CASE STUDY
Winning the Online Gaming
Scrutiny Battle
How a Professional Poker
Player’s Rs.1.47 Crore Proposed Addition Was Dropped to NIL
Assessment under Section 143(3) r.w.s.
144B |
AY 2024-25
Published:
March 2026 | CA Veeresh, Partner
Executive Summary
In one of the most satisfying outcomes of our
recent practice, we successfully defended a professional poker player’s income
tax return against a proposed addition of approximately Rs.1.47 crore during
faceless scrutiny assessment for AY 2024-25. The assessment order dated 12
March 2026 accepted the returned income in its entirety at Rs.53,65,780 with
zero variation — a complete vindication of the assessee’s position.
This case study illustrates the critical
importance of understanding the post-2023 online gaming taxation framework, the
distinction between gross transactional values and taxable net winnings, and
the art of building a technically airtight reply that leaves no room for
adverse inference.
Case Snapshot
|
Parameter |
Details |
|
Assessee |
Individual and Resident |
|
PAN |
AAAAP9999A |
|
Assessment
Year |
2024-25 (FY
2023-24) |
|
Returned
Income |
Rs.53,65,780 |
|
Total TDS
Deducted |
Rs.20,51,862 |
|
Refund
Claimed |
Rs.13,42,460 |
|
Selection
Reason |
CASS — TDS2
mismatch & high 194BA refund ratio |
|
Order
Section |
143(3) r.w.s.
144B (Faceless) |
|
Date of
Order |
12 March 2026 |
|
Final
Assessment |
Income
accepted at Rs.53,65,780 — NIL variation |
Background: The Assessee’s Profile
The assessee is a professional poker player
with 7–8 years of experience, playing across multiple registered online gaming
platforms including Baazi, Adda, Pocket52, and Spartan. His income for AY
2024-25 comprised four distinct heads:
•
Business and Profession
(Poker): Rs.15,63,338
•
Income from Other Sources:
Rs.1,51,735 (bank interest, dividends)
•
Income from Virtual Digital
Assets (VDA): Rs.1,15,311
•
Capital Gains: Rs.35,35,399
(equity shares and mutual funds)
The assessee opted for the New Tax Regime and
filed ITR-3 on 30 July 2024 with total TDS of Rs.20,51,862, resulting in a
refund claim of Rs.13,42,460. The disproportionately high TDS relative to
taxable income was the trigger for CASS selection — a common pattern in online
gaming cases where platforms deduct TDS on gross withdrawals under Section
194BA.
The Department’s Concerns
The case was selected for scrutiny under CASS
for two specific reasons:
Concern 1: Online Gaming Income — Rs.1,45,90,212
The Department observed that as per Form
26AS, the assessee had received Rs.1,45,90,212 from four online gaming
platforms under Section 194BA, yet no income from online gaming was
separately offered in the ITR. The platform-wise breakup as per 26AS was:
|
Sl. |
Gaming
Platform |
Amount (Rs.) |
|
1 |
Nirdesa
Networks Private Limited |
NIL |
|
2 |
Baazi
Networks P Ltd |
1,05,33,848 |
|
3 |
Deltatech
Gaming Limited |
15,43,776 |
|
4 |
Sachiko
Gaming Private Limited |
25,12,588 |
|
|
Total |
1,45,90,212 |
The core issue was the Department’s approach
of treating gross amounts reported by gaming platforms as taxable income,
without applying the statutory net winnings computation mandated by Rule 133.
Concern 2: VDA Income Shortfall — Rs.1,11,152
Form 26AS reflected gross sale consideration
of Rs.2,26,463 under Section 194S (VDA transfers), while the ITR
declared only Rs.1,15,311 as VDA income. The Department proposed an
addition of the difference of Rs.1,11,152, treating the 26AS figure as income
rather than gross consideration.
