ECOENERGY INSIGHTS LIMITED,INDIA vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 7(1), NEW DELHI

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ITA 5413/DEL/2024Status: DisposedITAT Delhi13 August 2025AY 2021-20227 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the lower authorities failed to appreciate the true nature of the claim of refund of IGST. The assessee, being an exporter of services, deposits IGST in advance, which is later refunded after fulfilling export documentation requirements. This amount was neither claimed as an expenditure in the Profit & Loss Account nor in any preceding year, hence it could not be considered income in the year under appeal. The Tax Auditor's report in Clause 16(b) merely reported the refund of GST as an amount not credited to the P&L account, not as income. The assessee's response to the CPC's show cause notice clearly stated that IGST was accounted for as a deposit and not claimed as an expense, and thus not offered to tax upon refund. The Ld. CIT(A) wrongly observed that not claiming expenditure in IGST was an attempt to avoid disallowance under Section 43B. The Tribunal directed the AO to delete the addition made on account of IGST refund. All grounds of appeal taken by the assessee were allowed.

What were the facts?

The assessee, Ecoenergy Insights Limited, filed its return of income for Assessment Year 2021-22 declaring NIL income after set-off of brought forward unabsorbed depreciation. The case was processed under Section 143(1) of the Income Tax Act, 1961, resulting in an intimation order dated 13.11.2022 assessing total income at INR 7,24,56,285/-. This adjustment was primarily on account of a refund of IGST reported in Clause 16(b) of Form 3CD. The assessee's rectification application was rejected. The assessee appealed to the Ld. CIT(A), who partly allowed the appeal by confirming the adjustment related to the IGST refund but allowing set-off of unabsorbed depreciation. The assessee is now in appeal before the ITAT against the CIT(A)'s order dated 25.09.2024.

What were the issues?

1. Whether the Ld. CIT(A) erred in confirming the addition of INR 7,24,56,285/- made by the Ld. ADIT, CPC in the intimation order passed under Section 143(1) of the Act, specifically concerning the refund of IGST. 2. Whether the Ld. CIT(A) erred in confirming the action of the Ld. ADIT, CPC in treating the refund of IGST of INR 7,24,56,290/- disclosed under Clause 16(b) of Form 3CD as income, when it was not claimed as an expense in the Profit & Loss account. Assessee's Contentions: - The IGST deposited on export of services was never claimed as an expense in the Profit & Loss Account but was treated as an advance with government authorities and shown in the balance sheet. - Clause 16(b) of Form 3CD reports amounts not credited to the Profit & Loss Account, not necessarily income. - The refund of IGST was not offered to tax as no expense was claimed at the time of payment. - The addition made by the CPC brings the same income to tax twice. - The Ld. CIT(A) wrongly assumed that all items in item 16 of the Tax Audit Report are income under Section 28 without verification and can be adjusted under Section 143(1). - The Ld. CIT(A) erred in concluding that the treatment of GST refund was not in accordance with statutory provisions based on presumptions. Revenue's Contentions: - The contention that the amount was never claimed as expenses needs to be verified, and therefore, the matter may be set aside to the AO for necessary verification.

Which sections of the Income-tax Act were involved?

Section 143(1),Section 250,Section 28,Section 43B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI “B” BENCH: NEW DELHI

Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL

For Appellant: Shri Nageshwar Rao, Adv
For Respondent: Shri Rajesh Kumar Dhanesta, Sr.DR
Hearing: 27.05.2025Pronounced: 13.08.2025
1.

The captioned appeal is filed by the assessee against the order dated 25.09.2024 passed by Ld. Commissioner of Income Tax (A)/ADDL/JCIT(A)-1, Chandigarh [“Ld.CIT(A)”] in Appeal No.NFAC/2020-21/10204098 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the intimation order dated 13.11.2022 u/s 143(1) of the Act pertaining to assessment year 2021-22.

2.

Brief facts of the case are that the assessee company engaged in the business of trading of electric security equipment systems and filed the return of income for the year under appeal on 15.03.20222, declaring NIL income after setoff of brought forward unabsorbed depreciation. The case was processed u/s 143(1) in terms of the intimation dated 13.11.2022 wherein the total income Page | 1 of the assessee is assessed at INR 7,24,56,285/-. The assessee has filed rectification application against the same which was rejected. The assessee had filed appeal before Ld.CIT(A) against the intimation order u/s 143(1) dated 13.11.2022. The ADDL/JCIT(A) in terms of order dated 25.09.2024 has partly allowed the appeal of the assessee wherein adjustment made to the total income of the assessee at INR 7,24,56,285/- on account of refund of IGST as reported in Tax Audit Report in clause 16(b) of Form 3CD i.e. Tax Audit Report as added by the CPC is confirmed and the other issues regarding set off of unabsorbed depreciation available is allowed.

