Case Law Details
Emdarapu Kumaraswamy Vs ITO (ITAT Hyderabad)
The Income Tax Appellate Tribunal (ITAT), Hyderabad, considered an appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), for Assessment Year 2022-23. The dispute concerned the addition of Rs.3,54,44,447 as winnings from online games under Section 115BB of the Income Tax Act and the disallowance of Rs.5,71,288 claimed under Chapter VI-A and Section 24(b).
The assessee, an individual, filed a return declaring total income of Rs.15,62,200, comprising salary income and income from other sources. The case was selected for scrutiny through CASS. During assessment, the Assessing Officer (AO) relied on information obtained during a search conducted under Section 132 in the case of M/s. Gameskraft Technology Pvt. Ltd., which indicated that the assessee had won Rs.3,54,44,447 through online gaming. As this amount was not offered to tax, the AO sought an explanation. The assessee contended that he had played online rummy on the platform and had actually incurred a loss of Rs.32,40,810, while the company’s own records reflected a loss of Rs.30,43,537, making the allegation of winnings incorrect.
The AO, however, concluded that the assessee had earned gross winnings of Rs.3,54,44,447 and held that under Section 115BB, gross winnings from games were taxable without allowing any deduction for expenditure. Referring to Section 58(4), which disallows deduction of expenditure against income from games, the AO added the entire amount to the assessee’s income. The AO also disallowed deductions of Rs.5,71,288 claimed under Chapter VI-A and towards loss from house property because the assessee had not furnished supporting evidence during assessment.
Before the Commissioner (Appeals), the assessee reiterated that the company’s own information showed a net loss of Rs.30,43,537, calculated from the total BuyIn amount and gross winnings, as well as from the ledger of payments and withdrawals. The assessee also submitted that an updated return under Section 139(8A) had been filed and corresponding tax had been paid before 31 March 2024, arguing that sustaining the addition would result in double taxation. The Commissioner (Appeals), however, upheld the addition under Section 115BB, observing that for the assessment year in question, the provision taxed gross winnings, while the amendment providing for taxation of net winnings applied only from 1 April 2024. The Commissioner also confirmed the disallowance of deductions because supporting evidence had not been furnished.
Before the Tribunal, the assessee argued that the AO had wrongly treated the amount reported as gross BuyIn as winnings. Referring to the information supplied by the gaming company, the assessee submitted that the total BuyIn amounted to Rs.3,84,87,984, while gross winnings were Rs.3,54,44,447, resulting in a net loss of Rs.30,43,537. The assessee further pointed out that the ledger of payments and withdrawals also demonstrated the same loss. Regarding the second addition, the assessee submitted that although supporting documents had not been filed before the AO, an updated statement of income and proof of tax payment had been furnished, and sustaining the addition would amount to double taxation. The Revenue supported the orders of the lower authorities, while alternatively requesting remand for verification of the second issue.
The Tribunal examined the information furnished by the gaming company and found that it contained two separate categories: one showing the calculation of winnings or loss based on the difference between BuyIn and winnings, and another showing the ledger of payments and receipts. Both categories reflected a loss of Rs.30,43,537. The Tribunal observed that although the information clearly showed a loss, the AO had relied only on the figure of gross winnings without considering the BuyIn amount. It held that the AO had erred in making the addition because the winnings contemplated under Section 115BB should be understood in the context of the actual outcome after considering the amount invested by the assessee. The Tribunal further noted that if the assessee had in fact received winnings, tax would ordinarily have been deducted at source under Section 194B, but no such deduction had been made. It also observed that if the AO had any doubt regarding the figures, further clarification should have been obtained from the gaming company instead of making the addition solely on the basis of the reported gross winnings. Accordingly, the Tribunal set aside the Commissioner (Appeals)’ order on this issue and directed the AO to delete the addition of Rs.3,54,44,447 made under Section 115BB.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 14.07.225, and pertains to assessment year 202223.
