RGUMENTS OF THE ID A.RS, BECAUSE THE SUM OF RS.551.30 CRORE PAID TO TH E STOCKISTS BY WAY OF INCENTIVE CONSTITUTED INCOME IN THEIR HANDS AND HENCE THE SAME WARRANTED DEDUCTION OF TAX AT SOURCE BY THE AS SESSEE U/S 194G. FURTHER, THE SUM OF RS.551.30 CRORE STANDS DEBITED TO THE P&L A/C BY VIRTUE OF BEING A PART OF THE PURCHASE FIGURE REFLE CTED IN THE P&L A/C AND WAS THUS IN THE NATURE OF AN EXPENDITURE CL AIMED BY THE ASSESSEE. FOR NON-DEDUCTION OF TAX AT SOURCE THIS E XPENDITURE OUGHT TO HAVE BEEN DISALLOWED U/S 40(A)(IA) OF THE LT. AC T. SINCE THE A.O. OMITTED TO MAKE THE SAID DISALLOWANCE, THE ASSESSME NT ORDER DATED 22-03-2013 WAS RENDERED GROSSLY ERRONEOUS AS WELL A S PREJUDICIAL TO THE INTEREST OF THE REVENUE. I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 19 OF 38 9. ON THE BASIS OF THE ABOVE OBSERVATIONS AND FINDI NGS RECORDED BY HIM, THE LD. CIT HELD THAT THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3)/144 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND SETTING ASIDE THE SAME BY EXERCISING TH E POWERS CONFERRED UPON HIM UNDER SECTION 263, HE DIRECTED THE ASSESSI NG OFFICER TO FRAME THE ASSESSMENT DE NOVO BY TAKING COGNIZANCE OF THE ISSUES RAISED BY HIM AFTER CONDUCTING NECESSARY ENQUIRIES IN THAT REGARD . AGGRIEVED BY THE ORDER OF THE LD. PR. CIT PASSED UNDER SECTION 263, THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 10. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET , EXPLAINED THE ENTIRE MODUS OPERANDI OF THE BUSINESS THROUGH WHICH THE LO TTERY TICKETS ISSUED BY THE ROYAL GOVERNMENT OF BHUTAN WERE DISTRIBUTED. HE SUBMITTED THAT THE ROYAL GOVERNMENT OF BHUTAN HAD APPOINTED M/S. M ARTIN LOTTERY AGENCIES LIMITED (EARLIER KNOWN AS FUTURE GAMING SO LUTIONS INDIA PVT. LIMITED AND NOW AS FUTURE GAMING AND HOTEL SERVICES PVT. LIMITED) AS ITS SOLE PURCHASER TO SELL ALL TYPES OF CONVENTIONAL PA PER LOTTERIES ALL OVER BHUTAN AND INDIA. THE SAID SOLE PURCHASER APPOINTED TWO WHOLESALERS NAMELY M/S. MEGHA DISTRIBUTOR FOR THE STATE OF KERA LA AND M/S. PEMA LHADEN ENTERPRISE FOR BHUTAN AND WEST BENGAL. M/S. PEMA LHADEN ENTERPRISE, A PROPRIETARY CONCERN OF MS. PEMA LHADE N OF PHUENTSHOLING, APPOINTED THE ASSESSEE-FIRM AS THE MAIN SELLER OF B HUTAN PAPER LOTTERIES IN THE STATE OF WEST BENGAL IN TERMS OF AGREEMENT D ATED 01.06.2009. THE ASSESSEE-FIRM APPOINTED MORE THAN 100 STOCKISTS IN THE AREA OF SOUTH BENGAL FOR THE SALE OF PAPER LOTTERY TICKETS AND TH E SAID STOCKISTS IN TURN ENGAGED VARIOUS PERSONS AS SUB-STOCKISTS, WHO AGAIN APPOINTED RETAILERS TO SELL THE LOTTERY TICKETS. THE LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT ALL THESE ARRANGEMENTS/AGREEMENTS BETWEEN SOLE PURC HASER, WHOLESELLER, MAIN SELLER, STOCKISTS, SUB-STOCKISTS AND RETAILERS WERE ON NET SALE BASIS OR ACTUAL SALE BASIS AND ACCORDINGLY THE UNSOLD TIC KETS, IF ANY, WERE REQUIRED TO BE RETURNED BACK FOR ULTIMATE DESTRUCTI ON BY THE ROYAL GOVERNMENT OF BHUTAN. HE SUBMITTED THAT THE ASSESSE E-FIRM THUS ONLY DEALT WITH M/S. PEMA LHADEN ENTERPRISE (PLE) AND ST OCKISTS AND IT HAD NO I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 20 OF 38 CONNECTION EITHER WITH THE SUB-STOCKISTS AND/OR WIT H THE RETAILERS. HE SUBMITTED THAT PLE USED TO RAISE WEEKLY BILLS/INVOI CES ON THE ASSESSEE IN RESPECT OF ACTUAL SOLD PAPER LOTTERY TICKETS WHILE THE ASSESSEE IN ITS TURN USED TO RAISE WEEKLY BILLS/INVOICES ON EACH OF THE STOCKISTS ONLY IN RESPECT OF ACTUAL SOLD PAPER LOTTERY TICKETS. 11. AFTER ELABORATING THE MODUS OPERANDI FOLLOWED I N THE DISTRIBUTION OF LOTTERY TICKETS OF ROYAL GOVERNMENT OF BHUTAN, T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRIZES DECLARED ON PAPE R LOTTERY TICKETS EXCEEDING RS.5,000/- WERE TO BE PAID DIRECTLY BY TH E ROYAL GOVERNMENT OF BHUTAN AS PER THE TERMS OF THE AGREEMENT WHILE THE PRIZES NOT EXCEEDING RS.5,000/- WERE TO BE DISBURSED TO THE PRIZE WINNER S DIRECTLY BY THE RETAILERS/LAST SELLERS OF THE LOTTERY TICKETS. HE S UBMITTED THAT THE RETAILERS USED TO SEEK REIMBURSEMENT OF SUCH PRIZE MONEY DIST RIBUTED BY THEM TO ULTIMATE PRIZE WINNING FROM THE CONCERNED STOCKISTS /SUB-STOCKISTS AND THE STOCKIST APPOINTED BY THE ASSESSEE-FIRM IN TURN USED TO SEEK REIMBURSEMENT OF DISBURSED PRIZE MONIES BY WAY OF A DJUSTMENT AGAINST THE RESPECTIVE WEEKLY BILLS DRAWN BY THE ASSESSEE-F IRM ON THEM. HE SUBMITTED THAT THE ASSESSEE-FIRM IN TURN CLAIMED RE IMBURSEMENT OF THE DISBURSED PRIZE MONIES FROM PLE BY WAY OF ADJUSTMEN T AGAINST THE AMOUNT DUE TO THE SAID ENTITY TOWARDS PURCHASE OF L OTTERY TICKETS. 12. THE LD. COUNSEL FOR THE ASSESSEE ALSO EXPLAINED THAT THERE WAS ANOTHER SCHEME FRAMED BY THE ROYAL GOVERNMENT OF BH UTAN CALLED AS PRIZE WINNING TICKETS(1) (IN SHORT PWT-1). HE SUBMI TTED THAT THE TICKETS UNDER THIS SCHEME DESCRIBED AS SUPER AND SPECIAL L OTTERY TICKETS OR BULK TICKETS WERE SEPARATELY PRINTED AND EACH BUN DLE OF 100 TICKETS CONTAINED ONE SUPER/GOLD TICKET, WHILE EACH BUNDL E OF SUCH 1000 TICKETS CONTAINED SPECIAL TICKET. HE EXPLAINED THAT ANY B UYER OF EITHER OF THE SAID TWO BUNDLES GOT THESE SUPER/GOLD/SPECIAL TICK ETS AND THESE SUPER/GOLD/SPECIAL TICKETS ALSO PARTICIPATED IN T HE DRAW THROUGH THE INDEPENDENT NUMBERS. HE SUBMITTED THAT WHEN A RETAI LER BOUGHT THE BUNDLES, HE COULD SELL THE ENTIRE BUNDLE TO ANY ONE PERSON, OR I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 21 OF 38 ALTERNATIVELY HE COULD SELL ONE OR MORE TICKETS IN LOOSE FORM TO ONE OR MORE PERSONS. WHERE TICKETS WERE SOLD LOOSE, THE RE TAILER HIMSELF WAS ENTITLED TO RETAIN THE SUPER/GOLD/SPECIAL TICKETS . HE CONTENDED THAT THE PRIZE MONEY UNDER THIS SCHEME, I.E. PWT-1 ALSO WAS DISBURSED IN THE SAME MANNER AS THE PRIZE MONEY WAS DISTRIBUTED ON ORDINA RY/NORMAL PAPER LOTTERY TICKETS (PWT), INASMUCH AS, THE PRIZE MONIE S ABOVE RS.5,000/- WERE PAID BY ROYAL GOVERNMENT OF BHUTAN DIRECTLY WH ILE THE PRIZE MONIES UPTO RS.5,000/- WERE PAID BY THE RETAILER DIRECTLY TO THE PRIZE WINNER, WHICH WAS SUBSEQUENTLY REIMBURSED BY THE ROYAL GOVE RNMENT OF BHUTAN THROUGH ITS CHAIN OF INTERMEDIARIES. 