ACIT, CIR.-26(1), KOLKATA,KOLKATA vs. M/S FUTURE DISTRIBUTORS, KOLKATA

The assessee in the present case is a partnership firm, which carried on the business of buying, selling, trading or otherwise dealing in all 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 the assessee on 27.01.2010, during the course of which certain books 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 lottery tickets was shown by the assessee at Rs.88,00,00,000/- before depreciation and interest and after claiming deduction on account of depreciation and interest, total income of Rs.63,96,81,915/- was declared by the assessee. On the basis of the documents impounded during the course of survey, the evidences collected during the course of assessment proceedings and the statements of the concerned persons recorded under section 131, the Assessing Officer recorded certain adverse findings and observations in the assessment order, which as summarised by the ld. CIT(Appeals) in his impugned order, are as under:- “(1) Vide show cause notice dated 28.02.2013 addressed to Mr. Santiago Martin (reproduced by the AO at page 6 of the assessment order), the AO alleged that Mr. Santiago Martin was the de facto conductor/organizer of Bhutan Lotteries. He had allegedly conducted the entire business operations under the garb of various entities called sole purchaser, wholesaler & main seller to give the impression that they were mere sellers of lottery tickets and not the main conductor of lottery. 2. Mr. S. Martin alongwith his cahoots Sri Vira and Sri Chowrasia had masterminded a complex tax evasion network. The business of selling Bhutan Lottery tickets changed hands every two years from one entity to another without any just cause or reason. This makes reconciliation of balances of different entities a virtual impossibility and gives the assessee a free hand to claim journal entry adjustments whenever caught in a tax bind. (page 2 of the assessment order). 3. Mr. S. Martin had got the printing of Bhutan Paper Lottery done at various printing presses and payments for the entire printing cost of around Rs. 75 crores were allegedly borne by him during the A.V. 2010-11 from account no. 5002 with Bhutan National Bank. The Royal Government of Bhutan had not given a single prize in the entire year while Mr. S. Martin had given prizes of Rs.10.16 crores on behalf of the RGB from the account with the Bhutan National Bank (pages 6 & 7 of the assessment order).

The transportation cost of the tickets were borne by the marketing entities created by Mr. S. Martin viz. M/s. Future Distributors, M.A.V. Associates/ Vira Enterprises, Angilica Distributors, Teesta Distributors (page 7 of the assessment order).

Future Gaming Solutions India Pvt. Ltd. (FGSIPL), the sole purchaser had in its Final Audited Accounts claimed to have purchased Bhutan Lottery Tickets at the discounted price of Rs.2,800 crores and sold the same at Rs. 2814 crores to the wholesalers i.e. at 0.50% higher than its purchase price to sham paper entity and washed its hands of the whole business without accounting for the loss or profit from the same (page 7 of the assessment order).

The agreement between the sole purchaser and wholesaler, whether it is M/s. Pema Lhaden, MAC Solutions Pvt. Ltd., Best & Co. etc., is on net sales basis and further the agreement between the wholesaler and the main seller is also on net sales. Accordingly, the loss from the unsold tickets belongs to the sole purchaser and similarly, the prize winnings from the unsold tickets belong to the sole purchaser. However, FGSIPL, the main purchaser in A.Y. 2010-11 has neither claimed any loss from the unsold tickets of Bhutan Lottery, nor it has shown any income by way of prize winnings from the unsold tickets (page 8 of the assessment order). The addendum to agreement dated 15.05.08 changing the basis of sales between RGB and FGSIPL from 'all sold basis' to 'actual sold basis' is forged and undated reducing its evidentiary value to nil. (page 15 of the assessment order).

The marketing companies i.e. main sellers, adjust the winnings from the unsold tickets against the sales proceeds receivable from the dealers and stockists by claiming to have given prize winnings beyond the 70% declared by the Royal Government of Bhutan. The prize winning tickets declared for each lottery draw at 70% of the gross lottery size are called PWT. These are the actual prize winning amount payable on sold and unsold tickets. However, the marketing entities account for two types of prize winning tickets i.e. PWT & PWT1. Those actually payable to the genuine winners are called PWT and the imaginary winnings of unsold tickets which belong to the Martin group are called PWT1 (page 10 of the assessment order).