2. The brief facts of the case are that the assessee is an individual filed his return of income (RoI) for AY 2022-23 declaring total income of Rs.15,62,200/- which consists of income from salary and ‘income from other sources’. The case was selected for scrutiny through CASS. During the course of assessement proceedings, the AO noticed that as per information received data pertaining players winnings was obtained during the course of search, u/s.132 of the Income Tax Act, 1961 (in short “the Act“) in the case of M/s. Gameskraft Technology Pvt. Ltd. The assessee has won to the tune of Rs.3,54,44,447/- from gaming as a prize. The assessee has won to the tune of Rs.3,54,44,447/- from gaming on portal managed by M/s. Gameskraft Technology Pvt. Ltd. However, it is seen from the RoI filed by the assessee, this income was not offered by the assessee for taxation. Therefore, the AO called upon the assessee to explain ‘as to why’ addition should not be made towards winnings from games u/s.115BB of the Act. In response, the assessee submitted that, he has played ‘Rummy’ through the online website owned by M/s. Gameskraft Technology Pvt. Ltd., and incurred loss of Rs.32,40,810/-. The assessee further submitted that as per the information provided by the company, it shows the assessee has incurred loss of Rs.30,43,537/-. Therefore, he submitted that the allegation of winnings from games of Rs.3,54,44,447/- is incorrect. The AO after taking note of the relevant facts and information received from M/s. Gameskraft Technology Pvt. Ltd., observed that the assessee has earned gross winnings from Rummy for Rs.3,54,44,447/-, however, not offered any income for taxation. The AO further observed that as per provisions of Sec.115BB of the Act, gross winnings from games is taxable without any deduction towards expenditure. The AO had also referred to Section 58(4) of the Act which denies deduction towards any expenditure in connection with income from any games including horse-race. Therefore, made addition of Rs.3,54,44,447/- u/s.115BB of the Act.
3. The AO further noticed that the assessee has claimed deduction under Chapter VI-A and u/s.80C, 80D, 8DD & 80DDB of the Act. The AO called upon the assessee to file relevant details. Since the assessee has not furnished any details, the AO disallowed Rs.5,71,288/- towards deduction claimed under Chapter VI-A and loss claimed from house property and added back to the total income.
4. Aggrieved by the assessement order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee reiterated its submission made before the AO and argued that as per the information provided by the company and considered by the AO, the assessee has incurred loss of Rs.30,43,537/- which is evident from the total amount of BuyIn and gross winnings from the games. This is further supported by total amount paid by the assessee on various dates and amount withdrawn on various dates, where the company has shown loss of Rs.30,43,537/-. Although, the information clearly shows loss from on- line gaming, but the AO has considered gross winnings of Rs.3,54,44,447/- without considering the explanation of the assessee. The assessee further submitted that in respect of addition made towards disallowance of Chapter VI-A and addition under the head ‘income from house property’, the assessee had filed updated return u/s.139(8A) and paid corresponding tax u/s.144B on or before 31.03.2024. Therefore, submitted that the additions made by the AO should be deleted otherwise it will be double addition.
5. The Ld.CIT(A) after considering relevant facts and also taking note of reasons given by the AO for making addition towards winnings from games u/s.115BB of the Act observed that, as per provisions of Sec.115BB of the Act only gross winnings from any game including online game is taxable. Although, a new Section 115BB of the Act, inserted from 01.04.2024 allows taxation on net winnings from online games from specific assessement year. However, amended provision is not applicable to the assessee for the year under consideration. Therefore, rejected the explanation of the assessee and sustained the additions made by the AO u/s.115BB of the Act. The Ld.CIT(A) had also confirmed the additions made by the AO towards disallowance of deduction claimed under Chapter VI-A for Rs.5,71,288/- on the ground that the assessee fails to submit details in support of the deduction.