13. AFTER EXPLAINING THE MODUS OPERANDI OF THE LOTT ERY BUSINESS AND UNFOLDING THE SCHEME OF PRIZE DISTRIBUTION TO THE W INNERS OF THE LOTTERY TICKETS, THE LD. COUNSEL FOR THE ASSESSEE PROCEEDED TO RAISE VARIOUS CONTENTION IN SUPPORT OF THE ASSESSEES CASE THAT T HERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF PRIZE M ONIES AS PER THE PROVISIONS OF SECTION 194G AND THE ORDER OF THE ASS ESSING OFFICER NOT MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) ON ACCO UNT OF PRIZE MONIES WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERE ST OF THE REVENUE CALLING FOR REVISION UNDER SECTION 263 BY THE LD. C IT. FIRSTLY HE CONTENDED THAT THE RELATIONSHIP BETWEEN THE ASSESSEE-FIRM AND THE STOCKISTS BEING THAT OF PRINCIPAL TO PRINCIPAL, THE AMOUNT IN QUEST ION PAID/REIMBURSED BY THE ASSESSEE ON ACCOUNT OF PRIZE MONEY WAS NOT IN T HE NATURE OF COMMISSION AS ENVISAGED IN SECTION 40(A)(IA) READ WITH SECTION 194G OF THE ACT. HE SUBMITTED THAT A COMBINED READING OF SE CTION 40(A)(IA) AND 194G OF THE ACT MAKES IT ABUNDANTLY CLEAR THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) WITH RESPECT TO THE FAILURE ON TH E PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE UNDER SECTION 194G IS RESTRICT ED TO INCOME OF THE PAYEE IN THE NATURE OF COMMISSION ON THE SALE OF LO TTERY TICKETS, WHICH HAS BEEN CLAIMED BY THE PAYER AS EXPENDITURE IN ITS PROFIT & LOSS ACCOUNT. HE SUBMITTED THE TERM COMMISSION OR BROKERAGE AS DEFINED IN EXPLANATION (I) TO SECTION 194H INCLUDES PAYMENTS R ECEIVED OR RECEIVABLE BY A PERSON ACTING ON BEHALF OF THE ANOTHER PERSON FOR SERVICES OF I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 22 OF 38 SPECIFIED NATURE RENDERED BY THE FORMER TO THE LATT ER. HE CONTENDED THAT COMMISSION OR BROKERAGE FOR THE PURPOSE OF SECTION 40(A)(IA) THUS SHOULD EMERGE FROM ITS PRINCIPAL-AGENT RELATIONSHIP AND DI SALLOWANCE BY INVOKING THE SAID PROVISION COULD BE MADE IN THE IN STANT CASE ONLY IF THERE WAS A PRINCIPAL-AGENT RELATIONSHIP BETWEEN THE ASSE SESE AND THE STOCKISTS AND THE IMPUGNED PAYMENTS CONSTITUTED INCOME IN THE NATURE OF COMMISSION ON THE SALE OF LOTTERY TICKETS IN THE HA NDS OF THE STOCKISTS. HE CONTENDED THAT THE RELATIONSHIP BETWEEN THE ASSESSE E AND THE STOCKISTS, HOWEVER, WAS THAT OF SELLER AND BUYER ON PRINCIPLE TO PRINCIPLE BASIS AND THEREFORE, THE AMOUNT OF PRIZE MONEY COULD NOT BE T REATED AS COMMISSION ON SALE OF LOTTERY TICKETS PAID BY THE ASSESSEE TO THE STOCKISTS ARISING ON ACCOUNT OF PRINCIPAL-AGENT RELATIONSHIP SO AS TO AT TRACT THE PROVISIONS OF SECTION 194G AS WELL AS THE CONSEQUENTIAL DISALLOWA NCE UNDER SECTION 40(A)(IA). IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISION OF THE HONBLE SIKKIM HIGH COURT IN THE CASE OF FUTURE GAM ING AND HOTEL SERVICES PVT. LIMITED VS.- UNION OF INDIA (WP(C) N O. 39 OF 2015 DATED 14.10.2015), WHEREIN IT WAS HELD THAT ACTIVITIES OF THE LOTTERY DISTRIBUTORS DID NOT CONSTITUTE THE SERVICE AS THE ACTIVITY COMP RISING OF PROMOTION, ORGANIZING, RESELLING OR IN ANY OTHER MANNER ASSIST ING OR ARRANGING THE LOTTERY TICKETS OF THE STATE, DID NOT ESTABLISH THE RELATIONSHIP OF PRINCIPAL AND AGENT BUT IT WAS RATHER THAT OF A BUYER AND A S ELLER ON PRINCIPAL TO PRINCIPAL BASIS. 14. THE LD. COUNSEL FOR THE ASSESSEE ALSO CONTENDED THAT THE PROVISIONS OF SECTION 194G ARE APPLICABLE ONLY IN CASES, WHERE THE IMPUGNED PAYMENTS CONSTITUTE INCOME BY WAY OF COMMISSION, RE MUNERATION OR PRIZE OF THE PAYEE. HE CONTENDED THAT WHERE SUCH PAYMENTS DO NOT CONSTITUTE INCOME OF THE SAID NATURE IN THE HANDS OF THE PAYEE , THE PAYER IS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT UN DER SECTION 194G OF THE ACT. HE REITERATED THAT THE AMOUNT IN QUESTION ON ACCOUNT OF PRIZE MONEY WAS PAID BY THE ASSESSEE TO THE STOCKISTS AS REIMBURSEMENT ON BEHALF OF THE ROYAL GOVERNMENT OF BHUTAN AND SINCE THE AMOUNT OF SUCH PRIZE MONEY WAS IN TURN PAID BY THE STOCKISTS TO TH E SUB- STOCKISTS/RETAILERS, THE SAME DID NOT CONSTITUTE TH E INCOME IN THEIR HANDS. I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 23 OF 38 HE CONTENDED THAT NO TAX AT SOURCE, THEREFORE, WAS DEDUCTIBLE UNDER SECTION 194G FROM THE AMOUNT IN QUESTION PAID BY TH E ASSESSEE AS REIMBURSEMENT OF PRIZE MONEY ACTUALLY PAID OVER BY THEM TO THE SUB- STOCKISTS OR RETAILERS WHICH DID NOT CONSTITUTE THE IR INCOME. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE FOLLOWING JUDICIA L PRONOUNCEMENTS, WHEREIN IT WAS HELD THAT TDS PROVISION IS NOT APPLI CABLE IN THE CASE OF REIMBURSEMENT OF EXPENSES:- (I) CIT VS.- BOVIS LEND LEASE (INDIA)(P.) LIMITED [208 TAXMAN 168 (KER.)]; (II) CIT VS.- HARDARSHAN SINGH (2013) 350 ITR 427 (DEL.); (III)CIT VS.- GUJARAT NARMADA VALLEY FERTILIZERS C O. LTD. (2014) 361 ITR 192 (GUJ.); (IV) DOLPHIN DRILLING LIMITED VS.- ACIT (2009) 12 1 TTJ 433 (DEL.); (V) CIT VS.- DUNLOP RUBBER CO. LIMITED (1983) 142 ITR 493 (KOL.). 