CIT Vs. SAI DISTRIBUTORS

JUDGEMENT

(1.) THE revenue appeals against the decision of the Income Tax Appellate Tribunal (ITAT) in ITA No.4594/Del./2009 dated 21.01.2011. The question of law sought to be urged is whether the impugned order is in error in affirming the CIT (Appeals) determination that the sum of Rs. 1,42,09,820/- was wrongly disallowed by the Assessing Officer.

(2.) THE assessment year in question is 2006-07; the respondent assessee firm is a sole selling agent of lotteries for certain stockists of State lotteries, and has arrangements with sub-agents, under which the latter (i.e. the sub-agents) operate terminals at kiosks and sell lottery tickets. The AO noticed that the balance sheet filed by the assessee with the return of income for the assessment year in question reflected a credit entry of Rs. 1,42,09,820/-, with a remark "Prize Winning Tickets ("PWT") payable". The assessee, upon being queried, responded stating that it had already received PWT worth Rs. 1,36,77,950 from selling agents during the year and this amount had been reflected in the balance sheet, as PWT in hand; that consequently, both figures, i.e. the Contribution towards Prize Fund (,,CPF) payable and the CPF receivable/received were duly reflected in its balance sheet. It was urged that the account up to 1.1.06 had already been settled during the year. The assessee, however, stated that the balance CPF account of Rs. 1,42,09,820/- was settled in the next year. It contended that the details of purchase of tickets from M/s Valuable Reserves (I) Pvt. Ltd. were being filed. These tickets were for the period from 02.01.2006 to 31.03.2006 during which CPF amounted to Rs. 1,42,09,820/- and Contribution towards Participation in Draw (,,CPD) was of Rs. 5,80,785.83. Copies of four purchase bills from M/s Valuable Reserves (I) Pvt. Ltd. confirming these facts were also filed. Besides these, a copy of balance confirmation of CPF amount of Rs. 1,42,12,620/- of M/s Valuable Reserves (I) Pvt. Ltd. and a copy of accounts of M/s Valuable Reserves (I) Pvt. Ltd. for the period from 01.04.2006 to 31.3.2007, (confirming the receipt of Prize Winning Tickets amounting to Rs. 1,42,09,820 on 01.04.2006), were also furnished.

(3.) COUNSEL for the assessee argued that the impugned order should not be interfered with. It was urged that the assessee is only a sole selling agent; and the actual sale of lottery tickets and lottery prize distribution is done by sub-agents who are responsible for distribution of profits. These sub-agents credit the assessee with amounts of PWT payable; the assessee passes similar entries in respect of such PWT amounts payable to its stockist. Eventually the stockist, makes a similar entry to square up accounts with the Government in the State Lotteries Department. It is argued further that transactions take place on a day-to-day basis and it is on the next day that the credit entry in respect of PWT payable is squared up when a debit entry is passed. Counsel submitted that PWT amounting to Rs.1,36,77,950/- had already been received by the assessee against the PWT payable of Rs.1,42,12,620/- as on 31.3.06. This amount was shown as PWT in hand as on 31.3.2006; and the balance amount of Rs. 5,34,670 was duly squared up on the next day, i.e., 01.04.2006. Consequently there was no need for any cash payment.