6. Aggrieved by the order of the Ld.CIT(A), the assessee is now in appeal before this Tribunal.
7. The Ld. Counsel for the assessee, Mr. Suresh Velugula, CA, submitted that the Ld.CIT(A) erred in sustaining the addition of Rs.3,54,44,447/- towards winnings form online games u/s.115BB of the Act without appreciating the fact that amount considered by the AO represents gross BuyIn reported by the gaming platform and not actual winnings. The Ld. Counsel for the assessee further referring to the information submitted by the company which is available in assessement order submitted that, as per the information, it is clearly shows that the assessee has incurred loss of Rs.30,43,537/- which is evident from the total BuyIn and gross winnings. The AO without considering the relevant facts has considered the aggregating of gross BuyIn and winnings and made addition of Rs.3,54,44,447/-. Therefore, the AO should have considered the difference between the total BuyIn of Rs.3,84,87,984/-minus gross winnings of Rs.3,54,44,447/- and the result of difference is loss of Rs.30,43,537/-. This is Further supported by total payments by the assessee and total withdrawal on various dates and the result of which is net loss of Rs.30,43,537/-. Although the information clearly shows that the assessee incurred loss, the AO made additions towards gross winnings by considering only total BuyIn which resulted in erroneous additions of Rs.3,54,44,447/- made by the AO. Therefore, he submitted that the additions made by the AO should be deleted.
8. The Ld. Counsel for the assessee further referring to addition of Rs.5,71,288/- towards disallowance of deduction under Chapter VI-A submitted that no doubt the assessee couldn’t file relevant details before the AO. But, fact remains that the assessee has furnished updated statement of total income and also paid tax as per Section 144B of the Act and further, details has been furnished to the Ld.CIT(A) along with challan. However, the Ld.CIT(A) has not considered evidences and sustained the additions made by the AO. Since the assessee has already paid tax on Rs.5,71,288/-, further addition towards very same amount is double addition which is not permissible under the Law and therefore, he submitted that the additions made by the AO should be deleted.
9. The Ld.SR-AR for Revenue, on the other hand, supporting the order of the Ld.CIT(A) submitted that as per the information furnished by M/s. Gameskraft Technology Pvt. Ltd., the assessee has gross winnings of Rs.3,54,44,447/-. As per Sec u/s.115BB of the Act, which deals with taxation of gross winnings from any game including online games. Section 58(4) of the Act doesn’t allow any deduction towards expenditure against winnings from games. The AO after considering relevant facts has rightly taxed gross winnings from online games. The Ld.CIT(A) after considering relevant facts has rightly sustained the additions made by the AO, therefore, he submitted that the additions made by the AO should be deleted.
10. In so far as addition of Rs.5,71,288/- towards deduction claimed under Chapter VI-A and loss from house property, the assessee could not substantiate the claim with relevant evidence. Further, although, the assessee claims to have filed updated, statement of total income but has not filed RoI u/s.139(8A) of the Act and also not paid taxes before the date of the assessement. Further, these details have not been furnished before the Ld.CIT(A). In the absence of relevant details, the Ld.CIT(A) sustained the additions made by the AO. Therefore, he submitted that the additions made by the AO should be upheld or in the alternative, the matter may be remitted back to the file of the AO for verification and to decide the issue as per law.
