2024 (1) TMI 913 - AT - Income Tax

Gaming company's TDS compliance on player winnings requires proper verification under section 194B

Play Games 24x7 Pvt. Ltd. Versus Dy. Commissioner of Income Tax Circle–15 (1) (1), Mumbai

ITAT Mumbai upheld PCIT's revision order u/s 263 against a private limited company operating an online gaming platform. The case involved TDS u/s 194B on ... Revision u/s 263 - TDS u/s 194B on payments made to players on winnings from lotteries/crossword puzzles - assessee is a private limited company engaged in the business of providing a platform for playing games (primarily the skill game of Rummy) online - PCIT alleged details pertaining to the winning amount and applicable TDS provisions were not examined by the AO while passing the assessment order and TDS was not deducted from the full amount of payment made by the assessee - HELD THAT:- From the perusal of submissions filed by the assessee, we find that the AO though initiated the enquiry on tax withholding on payments made by the assessee to players on winning from games available on its website, however, it is not evident whether the AO examined/verified the details so filed by the assessee. It is also not evident that the AO examined/verified whether the deduction of tax by the assessee is as per the provisions of Chapter XVII-B, particularly section 194B of the Act, which requires tax to be withheld on the winning amount from any lottery or crossword puzzle, at the time of payment, when the winning amount exceeds Rs. 10,000. From the assessment order, it is difficult to infer whether the AO was satisfied with the assessee’s replies furnished from time to time or not. Further, the assessment order also does not indicate that the AO examined/verified the details furnished by the assessee with respect to the deduction of tax as per provisions of section 194B of the Act. Therefore, observations made do not support the plea of the assessee in the facts and circumstances of the present case. Thus we agree with the findings of the learned PCIT, vide impugned order, that the AO has not examined the details furnished by the assessee, and the assessment order needs enquiry on the issue of deduction of TDS under section 194B - Decided against assessee. Issues Involved:1. Inadequate inquiries by AO on payments made to players on winnings from lotteries/crossword puzzles and taxes to be withheld thereon.2. Inadequate inquiries by AO on payments made towards online promotional games and taxes to be withheld thereon.Summary:Inadequate inquiries by AO on payments made to players on winnings from lotteries/crossword puzzles and taxes to be withheld thereon:The assessee challenged the order dated 16/03/2023 passed under section 263 of the Income Tax Act, 1961 by the learned Principal Commissioner of Income Tax-5, Mumbai ('learned PCIT'), for the assessment year 2015-16. The learned PCIT concluded that inadequate inquiries were made by the AO on payments made to players on winnings from lotteries/crossword puzzles and taxes to be withheld thereon. The learned PCIT directed the AO to re-verify and examine the issue, highlighting that the assessment order did not include specific reasons for accepting the explanation of the assessee, leading to the assumption that the AO did not apply his mind or make inquiries on the subject.The assessee argued that detailed submissions were made before the AO regarding withholding taxes on the winning amount paid to the players, including TDS payment challans under section 194B of the Act. The learned PCIT, however, maintained that there was no mention in the assessment order about the inquiry made by the AO on payments made to the players, and thus, the assessment order was incomplete and needed further inquiry on the issue of deduction of TDS.The tribunal found that the AO initiated the inquiry on tax withholding but did not examine or verify the details filed by the assessee. The tribunal agreed with the learned PCIT's findings that the AO did not examine the details furnished by the assessee, and the assessment order needed further inquiry on the issue of deduction of TDS under section 194B of the Act. Therefore, the tribunal upheld the impugned order passed under section 263 of the Act to this extent.Inadequate inquiries by AO on payments made towards online promotional games and taxes to be withheld thereon:The learned PCIT directed the AO to examine the issue of payments made towards winning of lotteries/crossword puzzles on account of online promotional games and verify the applicability of withholding provisions. The assessee contended that the provisions of section 263 were invoked on a different ground, and the order of revision was passed on an altogether different ground without providing an opportunity for hearing to the assessee.The tribunal noted that the AO did not examine or verify the details regarding tax withholding on payments made towards online promotional games, as alleged by the learned PCIT. The tribunal upheld the learned PCIT's direction to the AO to examine the issue of non-deduction of TDS on the full amount of payments made for winning from lotteries/crossword puzzles and online promotional games. The AO was further directed to verify whether the assessee complied with the provisions of Chapter XVII B of the Act.In conclusion, the tribunal upheld the impugned order passed under section 263 of the Act to the extent of inadequate inquiries by the AO on payments made to players on winnings from lotteries/crossword puzzles and online promotional games and taxes to be withheld thereon. The appeal by the assessee was dismissed.Order pronounced in the open Court on 17/01/2024.