15. THE LD. COUNSEL FOR THE ASSESSEE THEN REFERRED TO THE PROVISIONS OF SECTION 194G AND SECTION 204 AND SUBMITTED THAT AS PER CLAUSE(III) OF SECTION 204- PERSON RESPONSIBLE FOR PAYING WINNI NGS FROM LOTTERY OR CROSSWORD PUZZLE UNDER SECTION 194B AND COMMISSION ETC. ON SALE OF LOTTERY TICKETS UNDER SECTION 194G IS THE PAYER HI MSELF, I.E. THE PERSON ACTUALLY MAKING PAYMENT OF THE IMPUGNED SUM UNDER C ONSIDERATION. HE CONTENDED THAT THE ASSESSEE IN THE PRESENT CASE CAN NOT BE TREATED AS THE PERSON RESPONSIBLE FOR PAYING THE PRIZE MONIES ON SUPER/SPECIAL TICKETS (PWT-1) IN TERMS OF SECTION 204 READ WITH SECTIONS 194B AND 194G OF THE ACT AS THE PERSON RESPONSIBLE FOR PAYING PRIZE MONI ES EXCEEDING RS.5,000/- WAS THE ROYAL GOVERNMENT OF BHUTAN, WHIL E THE PERSON RESPONSIBLE FOR PAYING PRIZE MONIES UPTO RS.5,000/- WERE THE RETAILERS / SELLERS, WHO HAD ULTIMATELY SOLD THE TICKETS TO THE GENERAL PUBLIC. HE SUBMITTED THAT EVEN THE PRIZE MONEY UPTO RS.5,000/- IN RESPECT OF BULK TICKETS RETAINED BY THE RETAILERS/LAST SELLERS WERE PAID BY SUB-STOCKISTS. HE CONTENDED THAT THE ASSESSEE-FIRM THUS NEVER PAID ANY PRIZE MONEY (EITHER PWT OR PWT-1) EITHER TO THE LOTTERY PLAYING PUBLIC OR TO THE RETAILERS/LAST SELLERS AND IT, THEREFORE, CANNOT BE TREATED AS PERSON RESPONSIBLE FOR PAYING PRIZE MONIES IN TERMS OF SEC TION 204 AND THE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 24 OF 38 QUESTION OF LIABILITY TO DEDUCT TAX UNDER SECTION 1 94G OR CONSEQUENTIAL DISALLOWANCE UNDER SECTION 40(A)(IA) WOULD NOT ARIS E. 16. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT THE AMOUNT IN QUESTION WAS NOT IN THE NATURE OF ANY COMMISSION OR REMUNERATION PAID TO THE STOCKISTS BY THE ASSESSEE, BUT THE SAME REPRESENTED REIMBURSEMENT OF PRIZES FROM THE WINNING LOTTERY TI CKETS, WHICH WERE PAID BY THE RETAILERS TO THE GENERAL PUBLIC. HE SUB MITTED THAT SUCH PRIZES EXCEEDING RS.5,000/- WERE DIRECTLY PAID BY THE ROYA L GOVERNMENT OF BHUTAN WHILE THE PRIZE MONEY UPTO RS.5,000/- WAS PA ID BY THE RETAILERS/SELLERS OF THE LOTTERY TICKETS TO THE GEN ERAL PUBLIC, WHICH WAS SUBSEQUENTLY GOT REIMBURSED FROM ROYAL GOVERNMENT O F BHUTAN THROUGH THE VARIOUS AGENCIES ACTING IN DISTRIBUTION CHAIN. HE CONTENDED THAT EVEN IF HIS ARGUMENT RELATING TO NO REQUIREMENT OF TDS O N REIMBURSEMENT IS FOUND TO BE NOT ACCEPTABLE, THE DEDUCTION OF TAX AT SOURCE, IF ANY, WAS REQUIRED TO BE DONE AS PER THE PROVISIONS OF SECTIO N 194B APPLICABLE TO PAYMENT OF INCOME BY WAY OF WINNING FROM ANY LOTTER Y, ETC. AND NOT UNDER SECTION 194G AS HELD BY THE LD. CIT. HE INVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 194B AND SUBMITTED THAT THE P ERSON RESPONSIBLE FOR PAYING TO ANY PERSON, ANY INCOME BY WAY OF WINNING FROM ANY LOTTERY, ETC. IS LIABLE TO DEDUCT TAX AT THE TIME OF PAYMENT THER EOF ONLY WHEN THE AMOUNT OF SUCH INCOME EXCEEDED RS.5,000/- AS APPLIC ABLE IN THE YEAR UNDER CONSIDERATION. HE CONTENDED THAT SINCE THE AM OUNT IN QUESTION WAS PAID/REIMBURSED ON ACCOUNT OF PRIZE MONEY BY WAY OF WINNING FROM LOTTERY PAID TO THE TICKET-HOLDERS UPTO RS.5,000/-, EVEN THE PROVISIONS OF SECTION 194B WERE NOT APPLICABLE IN THE PRESENT CAS E. HE CONTENDED THAT THE ASSESSEE THUS WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF AMOUNT IN QUESTION EVEN AS PER THE PROVI SIONS OF SECTION 194B AND THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A )(IA) WOULD NOT ARISE. 17. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE AMOUNT IN QUESTION REIMBURSED BY THE ASSESSEE TO THE STOCKIST S ON ACCOUNT OF PRIZE MONEY OF LOTTERY TICKETS WAS RECOVERED FROM THE WHO LESALER BY WAY OF I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 25 OF 38 ADJUSTMENT AGAINST THE AMOUNT DUE TO THEM ON ACCOUN T OF PURCHASE OF LOTTERY TICKETS. HE SUBMITTED THAT THE LD. CIT IN H IS IMPUGNED ORDER PASSED UNDER SECTION 263 TREATED THE SAID AMOUNT AS IN THE NATURE OF PURCHASE OF LOTTERY TICKETS ON THE BASIS OF THE REL EVANT ACCOUNTING ENTRIES PASSED BY THE ASSESSEE WHILE ADJUSTING THE AMOUNT I N QUESTION AGAINST PURCHASES. HE CONTENDED THAT GOING BY THIS TREATMEN T GIVEN BY THE LD. CIT TO THE AMOUNT IN QUESTION, NO TAX WAS DEDUCTIBLE UN DER SECTION 194G AS THE SAID PROVISION IS NOT APPLICABLE FOR PAYMENTS M ADE AGAINST PURCHASES OF LOTTERY TICKETS. HE CONTENDED THAT THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(IA) THUS WOULD NOT ARISE EVEN ON THIS COUNT. 18. WITHOUT PREJUDICE TO ALL HIS ARGUMENTS ALREADY ADVANCED AND AS AN ALTERNATIVE, THE LD. COUNSEL FOR THE ASSESSEE CONTE NDED THAT EVEN IF IT IS ASSUMED FOR THE SAKE OF ARGUMENT THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE AMOUNT IN QUESTION RE PRESENTING PAYMENT/REIMBURSEMENT OF PRIZE MONEY ON LOTTERY TIC KETS, NO DISALLOWANCE UNDER SECTION 40(A)(IA) FOR FAILURE TO DEDUCT TAX AT SOURCE WAS LIABLE TO BE MADE BY THE ASSESSING OFFICER IN T HE ASSESSMENT COMPLETED UNDER SECTION 143(3)/144, WHEREIN THE BOO KS OF ACCOUNT OF THE ASSESSEE WERE REJECTED BY THE ASSESSING OFFICER AND THE INCOME FROM BUSINESS WAS DETERMINED BY HIM ON ESTIMATED BASIS. HE CONTENDED THAT WHEN THE INCOME OF THE ASSESSEE WAS DETERMINED ON E STIMATED BASIS AFTER REJECTING THE BOOKS OF ACCOUNT, THE ASSESSING OFFIC ER COULD NOT RELY ON THE SAME BOOKS OF ACCOUNT OF THE ASSESSEE FOR MAKING A DISALLOWANCE SEPARATELY OF ANY EXPENDITURE CLAIMED THEREIN BY IN VOKING THE PROVISIONS OF SECTION 40(A)(IA). IN SUPPORT OF THIS CONTENTION , HE RELIED ON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF SHRI ARJUN BHOWMICK VS.- DCIT RENDERED VIDE ITS ORDER DATED 3 0.03.2014 IN ITA NO. 767/KOL/2013, WHEREIN IT WAS HELD THAT WHEN THE PRO FIT WAS ESTIMATED BY THE ASSESSING OFFICER, HE COULD NOT MAKE ANY DIS ALLOWANCE ON THE BASIS OF SAME BOOKS OF ACCOUNT BY INVOKING THE PROVISION OF SECTION 40(A)(IA). IT WAS HELD BY THE TRIBUNAL THAT THE ESTIMATION MADE B Y THE ASSESSING OFFICER OF NET PROFIT WILL TAKE CARE OF EVERY ADDIT ION RELATED TO THE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 26 OF 38 BUSINESS INCOME OR BUSINESS RECEIPTS AND NO FURTHER DISALLOWANCE CAN BE MADE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF ARJUN BHOWM ICK (SUPRA) HAS ALREADY BEEN UPHELD BY THE HONBLE CALCUTTA HIGH CO URT VIDE ITS ORDER DATED 29.08.2014 IN G.A. NO. 2683 OF 2014. 