Payments Statement Summary (Bill Rate) from 18.01.2010 to 24.01.2010 of all the 122 stockists

In the Audited Accounts of FGSIPL signed by Mr. Martin, the sales shown in the consolidated P&L A/c have a schedule showing state- wise sales of different Lotteries, but no such schedule is given for the purchase of lotteries. This is done allegedly to keep the door open for manipulation of figures from all sold to actual sold and vice versa whenever any of the entities in the chain of lottery business is caught up in tax investigation (page 15 of the Assessment Order).

The Government of Bhutan earns only Rs. 23.60 crores from weekly royalty payments while mere seller of tickets of Mr. S. Martin through his web of entities earns Rs. 178 crores declared profits i.e. Rs. 27 crores in FGSIPL, 100 crores in Future Distributors, Rs. 47 crores in M.A.V Associates, Angilica Distributors, Teesta Distributors and around 4 crores in Pema Lhaden Enterprise (page 17 of the assessment order).

Miss Pema Lhaden is a 20 years old girl. Her signatures in the account opening form do not tally with her other signatures in her agreements with MLAL and Future Distributors. She has not rendered any service at all to the entire chain of lottery selling entities. However, Rs. 104 crores were transferred to her bank account in Axis Bank, Shyambazar, Kolkata, Rs. 66 crores being from Future Distributors. PLE is nothing but a front entity created by the Mr. Martin. The appellant firm did not upload the information pertaining to unsold tickets to PLE (page 17 of the assessment order).

The CBI had conducted inquiries into the entire Bhutan Lottery Affair on the basis of which His Highness, Jigme Khasar Namgyel Wangchuk has banned the same (page 17 of the assessment order).

The assessee could not explain the source of Rs. 4 crores spent in cash in constructing a Bunglow at 121, Jessore Road (page 18 of the assessment order).

From the impounded materials (FDO-1), it was seen that the assessee had funded lakhs of rupees for purchase of personal items from 5 star hotels by Mr. Jagesh Dhamija and his wife and claimed the same as business promotion expenses.

The assessee exchanges its PWT earnings from unsold tickets with cash from the stockists and gives them credit in their accounts as PWT1 plus a few crumps thrown in as credit notes for helping the assessee in evading income tax. The co-operative agreement between the stockists and the appellant firm is mutually rewarding i.e the stockists also gets a chance to pocket part of the cash collected from the Lottery buying public on its onward journey to the coffers of the organizer of the lottery either in cash or by way of credit notes of Rs.1,56,84,015/-. (page 18 of the assessment order).

The assessee has intentionally fabricated its accounts to conceal its income from winnings on unsold tickets.

On the basis of the above adverse findings/observations recorded by him, the Assessing Officer arrived at a conclusion that the business of conducting of lotteries was virtually outsourced 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, Bhutan, the sole purchaser, the wholesaler and the main seller was so arranged on the basis of Bernoullis Theorem that the lottery business conducted by the Group would always give a net profit of 8% to 10% of the total size of lottery tickets. He held that the assessee-firm, however, created a web of transactions routed through bogus/paper/front entities to distance its actual profits from the lottery business of 8% to 10% and master minded a complex tax evasion network. In this regard, the objection raised by the assessee that the Bernoullis Theorem is not applicable in the 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 estimated the income of the assessee by applying the said theorem. Accordingly, the gross profit from the entire business of Bhutan Lotteries was estimated by the Assessing Officer at Rs.400 crore as under:- “Face value of lottery tickets printed and claimed to have been purchased from the Royal Gov t: of Bhlltan-Rs.3,800 crores (Total no. of lottery tickets is also taken as around 3800 as more than 99% of the draws consisted of rupee 1 per ticket.

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 entities amounting to Rs.20 crores were deducted by the Assessing Officer and the net profit from the entire business of Bhutan Lotteries was worked out by him at Rs.270 crores. The net profit of Rs.270 crores so worked out was divided by the Assessing Officer between the assessee-firm and the other distributors in the ratio of their sales and accordingly, the net profit of the assessee from the business of dealing in lottery 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 net profit of Rs.88 crores shown by the assessee in the return of income. After allowing deduction on account of depreciation and interest, the total income of the assessee from the business of dealing in lottery tickets was determined by the Assessing Officer at Rs.1,72,96,81,920/- for the year under consideration in the assessment completed under section 143(3)/144 vide an order dated 22.03.2013 resulting into trading addition of Rs.109 crore.

