Bengaluru man gets tax demand on ₹2.33 crore online gaming winnings: What convinced ITAT to rule in his favour
A Bengaluru taxpayer was slapped with an income tax notice after he failed to report ₹2.33 crore in online gaming winnings in his income tax return (ITR) for AY 2022-23. He argued that the amount did not represent his actual income because he had incurred losses from his the real-money gaming activities.
This case concerns Arakere Channappa, a resident of Doddakallasandra in Bengaluru, who reported a total income of ₹4.32 lakh in his return for the year. His income included earnings from house property, business and other sources.
Subsequently, his case was picked up for scrutiny by the income tax assessing officer (AO), Bangalore for verification of information. The officer had received information that Channappa had participated in online gaming activities on “Rummyculture” and “Gamezy” portals, which were operated by Gameskraft Technologies Pvt. Ltd. He reportedly won ₹2.33 crore by playing these real-money games but did not disclose the amount in his ITR.
What the tax officer argued
Separately, the income tax department conducted a search and seizure operation in the offices of Gameskraft on March 15, 2022. During the raid, the authorities gathered information regarding money earned by players through the online gaming portals operated by the company.
The AO noted that players used both real money and bonus amounts for gaming and the winnings were credited to their wallets after the gaming company deducted its commission. This amount represented the player’s gross winnings.
Citing an example, the tax officer explained that when two players put ₹100 each and the company deducts 10% commission, the balance of ₹180 gets credited to the winner’s wallet, representing gross winnings of that person. Hence, the AO argued that the entire amount credited the winning player’s account should be considered taxable income.
Additionally, the AO also pointed out that under Section 115BB, winnings from lotteries, crossword puzzles, races, card and any other game are taxed at a flat rate irrespective of normal slab rates.
The AO also relied upon the Finance Act, 1986 commentary and observed that no allowance or deduction is admissible against gross winnings from games.
Channappa also reportedly failed to provide evidence or explanation about the funds despite receiving multiple tax notices. Accordingly, the officer concluded that the entire ₹2.33 crore in online gaming winnings should be reported under the head “Income from Other Sources.”
What convinced ITAT to overturn the tax demand?
The assessee did not agree with the tax officer’s argument and thereby submitted an appeal to the Commissioner of Appeals (CIT A), where he argued that Gameskraft’s response indicated that the total buy-in amount was ₹2.61 crore, whereas the gross winnings were ₹2.33 crore.
He noted that the online gaming activities resulted in a net loss of nearly ₹27,99,353. “The AO selectively considered only the gross winning figure and ignored the buy-in amount and the net loss disclosed in the very same information,” Channappa argued.
The assessee also claimed that the AO’s approach is contrary to the basic principle of taxation that only real income can be taxed. “The Income- tax Act taxes income and not gross movement of funds or turnover. The gross amount of ₹2,33,52,271 was only a movement of money within the gaming wallet and did not represent any real gain in the hands of the assessee.”
However, CIT (A) rejected Channappa’s appeal and ruled in the AO’s favour. Feeling aggrieved, Channappa approached ITAT Bangalore. On July 23, 2026 he won the case in ITAT Bangalore.
In its judgement, ITAT Bangalore said that gross winnings from online real money gaming activities should not be taxed and only net profits should be considered for taxation purposes by the income tax department.
