ITAT Hyderabad Deletes ₹3.54 Cr Addition In Online Gaming Case, Applies Section 115BB To Net Winnings

The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) on 24 June held that winnings taxable under Section 115BB of the Income Tax Act must be computed on the basis of net winnings from online games and not on gross amounts reflected by gaming platforms.

Vice President Vijay Pal Rao and Accountant Member Manjunatha G partly allowed the appeal filed by Emdarapu Kumaraswamy and set aside the addition made towards alleged online gaming winnings and remanded the issue relating to disallowance of deductions. The Bench held:

“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.”

The Assessing Officer added Rs. 3.54 crore to the income of Emdarapu Kumaraswamy on the basis of information received from Gameskraft Technology Pvt. Ltd., treating gross winnings from online rummy as taxable under Section 115BB. The appellant contended that transaction records showed buy-in amounts of Rs. 3.84 crore against gross winnings of Rs. 3.54 crore, resulting in a net loss of Rs. 30.43 lakh.

The Tribunal accepted the contention and held that the material relied upon by the Assessing Officer itself reflected a loss position. It further noted that no tax had been deducted at source by the gaming platform on the alleged winnings and observed that the Assessing Officer should have sought clarification from the company instead of relying solely on gross figures.

On the disallowance of Rs. 5.71 lakh claimed under Chapter VI-A and Section 24(b), the Bench remanded the matter to the Assessing Officer after the appellant produced an updated income statement and tax payment challan.

Accordingly, the ITAT directed that the addition be deleted if the claim stands verified.