Against the order passed by the Assessing Officer under section 143(3)/144 of the Act, an appeal was preferred by the assessee before the ld. CIT(Appeals) challenging the trading addition made therein.

After taking into consideration all the submissions made by the assessee as well as by the Assessing Officer in the light of material available on record, the ld. CIT(Appeals) proceeded to consider and decide the issue relating to the trading addition made by the Assessing Officer. In this regard, he recorded his findings in respect of each and every point raised in the assessment order after taking into consideration the comments made by the Assessing Officer and the submissions made on behalf of the assessee. On the basis of the said findings recorded by him, the ld. CIT(Appeals) held that an attempt was made by the Assessing Officer to draw a nexus between S. Martin and the Royal Government of Bhutan for chain of lottery business, but he had failed to make a direct inference to the role of the assessee in this behalf. He observed that there were a number of entities involved in the lottery business like Martin Lottery Agencies Limited, M/s. Pema Lhaden Enterprise, the assessee, various stockists, retailers, etc. which were assigned separate functions in the chain as per the separate agreements and nothing adverse had been pointed out with respect of the returns of the said entities, which were

The ld. CIT(Appeals) further held that there was no material brought on record by the Assessing Officer, which could lead to rejection of books of account of the assessee and estimation of profit as made by the Assessing Officer in the assessment order. Reliance in this regard was placed by the ld. CIT(Appeals) on the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Realest Builders & Services Limited [307 ITR 202], wherein it was held that if the Assessing Officer comes to the conclusion that there is under-estimation of profits, he must give facts and figures in that regard and demonstrate to the Court that the impugned method of accounting adopted by the assessee results in under- estimation of profits and is, therefore, rejected. Reliance was also placed by him on certain other judicial pronouncements wherein it was held that the Assessing Officer while making assessment to the best of his judgment must make it according to the rules and reason, justice and law and the assessment must be legal and regular. It was held that the expression “best judgment assessment” is a faculty to decide matters with wisdom, truth and legality and must have a reasonable nexus to the available material and the circumstances of each case.

The ld. CIT(Appeals) accordingly held that the provisions of section 145(3) of the Act were invoked by the Assessing Officer without placing sufficient evidences and materials on record to substantiate his findings. He held that the rejection of books of account under section 145(3) of the Act by the Assessing Officer thus was neither sustainable on facts nor in law. He consequently deleted the trading addition of Rs.109 crore made by the Assessing Officer to the total income of the assessee and allowed the appeal of the assessee on this issue. Aggrieved by the order of the ld. CIT(Appeals), the revenue has preferred this appeal before the Tribunal.

The ld. D.R. strongly relied on the order of the Assessing Officer in support of the revenue’s case on the issue involved in this appeal. He submitted that specific and material defects were pointed out by the Assessing Officer in the books of account and other records maintained by the assessee and even the other circumstances were also taken note of by him while rejecting the books of account of the assessee. He invited our attention to the adverse findings/observations recorded by the Assessing Officer in this regard in the assessment order as summarized by the ld. CIT(Appeals) in his impugned order and contended that the action of the Assessing Officer in rejecting the books of account of the assessee on the basis of such adverse findings/observations was fully justified. He contended that the ld. CIT(Appeals), however, failed to appreciate the said adverse findings/observations recorded by the Assessing Officer and held the action of the Assessing Officer in rejecting the books of account of the assessee as unjustified on the basis of certain aspects pointed out by the assessee, which were totally irrelevant. He contended that the estimate of the income as made by the Assessing Officer was on sound and convincing basis and without pointing out any specific deficiency in such estimate, the ld. CIT(Appeals) has deleted the entire trading addition made by the Assessing Officer accepting the income declared by the assessee. He urged that the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue thus is liable to

