ITAT Hyderabad deleted a ₹3.54 crore tax addition after finding the online rummy player had incurred a net loss, not taxable winnings.

June 24, 2026 : In a significant ruling on the taxation of online gaming transactions, the Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, has set aside an addition of ₹3.54 crore made against a taxpayer who played online rummy through the Gameskraft platform, holding that the Income Tax Department failed to consider the complete transaction data, which clearly reflected a net loss rather than taxable winnings. The Tribunal observed that merely relying on the gross amount of game winnings without accounting for the player’s buy-in amount resulted in an erroneous assessment.

The appeal arose from an assessment for the Assessment Year 2022-23. The assessee, Emdarapu Kumaraswamy, had filed his income tax return declaring income from salary and other sources. During scrutiny proceedings initiated under the Computer Assisted Scrutiny Selection (CASS), the Assessing Officer relied on information obtained during a search conducted under Section 132 of the Income Tax Act in the case of Gameskraft Technology Pvt. Ltd. Based on that information, the department alleged that the taxpayer had received online gaming winnings amounting to ₹3,54,44,447 but had failed to disclose the same in his return. Consequently, the Assessing Officer treated the entire amount as taxable under Section 115BB of the Income Tax Act and also invoked Section 58(4), which disallows deductions against winnings from games.

The taxpayer consistently disputed the addition, arguing that the figure relied upon by the department represented only the gross winnings recorded by the gaming platform and ignored the amount invested in participating in the games. According to the transaction records furnished by Gameskraft itself, the assessee had deposited substantially higher amounts as buy-ins and ultimately suffered a net loss of ₹30,43,537 during the financial year. He contended that taxing the gross winnings without considering the corresponding buy-ins completely distorted the actual financial outcome of the gaming activity.

The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), however, upheld the assessment. The appellate authority held that for Assessment Year 2022-23, Section 115BB contemplated taxation of gross winnings from games and that the later legislative amendment providing for taxation of net winnings from online games with effect from April 1, 2024, could not be applied retrospectively. As a result, the addition made by the Assessing Officer was sustained.

Before the ITAT, the assessee reiterated that even the material supplied by Gameskraft and relied upon by the department demonstrated that his total buy-ins exceeded the gross winnings. The ledger maintained by the gaming platform and the payment and withdrawal statements consistently reflected a net loss of ₹30.43 lakh. The assessee therefore argued that there was no real income from online gaming that could be brought to tax under Section 115BB.

After examining the assessment records and the transaction details furnished by the gaming company, the Tribunal found merit in the taxpayer’s contention. It observed that the company had maintained two categories of information: one showing the calculation of winnings or losses after considering the buy-ins, and another reflecting the ledger of payments and withdrawals. Both records consistently established that the assessee had incurred a net loss of ₹30,43,537 during the relevant assessment year.

Explaining its reasoning, the Tribunal held that the Assessing Officer had ignored the most crucial part of the transaction data by considering only the gross winnings while completely overlooking the amount invested by the player to participate in the games. The Bench observed, “The winnings from any games referred to under Section 115BB of the Act should be understood in the context of net winnings from any game by the assessee.” It further stated that where the total amount invested exceeds the gross winnings, the result is a loss and not taxable winnings.

The Tribunal also found it significant that no tax had been deducted at source under Section 194B by the gaming platform. According to the Bench, if the taxpayer had genuinely earned taxable winnings from online games, deduction of tax at source would ordinarily have followed. The absence of TDS further supported the conclusion that the assessee had not earned taxable winnings during the relevant year. The Tribunal remarked that if the Assessing Officer had any doubt regarding the computation, he ought to have sought further clarification from the gaming company instead of mechanically taxing the gross figure.

Accordingly, the ITAT set aside the orders of both the Assessing Officer and the Commissioner (Appeals) on this issue and directed the department to delete the addition of ₹3,54,44,447 made under Section 115BB of the Income Tax Act.

The Tribunal also examined another addition of ₹5,71,288 relating to deductions claimed under Chapter VI-A and deduction for house property interest under Section 24(b). The assessee informed the Tribunal that he had subsequently prepared an updated statement of income under Section 139(8A) and discharged the corresponding tax liability under Section 140B but could not place these documents before the Assessing Officer during the assessment proceedings. Since these documents were produced for the first time before the Tribunal, it remanded this issue to the Assessing Officer for fresh verification. The Tribunal directed that if the tax had indeed been paid as claimed, the addition should be deleted to avoid double taxation.

The decision assumes importance for taxpayers engaged in online gaming, particularly for assessment years preceding the new taxation framework introduced from April 1, 2024. The ruling underscores that tax authorities cannot isolate gross transaction figures while ignoring the complete financial trail. It also reinforces the principle that income tax is chargeable only on real income and not on figures that fail to reflect the actual economic outcome of a transaction. At the same time, the Tribunal clarified that taxpayers must maintain complete transaction records and produce supporting evidence to substantiate their claims during assessment proceedings.

Case Title: Emdarapu Kumaraswamy v. Income Tax Officer, Ward-11(1), Hyderabad