So I recently had the pleasure of opening two FL350 gear boxes. Played around with it for a little to figure out how the gear selector worked and such.

The first one had some gouges in the case & upon further inspection I noticed hairline cracks on the outside of the case. I assumed it was rebuilt at some point because original gasket was gone. I inspected all the gears and bearings / needle bearings and they all looked good.

While the second one was not as bad as the first, it did show signs of wear in the same spot. Again, I inspected all the gears and bearings / needle bearings and they all looked good.

What is the culprit of this?

Yes sir ---- I bet the previous owner blew an AB gear bearing.
If you look at the pics of a gearbox that came with a parts stash that I got a few years ago, you will see some scratches on the case similar to yours but not as deep.
The gearbox I got was destroyed. Many of the gears were chipped and damaged as well as the AB shaft.
This gearbox was together when I got it and I was the one who took it apart.