The Id. counsel for the assessee, at the outset, explained the entire modus operandi of the business through which the lottery tickets issued by the Royal Government of Bhutan were distributed. He submitted that the Royal Government of Bhutan had appointed M/s. Martin Lottery Agencies Limited (earlier known as Future Gaming Solutions India Pvt. Limited and now as Future Gaming and Hotel Services Pvt. Limited) as its sole purchaser to sell all types of conventional paper lotteries all over Bhutan and India. The said sole purchaser appointed two wholesalers namely M/s. Megha Distributor for the State of Kerala and M/s. Pema Lhaden Enterprise for Bhutan and West Bengal.' M/s. Pema Lhaden Enterprise, a proprietary concern of Ms. Pema Lhaden of Phuentsholing, appointed the assessee-firm as the main seller of Bhutan Paper Lotteries in the State of West Bengal in terms of agreement dated 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 the said stockists in turn engaged various persons as sub-stockists, who again appointed retailers to sell the lottery tickets. The Id. counsel for the assessee submitted that all these arrangements/agreements between sole purchaser, wholeseller, main seller, stockists, sub-stockists and retailers were on net sale basis or actual sale basis and accordingly the unsold tickets, if any, were required to be returned back for ultimate destruction by the Royal Government of Bhutan. He submitted that the assesse firm thus only dealt with M/s. Pema Lhaden Enterprise (PLE) and stockists and it had no connection either with the sub-stockists and/or with the retailers. He submitted that PLE used to raise weekly bills/invoices 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.

On the basis of the entire modus operandi of Bhutan Lottery chain as explained by him, the ld. Counsel for the assessee pointed out that specific roles were performed by each and every entity involved in the said chain including the assessee. He contended that the Assessing Officer failed to understand and appreciate this modus operandi and rejected the books of account of the assessee and estimated the income of the assessee at higher amount without realizing the limited role specifically played by the assessee in the entire chain of lottery business. He contended that the entire exercise of rejection of books of account of the assessee and estimation of income of the assessee by the Assessing Officer was based on suspicion, surmises, conjectures, assumptions and presumptions and there is hardly any allegation made by the Assessing Officer while rejecting the books of account of the assessee, which is against the assessee per se. He submitted that the said allegations are either against M/s. Martin Lottery Agencies Limited or M/s. Pema Lhaden Enterprise or FGSIPL or even the Royal Government of Bhutan, who are all distinct and separate assessable entities. He contended that the allegations made by the Assessing Officer against them or unfounded doubts regarding the figures depicted by the audited books of account have no relevance or significance whatsoever to the tax assessment of the present assessee and the same, therefore, cannot form the basis of rejection of books of account of the assessee. He contended that the Assessing Officer has failed to pinpoint even a single defect in the books of account of the assessee or in the method of accounting followed by it in order to justify the extreme step of rejection of books of account of the assessee-firm and completion of assessment under section 144 of the Act. He contended that the Assessing Officer has not been able to highlight any particular or definite errors in the figures of purchases, sales, expenses, etc. reflected in the audited books of account of the assessee and in the absence of any corroborative evidence brought on record by him in support of his allegations, the rejection of books of account of the assessee was completely unfounded and unsustainable.

A reference was made by the ld. Counsel for the assessee to the provisions of section 145(3) of the Act to point out that the Assessing Officer is empowered to reject the books of account of the assesse and make a best judgment assessment under section 144 only if he gives a definite finding that the books of account are unreliable, incorrect or incomplete or proper method of accounting or notified accounting standards have not been regularly followed by the assessee. He contended that the books of account of the assessee thus cannot be rejected by the Assessing Officer under section 145(3) of the Act unless he points out specific defects or discrepancies in the accounts of the assessee or in the method of accounting followed by the assessee. He contended that this requisite conditions were not satisfied by the Assessing Officer in the present case and the ld. CIT(Appeals), therefore, was fully justified in holding that the action of the Assessing Officer in rejecting the books of account of the assessee was not correct or sustainable.

The ld. Counsel for the assessee invited our attention to the detailed submissions filed by the assessee during the course of appellate proceedings before the ld. CIT(Appeals) to meet each and every objection raised by the Assessing Officer and allegations made by him. He contended that the said submission filed by the assessee was appreciated by the ld. CIT(Appeals) in the correct perspective while holding that the provisions of section 145(3) were invoked by the Assessing Officer without placing sufficient evidence on record to substantiate his findings/observations. He contended that the ld. CIT(Appeals) accordingly held the rejection of books of account by the Assessing Officer under section 145(3) of the Act and consequent addition of Rs.109 crores made to the income of the assessee on estimation basis under section 144 as unsustainable in law as well as on the facts of the case. He contended that this finding of the ld. CIT(Appeals) having been arrived at after an in-depth analysis of relevant facts and figures on record deserves to be upheld.