19. KEEPING IN VIEW ALL THE SUBMISSIONS MADE BY HIM , THE LD. COUNSEL FOR THE ASSESSEE FINALLY CONTENDED THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) ON ACCOUNT OF THE AMOUNT IN QUESTION PAID /REIMBURSED TOWARDS PRIZE MONEY FROM LOTTERY TICKETS WAS WARRANTED IN T HE ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER SECTION 143(3)/144 A ND THE SAID ORDER, THEREFORE, WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE SO AS TO JUSTIFY THE INTERFERENCE BY THE LD . PR. CIT UNDER SECTION 263. HE, THEREFORE, URGED THAT THE IMPUGNED ORDER P ASSED BY THE LD. CIT UNDER SECTION 263 MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3)/144 BE RESTORED. 20. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIE D ON THE IMPUGNED ORDER OF THE LD. CIT PASSED UNDER SECTION 263 IN SU PPORT OF THE REVENUES CASE. HE ALSO REFERRED TO SECTION 2(24)(IX) AND CON TENDED THAT THE CONCEPT OF INCOME FROM ANY WINNING FROM LOTTERY, ETC. IS AP PLICABLE ONLY IN CASE OF PRIZE WINNERS AND NOT IN THE CASE OF THE ASSESSEE W HO IS DEALING IN LOTTERY TICKETS AS ITS BUSINESS ACTIVITY. HE CONTENDED THAT THE RELEVANT PRIZE WINNING TICKETS 1 (PWT-1) WERE RETAINED BY THE STOC KISTS/AGENTS AND, THEREFORE, THE AMOUNT IN QUESTION PAID TOWARDS PRIZ E MONEY ON SUCH TICKETS WAS PAYABLE TO THE STOCKISTS/AGENTS WHICH W AS CLEARLY IN THE NATURE OF INCENTIVE GIVEN TO THEM TO BOOST THE SALE AS RIGHTLY HELD BY THE LD. PR. CIT. HE CONTENDED THAT THE ASSESSEE, THEREF ORE, WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID AMOUNT AS PER SECTION 1 94G AND THE FAILURE OF THE ASSESSEE TO DO SO WARRANTED A DISALLOWANCE UNDE R SECTION 40(A)(IA). HE CONTENDED THAT THE ASSESSMENT ORDER PASSED BY TH E ASSESSING OFFICER UNDER SECTION 143(3)/144 WITHOUT MAKING THE SAID DI SALLOWANCE, THEREFORE, WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 27 OF 38 REVENUE AND THE LD. PR. CIT WAS FULLY JUSTIFIED TO REVISE THE SAME BY EXERCISING THE POWERS CONFERRED UPON HIM UNDER SECT ION 263. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) AS WE LL AS THE LD. CIT IN HIS IMPUGNED ORDER PASSED UNDER SECTION 263 HAS LEV ELLED ALLEGATION AGAINST THE ASSESSEE OF HAVING MASTER MINDED A COMP LEX TAX EVASION NETWORK THROUGH A WEB OF TRANSACTIONS ROUTED THROUG H BOGUS/PAPER/FRONT ENTITIES CREATED TO DISTANCE ACTUAL PROFITS FROM TH E LOTTERY BUSINESS AND THEREBY INDULGED IN CONCEALMENT OF INCOME ON THE BA SIS OF ADVERSE FINDINGS OF SURVEY, ENQUIRIES MADE INDEPENDENTLY, S TATEMENTS OF THE CONCERNED PERSONS RECORDED UNDER SECTION 131 ETC. A ND THE ASSESSEE HAS MADE A DETAILED SUBMISSION AT THE TIME OF ASSESSMEN T PROCEEDINGS BEFORE THE ASSESSING OFFICER AS WELL AS DURING THE COURSE OF PROCEEDINGS UNDER SECTION 263 BEFORE THE LD. CIT AND HAS ALSO FILED A WRITTEN SUBMISSION BEFORE US IN ORDER TO DISLODGE THE SAID ALLEGATIONS , IT IS OBSERVED THAT THE ISSUE THAT REQUIRES OUR CONSIDERATION AND DECISION IN ORDER TO DISPOSE OF THE PRESENT APPEAL LIES IN A NARROW COMPASS. THE LI MITED ISSUE THAT IS REQUIRED TO BE CONSIDERED AND DECIDED BY US AS INVO LVED IN THE PRESENT APPEAL IS WHETHER THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THE AMOUNT IN QUESTION DISBURSED AS PRIZE MONIES ON LOT TERY TICKETS UNDER SECTION 194G AND IF THE ANSWER TO THIS QUESTION IS AFFIRMATIVE, WHETHER THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SEC TION 143(3) WITHOUT MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) ON ACCO UNT OF ASSESSEES FAILURE TO DEDUCT TAX AT SOURCE UNDER SECTION 194G COULD BE SAID TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE CALLING FOR REVISION UNDER SECTION 263 BY THE LD. CIT. IN SUPPO RT OF THE ASSESSEES CASE ON THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSE E HAS RAISED VARIOUS CONTENTIONS AT THE TIME OF HEARING BEFORE US. ONE O F THE CONTENTIONS RAISED BY HIM IS THAT THE AMOUNT IN QUESTION DISBUR SED AS PRIZE MONIES ON LOTTERY TICKETS NOT BEING IN THE NATURE OF COMMISSI ON AS DEFINED IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H, THE PROVISI ONS OF SECTION 40(A)(IA) I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 28 OF 38 READ WITH SECTION 194G ARE NOT APPLICABLE. IN ORDER TO APPRECIATE THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE, IT IS RELEVANT TO REFER TO THE RELEVANT PROVISION OF SECTION 40(A)(IA) AND SECTION 194G, WHICH ARE EXTRACTED BELOW:- SECTION 40(A)(IA) [ ANY INTEREST, COMMISSION OR BROKERAGE, [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RE SIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY W ORK)], ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIF IED IN SUB-SECTION (1) OF SECTION 139 :] [PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TA X HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PR EVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 13 9, [THIRTY PER CENT OF] SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME O F THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID :] [PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO D EDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XV II-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-C LAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO.] SECTION 194G. ANY PERSON WHO IS RESPONSIBLE FOR PAYING, ON OR AFT ER THE 1ST DAY OF OCTOBER, 1991 TO ANY PERSON, WHO IS OR HAS BEEN STOCK ING, DISTRIBUTING, PURCHASING OR SELLING LOTTERY TICKETS, ANY INCOME BY WAY OF COMMISSION, REMUNERATION OR PRIZE (BY WHATEVER NAME CALLED) ON SUCH TICKETS IN AN AMOU NT EXCEEDING ONE THOUSAND RUPEES SHALL, AT THE TIME OF CREDIT OF SUCH IN COME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME IN CAS H OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, D EDUCT INCOME-TAX THEREON AT THE RATE OF TEN PER CENT. (2) 5 [***] (3) 5 [***] EXPLANATION.FOR THE PURPOSES OF THIS SECTION, WHERE A NY INCOME IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE A ND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY.] 22. A COMBINED READING OF THE PROVISIONS OF SECTION 40(A)(IA) AND 194G (EMPHASIS SUPPLIED IN BOLD LETTERS) MAKES IT ABUNDA NTLY CLEAR THAT DISALLOWANCE UNDER SECTION 40(A)(IA) IS LIABLE TO B E MADE ON ACCOUNT OF COMMISSION PAYABLE BY ANY PERSON TO ANY OTHER PERSO N, WHO IS OR HAS I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 29 OF 38 BEEN STOCKING, DISTRIBUTING, PURCHASING OR SELLING LOTTERY TICKETS AND THE SAID DISALLOWANCE THUS IS RESTRICTED TO INCOME OF T HE PAYEE OF THE NATURE OF COMMISSION ON THE SALE OF LOTTERY TICKETS. AS PR OVIDED IN CLAUSE (I) OF EXPLANATION TO SECTION 40(A)(IA), THE TERM COMMISS ION OR BROKERAGE SHALL HAVE THE SAME MEANING AS IN CLAUSE (I) OF EXP LANATION TO SECTION 194H. THE SAID TERM IS DEFINED IN CLAUSE (I) OF EXP LANATION TO SECTION 194H AS UNDER:- THE TERM COMMISSION OR BROKERAGE FOR THE PURPOSE OF SECTION 40(A)(IA) THUS IS DEFINED TO INCLUDE ANY PA YMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED OR FOR ANY SERVICES IN THE COURSE OF BUYIN G OR SELLING OF GOODS. (EMPHASIS SUPPLIED IN BOLD LETTE RS) 23. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, THE AMOUNT IN QUESTION CAN BE CONSIDERED AS IN THE NATURE OF C OMMISSION FOR THE PURPOSE OF SECTION 40(A)(IA) READ WITH SECTION 194G ONLY IF THE SAME REPRESENTS PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR ANY S ERVICES RENDERED, INTER ALIA, IN THE COURSE OF BUYING OR SELLING OF GOODS. IN SHORT, EVEN IF THE AMOUNT IN QUESTION IS IN THE NATURE OF INCOME BY WA Y OF REMUNERATION OR PRIZE ON LOTTERY TICKETS AND THE PERSON, WHO IS RES PONSIBLE FOR PAYING TO ANY PERSON, WHO IS OR HAS BEEN STOCKING, DISTRIBUTI NG, PURCHASING OR SELLING LOTTERY TICKETS, SUCH INCOME BY WAY OF REMU NERATION OR PRIZE FAILS TO DEDUCT TAX AT SOURCE, THE PROVISION OF SECTION 4 0(A)(IA) CANNOT BE INVOKED TO MAKE A DISALLOWANCE ON ACCOUNT OF SUCH R EMUNERATION OR PRIZE AND THE SAID PROVISION WOULD GET ATTRACTED ONLY WHE N THE AMOUNT IS IN THE NATURE OF COMMISSION AS DEFINED IN CLAUSE (I) OF EX PLANATION TO SECTION 194H. AS ALREADY NOTED, THE TERM COMMISSION AS DE FINED IN CLAUSE (I) OF EXPLANATION 194H INCLUDES ANY PAYMENT RECEIVED OR R ECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOT HER PERSON FOR SERVICES RENDERED, INTER ALIA, FOR THE PURPOSE OF BUYING OR SELLING OF GOODS AND AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESS EE, THERE HAS TO BE A I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 30 OF 38 RELATIONSHIP OF PRINCIPAL-AGENT BETWEEN THE CONCERN ED TWO PERSONS IN ORDER TO SAY THAT THE PAYMENT RECEIVED OR RECEIVABL E BY ONE PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR THE SERVICES RENDER ED IS IN THE NATURE OF COMMISSION. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF SIKKIM IN THE CASE OF M/S. FUTURE GAMING & HOTEL SERVICES PVT. LIMITED VS.- U NION OF INDIA RENDERED ON 24.01.2015 IN W.P.(C) NO. 39 OF 2015. I N THE SAID CASE, THE PETITIONER WAS ENGAGED IN THE BUSINESS OF SALE OF P APER LOTTERY TICKETS AND HAD PROCURED, DURING THE COURSE OF SAID BUSINESS, T HE LOTTERY TICKETS IN BULK FROM THE GOVERNMENT AND RESOLD THE SAME TO THE PUBLIC AT LARGE THROUGH VARIOUS AGENTS, STOCKISTS, RE-SELLERS, ETC. THE ISSUE THAT AROSE FOR THE CONSIDERATION OF HONBLE HIGH COURT OF SIKKIM W AS WHETHER THE PETITIONER WAS LIABLE TO PAY SERVICE TAX. IN THIS C ONTEXT, HONBLE HIGH COURT OF SIKKIM EXAMINED THE RELATIONSHIP BETWEEN T HE CONCERNED PARTIES IN THE LIGHT OF THE AGREEMENT ENTERED INTO BETWEEN THEM AND AFTER REFERRING TO THE RELEVANT TERMS AND CONDITIONS OF T HE SAID AGREEMENT, THE SUMS AND SUBSTANCE OF WHICH IS SIMILAR TO THE AGREE MENT ENTERED INTO BY THE ASSESSEE IN THE PRESENT CASE WITH ITS STOCKISTS (SAMPLE COPY AVAILABLE AT PAGE 129 TO 137 OF THE PAPER BOOK), IT WAS HELD BY THEIR LORDSHIPS THAT THE ACTIVITY OF THE PETITIONER COMPRISING OF PROMOT ION, ORGANISING, RESELLING OR IN ANY OTHER MANNER ASSISTING OR ARRAN GING THE LOTTERY TICKETS OF THE STATE, DID NOT ESTABLISH THE RELATIONSHIP OF PRINCIPAL AND AGENT BUT IT WAS RATHER THAT OF A BUYER AND A SELLER ON PRINC IPAL TO PRINCIPAL BASIS IN VIEW OF THE NATURE OF THE TRANSACTIONS BEING BULK P URCHASE OF THE LOTTERY TICKETS BY THE PETITIONERS FROM THE STATE GOVERNMEN T ON FULL PAYMENT OF PRICE AS A NATURAL BUSINESS TRANSACTION AS WELL AS OTHER RELATED FEATURES AND THERE BEING NO PRIVITY OF CONTRACT BETWEEN THE STATE GOVERNMENT AND THE STOCKISTS, AGENTS, RESELLERS, ETC. UNDER THE PE TITIONERS. 24. AS PER THE TERMS AND CONDITIONS OF THE AGREEMEN TS ENTERED INTO BETWEEN THE ASSESSEE AND ITS STOCKISTS (COPY OF STO CKIST AGREEMENT PLACED AT PAGES 129 TO 137 OF THE PAPER BOOK), THE ASSESSE E-FIRM AND THE STOCKISTS WERE ACTING ON PRINCIPAL TO PRINCIPAL BAS IS, INASMUCH AS, THE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 31 OF 38 STOCKISTS WERE FREE TO ACT IN THEIR CAPACITY AND ON CE THE LOTTERY TICKETS WERE SOLD TO THEM, SUCH LOTTERY TICKETS STOOD TRANS FERRED TO THE STOCKISTS. THE STOCKISTS WERE MAINLY CONCERNED WITH THEIR SHAR ES ON SALE OF LOTTERY TICKETS AND THEY WERE NOT ENTITLED TO RECEIVE ANY C OMMISSION ON SALE OF LOTTERY TICKETS FROM THE ASSESSEE. THEY WERE FREE T O SALE THE LOTTERY TICKETS TO ANY SUB-STOCKISTS OR RETAILERS AT THE SE LF DETERMINED PRICES AS PER THEIR FREE WILL AND THE CONTRACT BETWEEN THE AS SESSEE AND THE STOCKISTS WAS THAT OF PURCHASE AND SALE OF LOTTERY TICKETS