Our Detailed and Tactical Reply
The scrutiny proceedings involved multiple
rounds of submissions spanning June 2025 to March 2026, including responses to
notices under Sections 143(2) and 142(1), a video conference hearing, and a
detailed reply to the show cause notice. Our strategy was built on five
pillars:
Pillar 1: Statutory Foundation — Rule 133 Net Winnings Formula
We anchored our primary argument on the Finance
Act, 2023, Circular No. 05 of 2023, and Notification No. 28 of 2023
(effective 01.04.2023), which introduced a specific computational methodology
for online gaming income under Rule 133. The formula for full-year net winnings
computation under Section 115BBJ is:
|
Net Winnings = (A + D) – (B + C) |
Where: A
= Aggregate withdrawals during the FY; B = Aggregate non-taxable deposits
during the FY; C = Opening balance at start of FY; D = Closing balance at end
of FY.
We provided a consolidated computation across
all four platforms:
|
Component |
Amount (Rs.) |
|
A – Total
Withdrawals |
2,17,73,898 |
|
B – Total
Deposits (Non-taxable) |
3,22,52,000 |
|
C – Opening
Balance |
92,000 |
|
D – Closing
Balance |
70,000 |
|
Net
Winnings = (A + D) – (B + C) |
(1,05,00,102) – LOSS |
The computation conclusively demonstrated
that the assessee had incurred a net loss
of Rs.1,05,00,102 from online gaming.
Deposits totalling Rs.3,22,52,000 far exceeded withdrawals of Rs.2,17,73,898 —
meaning the player lost money overall during the year.
Pillar 2: Platform-Wise Deposit and Withdrawal Evidence
We furnished detailed platform-wise
breakdowns backed by bank statements to substantiate the aggregate figures:
|
Platform |
Deposits (Rs.) |
Withdrawals (Rs.) |
|
Baazi |
1,50,05,000 |
1,01,30,140 |
|
Adda |
26,32,000 |
17,77,000 |
|
Pocket52 |
25,50,000 |
17,21,550 |
|
Spartan |
1,20,65,000 |
82,45,295 |
|
Total |
3,22,52,000 |
2,18,73,985 |
Every deposit and withdrawal was corroborated
with bank statement entries, leaving no room for the Department to question the
authenticity of the figures.
Pillar 3: Demolishing the 26AS-Equals-Income Fallacy
A central theme of our reply was dismantling
the Department’s flawed assumption that amounts appearing in Form 26AS under
Section 194BA automatically constitute taxable income. We raised multiple
grounds:
1.
Form 26AS itself carries a
disclaimer that figures are based on statements filed by deductors and must be
verified before treating them as income.
2.
TDS deduction does not
determine taxability — it is merely a mechanism for collection of tax at
source. The amounts on which TDS is deducted by gaming platforms represent
gross withdrawals, not income.
3.
Third-party data is
information, not determination. The AO must independently compute income using
the statutory methodology, not simply adopt figures from information
statements.
Pillar 4: Doctrine of Real Income and Internal Inconsistency
We highlighted a critical internal
contradiction in the show cause notice: the notice itself reproduced Rule 133
and the net winnings formula, yet simultaneously proposed an addition based on
gross figures. This demonstrated non-application of mind and inconsistency in
the Department’s approach.
We invoked the Doctrine of Real Income — a
well-settled principle that income tax is levied on real income and not on
gross receipts unless the statute expressly provides otherwise. Taxing gross
transactional values of Rs.1,45,90,212 when the actual net result was a loss of
Rs.1,05,00,102 would be contrary to the fundamental scheme of the Income Tax
Act.
Pillar 5: VDA Income — Gross Consideration vs. Net Gain
For the VDA issue, we demonstrated with
documentary evidence that:
•
Rs.2,26,463 in 26AS
represented gross sale consideration from two VDA transactions (Solana and
Bitcoin), not income.
•
Solana: Bought at
Rs.22,986, sold at Rs.10,191 — resulting in a loss of Rs.12,795.
•
Bitcoin: Bought at
Rs.1,00,960, sold at Rs.2,16,271 — resulting in a gain of Rs.1,15,311.