The ld. Counsel for the assessee also challenged the estimation of income of the assessee as made by the Assessing Officer under section 144 resulting into the trading addition of Rs.109 crores. He contended that the Assessing Officer tried to estimate the consolidated profit of all the marketing entities in the lottery chain by totally rejecting the corresponding figures of purchases, sales, expenses, etc. as shown in the audited books of account of such entities and replacing them with imaginary figures having no basis whatsoever. He contended that the Assessing Officer failed to appreciate the fact that various entities involved in the lottery chain were all separate and distinct legal entities, which were assessable to tax in different jurisdiction. He contended that the Assessing Officer while making his estimation thus rejected the book results not only of the assessee but also of other entities, which were separately assessed to tax under different jurisdiction. He submitted that the regular assessments in the case of the said entities were duly completed by the concerned Assessing Officer, but the Assessing Officer failed to take note of the same. He also pointed out other defects and deficiencies in the estimate of the income of the assessee as made by the Assessing Officer including the imaginary ratio of 73: 27 adopted by the Assessing Officer while allocating the consolidated net profit to the assessee. He contended that while allocating 73% of the consolidated net profit of lottery business to the assessee, the Assessing Officer completely disregarded the existence of the entities at the upper tier of the lottery chain and included even their income in the hands of the assessee. He contended that no specific comment was offered by the Assessing Officer in respect of these defects and deficiencies pointed out by the assessee and in the remand report submitted to the ld. CIT(Appeals), the Assessing Officer actually suggested the addition under section 40(a)(ia) of the Act to the income as declared by the assessee in the return thereby accepting the defects and deficiencies pointed out by the assessee in the estimate made by him. He submitted that the issue relating to the addition under section 40(a)(ia) has already been

We have considered the rival submissions and also perused the relevant material available on record. It is observed that the books of account of the assessee were rejected by the Assessing Officer on the basis of certain adverse findings/observations recorded in the assessment order and the income of the assessee from the business of purchase and sale of lottery tickets was estimated by him to the best of his judgment resulting into the impugned trading addition. In the appeal filed before the ld. CIT(Appeals), the trading addition made by the Assessing Officer was challenged by the assessee, inter alia, on the ground that the action of the Assessing Officer in rejecting the books of account was totally unfounded and unsustainable as the adverse findings/observations recorded by the Assessing Officer were based on suspicion, surmises, conjectures, assumptions and presumptions. The said adverse findings/observations recorded by the Assessing Officer as summarized by the ld. CIT(Appeals) in his impugned order, are already extracted by us hereinabove. In this regard, a detailed submission was filed by the assessee in writing before the ld. CIT(Appeals) offering its explanation and clarification in respect of each and every adverse findings/observations recorded by the Assessing Officer. The said submission filed by the assessee was forwarded by the ld. CIT(Appeals) to the Assessing Officer along with paper book for the later’s comments. In the remand report submitted to the ld. CIT(Appeals), the Assessing Officer offered his comments and when the same were confronted by the ld. CIT(Appeals) to the assessee, the later offered his counter-comments in the rejoinder. After summarising each of the comments made by the Assessing Officer and the submissions of the assessee in this regard, the ld. CIT(Appeals) recorded his findings in respect of each and every point in his impugned order as under:-

A.O.'s Comment - The business of selling Bhutan Lottery tickets changed hands every two years from one entity to another without any just cause or reason. This makes reconciliation of balances of different entities a virtual

A.O.'s Comment - Mr. S. Martin had got the printing of Bhutan Paper Lottery done at various printing presses and payments for the entire printing cost of around Rs. 75 crores were allegedly borne by him during the A. Y. 2010-11 from account no. 5002 with Bhutan National Bank.

A.O.'s Comment - Future Gaming Solutions India Pvt. Ltd. (FGSIPL) claimed to have purchased Bhutan Lottery Tickets at the discounted price and sold the same to the wholesalers at 0.50 % higher than its purchase price, which are allegedly sham paper entity and washed its hands of the whole business without accounting for the loss or profit from the same.

A.O.'s Comment - FGSIPL, the main purchaser in A. Y. 2010-11 has neither claimed any loss from the unsold tickets of Bhutan Lottery, nor it has shown any income by way of prize winnings from the unsold tickets. The addendum to agreement dated 15.05.08 changing the basis of sales between RGB and FGSIPL from 'all sold basis' to 'actual sold basis' is forged and undated.