AND NOT THAT OF RENDERING SERVICES ON COMMISSION. IN THE MATTER OF LOTTERY BUSINESS AS GOVERNED BY THE RELEVANT AGREEMENTS, THE STOCKISTS WERE TO ACT ON THEIR OWN AND NOT FOR OR ON BEHALF OF THE ASSESSEE. THE R ELATIONSHIP BETWEEN THE ASSESSEE AND THE STOCKISTS THUS WAS THAT OF PRI NCIPAL TO PRINCIPAL AND THERE BEING NO PRINCIPAL AGENT RELATIONSHIP BETWE EN THEM AS HELD BY THE HONBLE HIGH COURT OF SIKKIM IN THE CASE OF FUTURE GAMING AND HOTEL SERVICES PVT. LIMITED (SUPRA), WE AGREE WITH THE CO NTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT IN QUESTIO N WAS NOT IN THE NATURE OF COMMISSION AS DEFINED IN CLAUSE (I) OF EX PLANATION TO SECTION 194H SO AS TO ATTRACT THE PROVISION OF SECTION 40(A )(IA) READ WITH SECTION 194G. IN OUR OPINION, THE AMOUNT IN QUESTION REPRES ENTING THE DISBURSAL OF PRIZE MONIES ON LOTTERY TICKETS THUS WAS NOT LIA BLE TO BE DISALLOWED UNDER SECTION 40(A)(IA) IN THE FACTS AND CIRCUMSTA NCES OF THE CASE AND THERE WAS NO ERROR IN THE ORDER OF THE ASSESSING OF FICER NOT MAKING SUCH DISALLOWANCE AS ALLEGED BY THE LD. CIT JUSTIFYING R EVISION UNDER SECTION 263. 25. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RAISE D A PLEA THAT EVEN IF IT IS ASSUMED FOR THE SAKE OF ARGUMENT, THAT THE ASSES SEE WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THE AMOUNT IN QUESTION DI SBURSED AS PRIZE MONIES ON LOTTERY TICKETS UNDER SECTION 194G, NO DI SALLOWANCE UNDER SECTION 40(A)(IA) COULD BE MADE FOR THE FAILURE OF THE ASSESSEE TO DO SO IN THE ASSESSMENT COMPLETED BY THE ASSESSING OFFICER U NDER SECTION 143(3)/144 SINCE THE BOOKS OF ACCOUNT OF THE ASSESS EE WERE REJECTED BY HIM BY INVOKING THE PROVISION OF SECTION 145(3) AND THE INCOME OF THE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 32 OF 38 ASSESSEE FROM LOTTERY BUSINESS WAS DETERMINED ON ES TIMATED BASIS. IN SUPPORT OF THIS CONTENTION, HE HAS RELIED ON THE DE CISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI ARUN BHO WMIK VS.- DCIT (ITA NO. 767/KOL/2013 DATED 13.03.2014), WHICH HAS BEEN SUBSEQUENTLY AFFIRMED BY THE HONBLE CALCUTTA HIGH COURT. IN THE SAID CASE, THE BOOK RESULTS DECLARED BY THE ASSESSEE WERE REJECTED BY T HE ASSESSING OFFICER AND THE INCOME OF THE ASSESSEE WAS ESTIMATED BY APP LYING NET PROFIT RATE. THE INCOME SO ESTIMATED WAS FURTHER ENHANCED BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE MADE UNDER SECTION 40(A)(IA) FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT O F HIRE CHARGES, TRANSPORTATION CHARGES AND SLURRY REMOVABLE CHARGES . ON CONFIRMATION OF THE SAID DISALLOWANCE BY THE LD. CIT(APPEALS), AN A PPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE TRIBUNAL AND THE TRIBUNAL V IDE ITS ORDER DATED 13.03.2014 (SUPRA) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 40(A)( IA) FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5 OF ITS ORDER:- 5. WE FIND THAT THERE IS NO DISPUTE THAT THERE AR E NO BOOKS OF ACCOUNT AS THE ASSESSEE FAILED TO PRODUCE THE SAME. IT IS A LSO AN ADMITTED POSITION THAT ASSESSEE HAS ACCEPTED THE APPLICATION OF NET P ROFIT RATE @ 8% ON THE GROSS RECEIPTS. THE DISPUTE ONLY IS AS REGARDS TO D ISALLOWANCE ON ACCOUNT OF HIRE CHARGES, TRANSPORTATION CHARGES AND SLURRY REM OVABLE CHARGES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. FURTHER, DISALLOWANCE OF SUPERVISION CHARGES, LABOUR CHARGES , SITE EXPENSES, LOAD TESTING EXPENSES AT 50%. WHETHER THE AO CAN DISALLO W THE EXPENSES WHICH ARE DIRECTLY RELATED TO GROSS RECEIPT OF THE ASSESS EE ON WHICH THE AO HAS ESTIMATED NET PROFIT BY APPLYING THE RATE OF 8%. IT IS A FACT THAT THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNT, IT MEANS THAT TH E AO HAS NOT RELIED ON BOOKS OF ACCOUNT FOR ESTIMATION OF PROFITS. THIS FA CT IS ACCEPTED BY ASSESSEE AS WLL AS BY REVENUE. WE ARE OF THE VIEW THAT ONCE THE NET PROFIT RATE IS ESTIMATED THE AO CANNOT BASE HIS DISALLOWANCE ON TH E SAME BOOKS OF ACCOUNT FOR THE PURPOSE OF DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT OR GENERAL DISALLOWANCES U/S 37 OF THE ACT. THE ESTIMATION MADE BY AO OF NET PROFIT WILL TAKE C ARE OF EVERY ADDITION RELATED TO BUSINESS INCOME OR BUSINESS RECEIPTS AND NO FURTHER DISALLOWANCE CAN BE MADE. WE SEE FORCE IN THE ARGUMENT OF THE AS SESSEE THAT WHEN THE INCOME OF THE ASSESSEE WAS COMPUTED APPLYING GROSS PROFIT RATE AND NO DEDUCTION WAS ALLOWED IN REGARD TO THE EXPENSES CLA IMED BY THE ASSESSEE, THERE WAS NO NEED TO LOOK INTO THE PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT OR SECTION 37 OF THE ACT. ACCORDINGLY, NO DISALLOWA NCE COULD HAVE BEEN MADE IN VIEW OF THE ABOVE FACTS THAT ONCE THE PROFIT IS ESTIMATED BY APPLYING NET PROFIT RATE. ACCORDINGLY, WE DIRECT THE AO TO DELET E THE OTHER DISALLOWANCES AND RESTRICT THE ADDITION BY APPLYING NET PROFIT RA TE @ 8% OF GROSS RECEIPTS. APPEAL OF ASSESSEE IS ALLOWED. I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 33 OF 38 26. AGAINST THE ORDER PASSED BY THE TRIBUNAL IN THE CASE OF SHRI ARUN BHOWMIK (SUPRA), AN APPEAL UNDER SECTION 260A OF TH E ACT WAS FILED BY THE REVENUE BEFORE THE HONBLE CALCUTTA HIGH COURT AND ONE OF THE QUESTIONS RAISED BEFORE THE HONBLE HIGH COURT WAS WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUS TIFIED IN LAW TO DIRECT THAT ONCE PROFIT RATE IS ESTIMATED, FURTHER DISALLO WANCE ON THE SAME BOOKS OF ACCOUNT CANNOT BE MADE IN THE LIGHT OF THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT. THE HONBLE CALCUTTA HIGH CO URT AFTER EXTRACTING PARAGRAPH NO. 5 OF THE TRIBUNALS ORDER IN THEIR JU DGMENT HELD THAT THERE WERE VALID REASONS GIVEN BY THE TRIBUNAL IN SUPPORT OF ITS DECISION TO DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER UNDER SECTION 40(A)(IA) AND DISMISSED THE APPEAL OF THE REVENUE F ILED IN THE CASE OF SHRI ARUN BHOWMIK (SUPRA) HOLDING THAT THE ORDER OF THE TRIBUNAL DID NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THE DECISI ON RENDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SH RI ARUN BHOWMIK HOLDING THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA ) CAN BE MADE SEPARATELY WHEN THE INCOME OF THE ASSESSEE IS DETER MINED ON ESTIMATED BASIS AFTER REJECTION OF BOOKS OF ACCOUNT THUS HAS BEEN AFFIRMED BY THE HONBLE CALCUTTA HIGH COURT AND SINCE THERE IS NO O THER JUDICIAL PRONOUNCEMENTS CITED BY THE LD. D.R. TAKING A DIFFE RENT VIEW, WE FIND THAT THE RATIO OF THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF SHRI ARUN BHOWMIK (SUPRA) IS SQUARELY APPLI CABLE IN THE FACTS OF THE PRESENT CASE. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 )/144 WITHOUT MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) WHEN TH E BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED AND THE INCOME OF THE ASSESSEE WAS DETERMINED ON THE ESTIMATED BASIS WAS NEITHER ERRON EOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AS ALLEGED BY THE LD . CIT AND THE REVISION OF THE SAME BY HIM UNDER SECTION 263 WAS NOT JUSTIFIED . 27. IN THE CASE OF INDWELL CONSTRUCTIONS VS.- CIT [232 ITR 776], A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE HONBLE ANDHRA I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 34 OF 38 PRADESH HIGH COURT. IN THE SAID CASE, THE ASSESSEE- FIRM HAVING CONTRACT BUSINESS IN ENGINEERING WORKS, HAD DECLARED GROSS C ONTRACT RECEIPTS AT RS.27,20,083/- AND THE NET INCOME AT RS.1,24,830/-. THE ASSESSING OFFICER REJECTED THE BOOKS AND APPLYING THE PROVISO TO SECT ION 145, ESTIMATED THE INCOME OF THE ASSESSEE AT RS.2,50,000/-. THEREAFTER THE COMMISSIONER OF INCOME TAX IN EXERCISE OF HIS REVISIONAL POWERS UND ER SECTION 263 DIRECTED THE ASSESSING OFFICER TO MAKE A FURTHER AD DITION OF RS.63,859/- TO THE INCOME OF THE ASSESSEE ESTIMATED BY HIM ON A CCOUNT OF INTEREST AND SALARY PAID TO THE PARTNERS BY APPLYING THE PROVIS IONS OF SECTION 40(B) OF THE ACT. THE TRIBUNAL UPHELD THE ORDER OF THE LD. C OMMISSIONER OF INCOME TAX PASSED UNDER SECTION 263 AND WHEN THE MATTER RE ACHED TO THE HONBLE ANDHRA PRADESH HIGH COURT ON A REFERENCE MADE BY TH E ASSESSEE, THEIR LORDSHIPS REVERSED THE ORDER OF THE TRIBUNAL AND HE LD THAT WHERE THE BOOKS OF ACCOUNT HAD BEEN REJECTED, THE REVENUE COU LD NOT RELY ON THE SAME BOOKS FOR ADDITION OF AN EXTRA ITEM OF EXPENDI TURE. IT WAS NOTED BY THE HONBLE ANDHRA PRADESH HIGH COURT THAT THE PATT ERN OF ASSESSMENT UNDER THE INCOME TAX ACT, 1961, IS GIVEN BY SECTION 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 30 TO 43D OF THE ACT. IT WAS ALSO NOTED THAT SECTION 40 PROVIDES FOR CERT AIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS AR E ALLOWED GENERALLY UNDER OTHER SECTIONS. IT WAS OBSERVED BY THE HONBL E ANDHRA PRADESH HIGH COURT THAT THE COMPUTATION UNDER SECTION 29 IS TO BE MADE UNDER SECTION 145 ON THE BASIS OF THE BOOKS REGULARLY MAI NTAINED BY THE ASSESSEE AND IF THOSE BOOKS ARE NOT CORRECT OR COMP LETE, THE INCOME TAX OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INC OME TO THE BEST OF HIS JUDGMENT. IT WAS HELD THAT WHEN SUCH AN ESTIMATE IS MADE, IT IS IN SUBSTITUTION OF THE INCOME THAT IS COMPUTED UNDER S ECTION 29 AND ALL THE DEDUCTIONS, WHICH ARE REFERRED TO UNDER SECTION 30 TO 43D, ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT INCLUDING THE EMBARGO PLACED IN SECTION 40 WHILE MAKING SUCH AN ESTIMATE. IT WAS HELD THAT IN A CASE WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED BY THE ASSESSING OFFI CER AND THE INCOME OF THE ASSESSEE IS ESTIMATED BY HIM TO THE BEST OF HIS JUDGMENT, THE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 35 OF 38 ASSESSING OFFICER CANNOT MAKE ANY DISALLOWANCE UNDE R SECTION 40 SEPARATELY AS THE SAME IS DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT BY HIM WHILE MAKING SUCH ESTIMATE. IN OUR OPINION, THE RAT IO OF THIS DECISION RENDERED BY THE HONBLE ANDHRA PRADESH HIGH COURT I N THE CASE OF INDWELL CONSTRUCTIONS (SUPRA) IS ALSO SQUARELY APPLICABLE I N THE FACTS OF THE PRESENT CASE AND THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3)/144 WITHOUT MAKING DISALLOWANCE UNDER SECTIO N 40(A)(IA) WHEN THE BOOKS OF THE ASSESSEE WERE REJECTED BY HIM AND THE INCOME WAS DETERMINED ON ESTIMATED BASIS CANNOT BE SAID TO BE ERRONEOUS SO AS TO WARRANT INTERFERENCE BY THE LD. CIT UNDER SECTION 2 63. 28. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RAISE D CERTAIN OTHER CONTENTIONS IN SUPPORT OF THE ASSESSEES CASE THAT THERE BEING NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TA X AT SOURCE FROM THE AMOUNT IN QUESTION REPRESENTING DISBURSAL OF PRIZE MONIES ON LOTTERY TICKETS UNDER SECTION 194G, THE QUESTION OF DISALLO WANCE UNDER SECTION 40(A)(IA) DOES NOT ARISE AND THE ORDER OF THE ASSES SING OFFICER PASSED UNDER SECTION 143(3) NOT MAKING SUCH DISALLOWANCE I S NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE CALL ING FOR REVISION UNDER SECTION 263. THESE CONTENTIONS RAISED BY THE LD. CO UNSEL FOR THE ASSESSEE ARE SUMMARIZED BELOW:- (I) THE AMOUNT IN QUESTION REPRESENTING DISBURSAL O F PRIZE MONIES ON LOTTERY TICKETS WAS PAID BY THE ASSESSEE TO THE STOCKISTS AS REIMBURSEMENT ON BEHALF OF THE ROYAL GOVERNMENT OF BHUTAN AND SINCE THE SAID AMOUNT IN TURN WAS PAID BY THE STOCK ISTS TO THE SUB- STOCKISTS OR RETAILERS, THE SAME DID NOT CONSTITUTE INCOME IN THEIR HANDS AND THERE WAS NO QUESTION OF DEDUCTION OF TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 194G, WHICH ARE APPLI CABLE ONLY IN CASES WHERE THE IMPUGNED PAYMENTS CONSTITUTE INCOME BY WAY OF COMMISSION, REMUNERATION