11. We have heard both the parties, perused the materials available on record and had gone through orders of the authorities below. The AO made addition of Rs.3,54,44,447/- towards winnings from online games platform owned by M/s. Gameskraft Technology Pvt. Ltd. According to the AO, as per u/s.115BB of the Act, gross winnings of any games is taxable without allowing any deduction towards expenditure. The AO further noted that Section 58(4) doesn’t allow deduction towards any expenditure. Therefore, the AO taxed gross winnings reported by the online platform for Rs.3,54,44,447/- and brought to tax u/s.115BB of the Act. We have gone through the relevant information furnished by the company which is available in Page No.5 of the assessement order. The company has submitted details of transactions of the assessee in two categories, i.e., one under the category calculation of winning/loss [difference between BuyIn & winning] and second category, the total payment and receipts by the assessee. As per calculations of winnings/loss, the company has reported loss of Rs.30,43,537/-. This has been further reiterated in the category of ledger accounts of the assessee for payment made for the year and amount received for the year which also shows loss incurred for Rs.30,43,537/-. From the details submitted by the company and considered by the AO, it is abundantly clear that the assessee has incurred loss of Rs.30,43,537/- for the year under consideration. Although, the information is very clear that the assessee has incurred loss but the AO has considered the gross winnings reported by the company for Rs.3,54,44,447/- without considering the amount of BuyIn at Rs.3,84,87,984/- and the net loss of Rs.30,43,537/-. In our considered view, the AO is completely erred in making additions, because, difference between the initial amount paid by the assessee or invested in the game and the gross winning represents the amount of money won by the assessee. The winnings from any games referred to u/s.115BB of the Act should be understood in the context of net winnings from any game by the assessee which is nothing but total amount paid by the assessee minus gross winnings and the result of which is positive, then it means that the assessee has gross winnings and difference of which is negative, the assessee has incurred loss. In the present case, the details submitted by the company clearly show that the assessee has incurred loss of Rs.30,43,537/-. This is further fortified from the fact that, if at all the assessee has any winnings from online games, then the company should have deducted TDS u/s.194B of the Act. But, fact remains that there is no TDS deduction on gross winnings from M/s. Gameskraft Technology Pvt. Ltd. Therefore, from the above facts, it is clear that the assessee has incurred loss of Rs.30,43,537/-, whereas the AO has erroneously considered gross winnings of Rs.3,54,44,447/- and made addition u/s.115BB of the Act. Further, if at all the AO was not clear about amount of gross winnings, then he should have obtained information from the company with regard to winnings/loss if any for the year under consideration. But, the AO has not obtained any information from the company and blindly made addition by taking into account gross winnings without considering the initial amount paid by the assessee. Therefore, we are of the considered view that, the AO is erred in making addition of Rs.3,54,44,447/- towards gross winnings form online games u/s.115BB of the Act. The Ld.CIT(A) without considering relevant facts, simply
sustained the additions made by the AO. Therefore, we set aside the order of the Ld.CIT(A) and direct the AO to delete the addition of Rs.3,54,44,447/- made u/s.115BB of the Act.
12. Coming back to second addition of Rs.5,71,288/- towards disallowance of deduction under Chapter VI-A and loss from house property u/s.24(b) of the Act. The AO disallowed Rs.5,71,288/- when the assessee has not filed any supporting evidences for deduction under Chapter VI-A and deduction u/s.24(b) of the Act. It was submission of the Ld. Counsel for the assessee that the assessee has filed a revised statement of total income as required u/s.138(8A) and also paid tax of Rs.1,71,488/- u/s.140B of the Act on the total amount of deduction claimed under Chapter VI-A and u/s.24(b) of the Act. However, couldn’t file the belated return due to on going scrutiny. The assessee has furnished relevant statement of total income along with challan which is available in Paper Book Page Nos.47-53. From the details filed by the assessee, it appears that the assessee has considered the amount of Rs.5,71,288/- in the statement of total income prepared u/s.139(8A) of the Act and also paid tax as per Sec.140B of the Act. However, fact remains that these evidences were not filed before the AO. Since the assessee has filed these evidences for the first time before the Tribunal and claimed that the tax relating to disallowance of Rs.5,71,288/- made by the AO is already paid, in our considered view, the issue needs to be set aside to the file of the AO for verification. Thus, we set aside the order of the Ld.CIT(A) on this issue and restore the issue back to the file of the AO. The AO is directed to verify the claim of the assessee in light of revised statement of total income filed as per Section 139(8A) of the Act along with tax paid u/s.140B of the Act in light of challan filed by the assessee. In case, the assessee has discharged tax liability as claimed, then the AO is directed to delete the addition towards deduction claimed under Chapter VI-A and u/s.24(b) of the Act.
13. In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 24th day of June, 2026, in Hyderabad.
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