A.O.'s Comment - The prize winning tickets declared for each lottery draw at 70% of the gross lottery size are called PWT. These are the actual prize winning amount payable on sold and unsold tickets. However, the marketing entities account for two types of prize winning tickets i.e. PWT & PWT1. Those actually payable to the genuine winners are called PWT and the imaginary winnings of unsold tickets which belong to the Martin group are called PWT1. Appellant's Submission - The average percentage of prize winnings on the MRP of tickets as per the original scheme framed by the RGB for the F. Y. 2009-10 comes to 73.31% as

A.O.'s Comment - Assumptions given by the assessee lead to an impossible situation wherein at times more than 100% of the sales is payable as prize money.

AO.'s Comment - In the Audited Accounts of FGSIPL, the sales shown in the consolidated P&L A/c have a schedule showing state-wise sales of different Lotteries, but no such schedule is given for the purchase of lotteries. This is done allegedly to keep the door open for manipulation of figures from all sold to actual sold and vice versa.

A O.'s Comment - The Government of Bhutan earns only Rs. 23.60 crores from weekly royalty payments while mere seller of tickets through his web of entities earns Rs. 178 crores declared profits i.e. Rs. 27 crores in FGSIPL, 100 crores in Future Distributors, Rs. 47 crores in M.AV Assocites, Angilica Distributors, Teesta Distributors and around 4 crores in Pema Lhaden Enterprise.

A.O.'s Comment - Miss Pema Lhaden's signatures in the account opening form do not tally with her other signatures in her agreements with MLAL and Future Distributors. She has not rendered any service at all to the entire chain of lottery selling entities. However, Rs. 104 crores were transferred to her bank account in Axis Bank, Shyambazar, Kolkata, Rs.66 crores being from Future Distributors. PLE is nothing but a front entity created by the Mr. Martin.

AO.'s Comment - The CBI had conducted inquiries into the entire Bhutan Lottery Affair on the basis of which His Highness, Jigme Khasar Namgyel Wangchuk has banned the same.

AO.'s Comment - The assessee could not explain the source of Rs. 4 crores spent in cash in constructing a Bunglow at 121, Jessore Road. Appellant's Submission - The godowns at 121, Jessore Road is the sole and exclusive property of Mr. Martin. The appellant firm has no right, title and/ or interest in the said property. The source of the said investment is duly disclosed by Mr. Martin in his tax records. Since the appellant- firm is not connected or concerned with the investment in the said property in any manner whatsoever, no adverse inference can be drawn against the appellant firm in this respect.

A O.'s Comment - From the impounded materials, it was seen that the assessee had funded lakhs of rupees for purchase of personal items from 5 star hotels by Mr. Jagesh Dhamija and his wife and claimed the same as business promotion expenses.

A.O.'s Comment - The assessee exchanges its PWT earnings from unsold tickets with cash from the stockists and gives them credit in their accounts as PWT1 plus a few crumps thrown in as credit notes for helping the assessee in evading income tax.

A.O.'s Comment - The assessee has intentionally fabricated its accounts to conceal its income from winnings on unsold tickets.

We have carefully perused the findings recorded by the ld. CIT(Appeals) on each and every relevant aspect of the matter after taking

In the case of CIT –vs.- Realest Builders & Services Limited (supra) relied upon by the ld. CIT(Appeals) in his impugned order, the Hon’ble Supreme Court has held that if the Assessing Officer comes to the conclusion that there is under-estimation of profits, he must give facts and figures in that regard and demonstrate that the impugned method of accounting adopted by the assessee results in under-estimation of profits and is, therefore, liable to be rejected. In the case of CIT –vs.- Paradise Holidays [325 ITR 13 (Del.)] cited by the ld. Counsel for the assessee, the assessee had been maintaining regular books of account, which were duly audited by an independent Chartered Accountant and the financial results were fully supported by the assessee with its books of account and vouchers. In these facts and circumstances of the case, it was held by the Hon’ble Delhi High Court that the accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. It was held that the onus is upon the Assessing Officer to show that either the books of account maintained by the assessee were incorrect or incomplete or method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom. In the present case, this onus was not discharged by the Assessing Officer as rightly found by the ld. CIT(Appeals) while holding that the action of the Assessing Officer in rejecting the books of account of the assessee without placing sufficient material and evidence on record to substantiate his findings was not sustainable.