•
Section 115BBH taxes income
from transfer (net gain), not gross consideration. The entire consideration was
already disclosed.
The proposed addition of Rs.1,11,152 was
based on a fundamental misunderstanding — confusing gross sale proceeds with
taxable income.
Procedural Strategy
Beyond the substantive arguments, we also
raised procedural grounds to strengthen our position:
•
Jurisdictional Defect: The
AO failed to record a foundational finding that the receipts constitute taxable
income before proposing additions.
•
Natural Justice Violation:
Detailed submissions with supporting documents were filed but neither discussed
nor rebutted in the SCN.
•
Non-Application of Mind:
The SCN mechanically reproduced statutory provisions without analytically
applying them to the facts.
•
Video Conference: We
leveraged the VC opportunity on 27 February 2026 to walk the AO through the
computation step by step, making it difficult to sustain the proposed addition.
The Outcome
|
Assessment
Order dated 12 March 2026: Returned
income of Rs.53,65,780 accepted in full. No variation proposed on either the
online gaming issue or the VDA issue. Both proposed additions totalling
approximately Rs.1.47 crore were dropped entirely. |
The AO’s order expressly recorded that the
assessee’s submissions were found to be tenable and no adverse inference was
drawn. The Section 133(6) responses received from Baazi Networks, Deltatech
Gaming, and Nirdesa Networks further corroborated our position.
Key Takeaways for Practitioners
1.
Master Rule 133 and the Net Winnings Framework
Post Finance Act 2023, online gaming taxation
operates on a fundamentally different basis than traditional Section 194B
winnings. The net winnings formula under Rule 133 is the backbone of every
gaming case. Always compute (A + D) – (B + C) across all platforms and maintain
meticulous records of deposits and withdrawals.
2.
Never Accept 26AS Figures at Face Value
Form 26AS is an information document, not an
assessment document. The amounts reflected under Section 194BA represent gross
withdrawals on which TDS was deducted, not taxable income. Always reconcile
26AS with actual platform-level data and bank statements.
3.
Collect Platform Data Proactively
In every online gaming case, obtain
platform-wise deposit and withdrawal summaries, opening and closing balances,
and bank statements well before any scrutiny proceedings. This data is the
foundation of the net winnings computation and cannot be reconstructed easily
after the fact.
4.
Address the VDA Gross-vs-Net Distinction Early
Section 194S TDS is deducted on gross sale
consideration. Section 115BBH taxes only the net gain after deducting cost of
acquisition. This distinction is frequently missed by AOs and must be addressed
with clear documentation of buy/sell values.
5.
Use Procedural Arguments as a Safety Net
Even when your substantive case is strong,
always layer in procedural arguments (violation of natural justice,
non-application of mind, jurisdictional defects). These create additional
grounds for protection in case the matter escalates to CIT(A) or ITAT.
6.
Leverage Video Conference Hearings
The faceless assessment system’s VC facility
is underutilized. A well-prepared VC hearing where you walk the AO through
computations step by step can be far more persuasive than written submissions
alone.
Conclusion
This case underscores a broader challenge
emerging in the post-2023 online gaming taxation landscape: the disconnect
between how platforms report data under Section 194BA and how income actually
needs to be computed under Rule 133. As professional poker and online gaming
continue to grow in India, more such scrutiny cases are inevitable.
The key to success in these matters is a
combination of statutory clarity, evidentiary preparedness, and tactical
advocacy. By building our case on the Rule 133 formula, supporting it with
exhaustive documentation, and exposing the internal contradictions in the
Department’s approach, we achieved a complete vindication for our client.
For the fraternity, this case serves as a
ready reference for handling online gaming scrutiny assessments — a niche area
that will only become more significant in the years ahead.
Disclaimer
This article is for educational and
knowledge-sharing purposes only. The names and details used are based on a real
assessment order available in the public domain. This does not constitute legal
or tax advice. Readers should consult their own tax advisors for specific
situations.
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