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Introduction: In today’s digital age, the allure of online gaming and investment avenues like the stock market has captured the attention of many, especially youngsters. While some may find success in these endeavors, a significant portion faces financial losses. Moreover, with the increasing scrutiny by income tax authorities, individuals engaging in online gaming activities may find themselves in legal trouble, as illustrated by the case of Mr. A.

Dear friends, now a day, youngsters are trying to make their career in Stock Market and online gaming. Even some of them are able to generate good income; however, most of them are losing their hard earned money in these segments. Along with losing money, now they are feeling the heat of notices from income tax department, due to none reporting of these transactions in their ITR or wrong reporting of these transactions while filing ITR. Now, peoples are taking help of youtube while filing ITR where wrong or half information is provided. Later they received notices from department and invite huge income tax demands order from department. In today’s blog, we will discuss about a real story based on above facts.

Mr. A is salaried employee, making investments in mutual funds and playing online games through different apps. He filed his ITR with the help of Youtube and claimed refund of paid taxes and fails to report mutual fund and online games related transaction in his ITR. His ITR is processed and refund is credited in his bank account. Later, his ITR is selected for Limited Scrutiny U/s 143(2) of the Income Tax Act, 1961 due to misreporting of transaction as reported in ITR and information available with department.

Mr. A starts responding to notices received from department by himself with half information gathered from different sources like Youtube, Google etc. and fails to present his case properly. Now, department starts issuing Section 133(6) notices to Gaming apps to gather more and more information. These online games portal starts responding to section 133(6) notices and submit their reports that Mr. A has done Rs.3300000/- value transactions through there portal in which he has incurred loss of approx Rs.725000/- and rest amount is remitted back to Mr. A at year end.

Habit of Online Gaming May Invite Income Tax Scrutiny Notice Section 143(2) of Income Tax Act, 1961 (1)

Here, the catch is that, Mr. A invested Rs.20000/- at the initial stage and incurred loss of Rs.1500/- after that he withdraws Rs.18500/-. Again he deposited Rs.25000/- in Gaming app this time he wins Rs.2800/- and withdraws Rs.27800/- and in this way he has done transactions amounting to Rs.3300000/- during the year. It creates red flag with the department as the transaction value and ITR income is not in line with each other. And Mr. A is not able to present his case properly due to half knowledge and assessing offices is not satisfied with documents and submissions made by Mr. A and he has passed demand order U/s 143(3) read with section 144B of the Income tax Act 1961 by treating Rs.33,00,000/- as unexplained income, along with this officer has initiated penalty proceedings. Now, Mr. A is in huge trouble because he has already lost Rs.725000/- in Online gaming and now he has received demand order from income tax department.

Words of wisdom – Firstly, we should be very cautious while investing our hard earned money in Stock Market and gaming apps because in both the platforms losers are more in comparison to winners. Further, we should be more cautious while filing our ITR to avoid any litigation at later stage because half knowledge creates more damage than benefits. If we are not aware about law, then we should take help of professional who is expert in his field.

If after all precautions, we received any notice from Income tax department then we should handle these notices with full care and in due time to avoid ex-party disposal of our case by department.

Conclusion: Mr. A’s ordeal serves as a cautionary tale for individuals dabbling in online gaming and investment activities. It underscores the importance of accurate reporting in ITR filings and seeking professional assistance when necessary. Moreover, in the event of receiving notices from the income tax department, prompt and diligent responses are crucial to avoid adverse outcomes.

In conclusion, exercising prudence in financial ventures and tax compliance can shield individuals from the perils of income tax scrutiny and potential legal ramifications. Remember, informed decisions and timely actions are indispensable safeguards in navigating the intricate landscape of taxation and online activities.

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Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice. The author will not be held responsible for any lose, if occur after using above information. Kindly consult your professionals before taking any action. This article is written on the basis of author’s personal experience and provision applicable as on date of writing of this article. Adequate attention has been given to avoid any clerical/arithmetical error, however; if it still persists kindly intimate us to avoid such error for the benefits of others readers. The Author “CA Shiv Kumar Sharma” can be reached at mail –shivsharma786@gmail.com and Mobile/WhatsApp–9911303737.

Author Bio

My Self CA. Shiv Kumar Sharma. I am a member of "The Institute of Chartered Accountants of India" since 2012. Currently, I am in Practice and dealing in Direct and Indirect taxation along with ROC Compliances. I am writing Articles for Taxguru.in, casansaar.com and in the expert panel of ca View Full Profile

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