As rightly contended by the ld. Counsel for the assessee, the action of rejecting the books of account of the assessee was mainly based on the allegations made by the Assessing Officer and that too against the other entities involved in the chain of lottery business and not against the

As regards the estimation of income of the assessee from the lottery business as made by the Assessing Officer, it is observed that the same was done by him supposedly on the basis of Bernoullis Theorem. As submitted on behalf of the assessee before the ld. CIT(Appeals) as well as before the Tribunal, the said Theorem, although a popular one, was not applicable with exact precision in the facts of the assessee’s case and the Assessing Officer had started his calculation of estimated consolidated group income with an imaginary figure of number of lottery tickets purchased from the Royal Government of Bhutan. He also made the estimates by applying incorrect and imaginary ratios to arrive at a totally distorted and baseless figure of the assessee’s estimated income. As submitted on behalf the assessee, the Assessing Officer proceeded to with a pre-conceived notion that Mr. S. Martin was a defacto conductor of Bhutan Paper Lotteries refusing to accept the authenticity and veracity of the duly signed and executed agreement between the Royal Government of Bhutan and the entities of Mr. S. Martin. He also refused to give any

As further submitted on behalf of the assessee before the ld. CIT(Appeals) as well as before us, the Assessing Officer completely failed to appreciate the fact that various marketing entities in the lottery chain were all separate distinct legal entities, which were duly assessed to tax and proceeded to estimate the consolidated profit of all the marketing entities in the lottery chain by totally rejecting their book results and replacing them with imaginary figures having no basis whatsoever. While estimating the consolidated net profit of all the marketing entities in the chain taken together, he did not allow deduction for the purchase consideration paid to the Royal Government of Bhutan from the estimated sale consideration and also assumed prices paid of winning lottery tickets as an expense of the marketing entities instead that of Royal Government of Bhutan, which had actually reimbursed the said expenses to the marketing entities. This consolidated net profit of all the marketing entities taken together as worked out by the Assessing Officer on the basis of imaginary figure was then divided by the Assessing Officer in the ratio of 73:27, i.e. 73% was assessed in the hands of the assessee-firm while the balance 27% was claimed to be belonging to other marketing entities. As submitted on behalf of the assessee, the said ratio had no basis whatsoever and while assessing 73% of the estimated consolidated net profits from sale of lottery tickets all over India and Bhutan to the assessee, the existence of the entities at the upper-tier of the lottery chain was completely ignored by the Assessing Officer and their profit margins were also assumed in the hands of the assessee-firm. As noted by the Assessing Officer himself at page no. 17 of the assessment order, the said marketing entities had disclosed a total profit of about Rs.178 crores in their respective returns of income filed for the assessment year 2010- 11. Moreover, the Assessing Officer assumed the entire estimated profits from sale of lottery tickets all over India and Bhutan in the hands of the assessee-firm and other distributor entities in the ratio of 73:27 ignoring

In the case of Dhakeswari Cotton Mills –vs.- CIT [26 ITR 775] cited by the ld. Counsel for the assessee, it was held by the Hon’ble Supreme Court that while making the best judgment assessment, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. It was held that there must be something more than bare suspicion to support the best judgment assessment. Reiterating this view, it was held by the Hon’ble Supreme Court in the case of State of Kerala –vs.- C. Velukutty [60 ITR 239] that though there is an element of guess-work in a ‘best judgment’ assessment, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case.

If the relevant facts of the present case as discussed above, are considered in the light of the ratio laid down by the Hon’ble Supreme Court in the cases of Dhakeswari Cotton Mills (supra) and State of Kerala –vs.- C. Velukutty (supra), we find merit in the contention of the ld. Counsel for the assessee that the estimate of the income of the assessee from the business of purchase and sale of lottery tickets as made by the Assessing Officer at a completely distorted and imaginary figure on the basis of wild assumptions, surmises and conjectures wi thout bringing on record any cogent evidence in support was unsustainable in law as well as on the facts of the case and the ld. CIT(Appeals), therefore, was fully justified in deleting the trading addition made by the Assessing Officer on the basis of the said estimate. We, therefore, uphold the impugned order

In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on June 22, 2018.