OR PRIZE OF THE PAYEE. (II) THE ASSESSEE CANNOT BE TREATED AS THE PERSON RESPONSIBLE FOR PAYING THE PRIZE MONIES ON LOTTERY TICKETS IN TERM S OF SECTION 204 I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 36 OF 38 READ WITH SECTIONS 194B AND 194G OF THE ACT, AS THE PERSON RESPONSIBLE FOR PAYING PRIZE MONIES EXCEEDING RS.5, 000/- WAS ROYAL GOVERNMENT OF BHUTAN, WHILE THE PERSONS RESPONSIBLE FOR PAYMENT OF PRIZE MONIES UPTO RS.5,000/- WERE THE RETAILERS /SELLERS, WHO HAD ULTIMATELY SOLD THE TICKETS TO THE GENERAL PUBLIC A ND THE QUESTION OF LIABILITY TO DEDUCT TAX UNDER SECTION 194G OR CONSE QUENTIAL DISALLOWANCE UNDER SECTION 40(A)(IA) WOULD NOT ARIS E. (III) THE AMOUNT IN QUESTION WAS NOT IN THE NATURE OF ANY COMMISSION OR REMUNERATION PAID TO THE STOCKISTS BY THE ASSESSEE BUT THE SAME REPRESENTED REIMBURSEMENT OF PRIZES FR OM THE WINNING LOTTERY TICKETS UPTO RS.5,000/-, WHICH WERE PAID BY THE RETAILERS TO THE GENERAL PUBLIC. KEEPING IN VIEW TH IS NATURE OF THE SAID AMOUNT, THE DEDUCTION OF TAX AT SOURCE, IF ANY , WAS REQUIRED TO BE MADE AS PER THE PROVISIONS OF SECTION 194B APPLI CABLE TO PAYMENT OF INCOME BY WAY OF WINNING FROM ANY LOTTER Y, ETC. AND NOT UNDER SECTION 194G AND SINCE THE PROVISIONS OF SECT ION 194B WERE APPLICABLE ONLY WHEN SUCH INCOME EXCEEDED RS.5,000/ -, EVEN THE SAID PROVISIONS WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 29. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY ARGUED THE CASE OF THE ASSESSEE BY RAISI NG THE ABOVE CONTENTIONS AND HAS ALSO EXPLAINED THE ASSESSEES S TAND THEREON BY FILING DETAILED WRITTEN SUBMISSION. HOWEVER, KEEPING IN VI EW THAT WE HAVE ALREADY ACCEPTED THE CASE OF THE ASSESSEE AS MADE O UT BY HIM ON THE BASIS OF TWO MAIN PROPOSITIONS, WHICH ARE DULY SUPPORTED BY THE RELEVANT JUDICIAL PRONOUNCEMENTS ALREADY DISCUSSED IN THE FO REGOING PORTION OF THIS ORDER INCLUDING THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF SHRI ARUN BHOWMIK (SUPRA), WE DO NOT CONSIDER IT NECESSARY OR EXPEDIENT TO DELVE INTO ALL THESE OTHER CONTENTI ONS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEE S CASE. HOWEVER, SUFFICE IT TO SAY THAT ALL THESE CONTENTIONS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE CLEARLY SHOW THAT THE ISSUE INVOLVED IN TH E CASE OF THE ASSESSEE I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 37 OF 38 RELATING TO THE DISALLOWANCE UNDER SECTION 40(A)(IA ) READ WITH SECTION 194G IS HIGHLY DEBATABLE ON WHICH ONE POSSIBLE VIEW WAS TAKEN BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U NDER SECTION 143(3)/144 WHEREIN NO DISALLOWANCE UNDER SECTION 40 (A)(IA) WAS MADE BY HIM. IT IS WELL SETTLED POSITION OF LAW THAT WHE N A POSSIBLE VIEW HAS BEEN TAKEN BY THE ASSESSING OFFICER ON A DEBATABLE ISSUE WHILE COMPLETING THE ASSESSMENT, IT IS NOT PERMISSIBLE TO THE LD. CI T TO SUBSTITUTE HIS OWN VIEW IN PLACE OF SUCH POSSIBLE VIEW TAKEN BY THE AS SESSING OFFICER BY EXERCISING THE POWERS OF REVISION UNDER SECTION 263 . IN THIS CONTEXT, A USEFUL REFERENCE CAN BE MADE TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LIMITED VS.- CIT [243 ITR 83], WHEREIN IT WAS HELD THAT WHEN AN INCOME TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN L OSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFF ICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME TAX OFFICER IS UNSUSTAINAB LE IN LAW. TO THE SIMILAR EFFECT IS THE DECISION OF THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS.- GABRIEL INDIA LIMITED [203 ITR 109], W HEREIN IT WAS HELD THAT SECTION 263 DOES NOT VISUALISE A CASE OF SUBSTITUTI ON OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE ASSESSING OFFICER, WHO PASSED THE ORDER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. EXPLAI NING FURTHER, IT WAS OBSERVED BY THE HONBLE BOMBAY HIGH COURT THAT CASE S MAY BE VISUALISED WHERE THE INCOME TAX OFFICER WHILE MAKING AN ASSESS MENT EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATES HIMSELF. T HE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE ASSESSING OFFICER WAS ON THE LOWER SIDE AND LEF T TO THE COMMISSIONER, HE WOULD HAVE ESTIMATED THE INCOME AT A HIGHER FIGU RE THAN THE ONE DETERMINED BY THE INCOME TAX OFFICER. HOWEVER, THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME AT A HIGHER FIGURE BECAUSE THE INCOME TAX OF FICER HAS EXERCISED I.T.A. NO. 277/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 38 OF 38 THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANC E WITH LAW AND ARRIVED AT A CONCLUSION, WHICH CANNOT BE TERMED TO BE ERRON EOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE C ONCLUSION. 30. HAVING REGARD TO ALL THE FACTS OF THE CASE AND KEEPING IN VIEW THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE ORDER OF THE ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS OR PREJUDICI AL TO THE INTEREST OF THE REVENUE WARRANTING ANY INTERFERENCE BY THE LD. CIT UNDER SECTION 263. THE IMPUGNED ORDER PASSED UNDER SECTION 263 THUS IS NOT SUSTAINABLE EITHER IN LAW OR IN THE FACTS OF THE CASE AND SETTI NG ASIDE THE SAME, WE RESTORE THE ORDER PASSED BY THE ASSESSING OFFICER U NDER SECTION 143(3)/144 OF THE ACT. 31. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 29, 2016 . SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 29 TH DAY OF JULY, 2016 COPIES TO : (1) M/S. FUTURE DISTRIBUTORS, P-46, HIDE ROAD EXTENSION, BRACE BRIDGE, TARATALA, KOLKATA-700 088 (2) PRINCIPAL COMMISSIONER OF INCOME TAX-9, KOLKAT A, AAYAKAR BHAWAN DAKSHIN, GARIAHAT ROAD, KOLKATA (3) JOINT COMMISSIONER OF INCOME TAX, RANGE-53, KOLKATA (4) THE DEPARTMENTAL REPRESENTATIVE (5) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.
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