3.

Aggrieved by the said order, assessee is in appeal before the Tribunal by taking following grounds of appeal:-

1. “That Ld. CIT(A) has erred in confirming the addition of INR 7,24,56,285 made by the Ld. ADIT, CPC in the intimation order dated 13.11.2022 passed under section 143(1) of the Act.

2. That Ld. CIT(A) erred in confirming action of Ld. ADIT, CPC in making an addition of INR 7,24,56,290 of refund of IGST as disclosed under Clause No. 16 (b) of Form 3CD (Tax Audit Report) i.e., falling to appreciate that the amount was never claimed as expense in Profit & loss account.

3. Impugned order passed by Id. CIT(A) proceeds on legally incorrect notion that all items reported under item 16 of Tax audit report are income under section 28 without any requirement of further verification and hence further erred in assuming that all such items qualify for prima facie adjustment by exercise of section 143(1) of the Act.

4. Impugned order failed to appreciate that sales are at gross value including the GST, payment of GST is not claimed but parked as receivable in balance sheet, hence when refund is received as per law income is not impacted. Addition made by impugned order brings to tax the same income twice over.

5. That the Ld. CIT(A) has erred in confirming the action of the Ld. ADIT, CPC in making the aforesaid addition by merely relying upon the disclosure made in Form 3CD without verifying the factual aspects and in lightly ignoring that same is not chargeable under the provisions of the Act Page | 2 as no allowance has been claimed by the Appellant at the time of making payment of GST in earlier years.

6. Ld. CIT(A) erred in upholding the view that even items which require further verification of facts for deciding whether same are income or not, can be adjusted in exercise of jurisdiction under section 143(1) of the Act.

7. That Ld. CIT(A) has erred in concluding that treatment given by Appellant in respect of GST refund in the books of accounts is not in accordance with the statutory provisions, purely based on presumptions. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit, or substitute any of the aforesaid grounds of appeal at any time before, or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law.”

4.

Since all the grounds of appeal pertained to the addition of INR 7,24,56,285/- made by the CPC therefore, they are taken together for consideration.

5.

Before us, Ld.AR for the assessee submits that assessee is an exporter of the services and at the time of raising the bills, the IGST has to be deposited with the Government which is later on refunded after filing the necessary documents and evidences of export of services. The said IGST deposited was never claimed as expenses in the Profit & Loss Account and it is paid out of the regular bank account and treated as advance with the Government authorities and separately shown in the balance sheet under the head “balance with Government authorities” under the head “short term loans and advances”. Ld.AR further submits that the Tax Auditor in the Tax Audit Report has reported the same in Column No.16 in Form 3CD which is titled as under:-

“16-amount not credited to the Profit & Loss Account, being:- (a) The items falling within the scope of section 28 (b) The proforma credits, drawbacks, refunds of duty of customs or excise or service tax or refunds of sales tax or value added tax or Goods and Services Tax, where such credits, drawbacks or refunds are admitted as due by the authorities concerned.”

6.

The assessee under Clause 16(b) of the Tax Audit Report reported the refund of goods and service tax of INR 7,36,09,571/- and according to Ld.AR that this amount has been treated as income of the assessee by the CPC though nowhere in the Tax Audit Report, it was certified by the Tax Audit Report that this amount is the income. In Clause 16, the Auditor has to report the amounts of receipts of any nature which are not credited to the Profit & Loss Account however, the same could not be treated as the income. It is further submitted by Ld.AR that in compliance to the show cause notice issued by CPC before making adjustments, it was explained to the CPC that this amount was never claimed as expenditure and therefore, no adjustment is required to be made. The necessary evidences of the submissions made before the CPC are placed in the Paper Book at pages 189 to 202. Ld.AR further submits that after processing u/s 143(1), the assessee also filed rectification application wherein all these facts were re-iterated however, CPC has dismissed the petition filed u/s 154 of the Act. Ld.AR further submits that in first appeal, Ld.CIT(A) has failed to understand the nature of transaction and the entries in the books of accounts and wrongly treated it as the payment u/s 43B and confirmed the addition made by the CPC. He, therefore, prayed that the additions made deserve to be deleted. Page | 4

7.

On the other hand, Ld.Sr.DR supports the orders of the lower authorities and alternatively submits that the contention of assessee that this amount was never claimed as expenses in the Profit & Loss Accounts, needs to be verified therefore, the matter may be set aside to the file of the AO for necessary verification. He prayed accordingly.

8.

Heard the contentions of both the parties and perused the material available on record. It is seen that the assessee while filing the return of income has not claimed any expenditure with respect to IGST paid of which the refund was claimed. The assessee is engaged in the business of export of service where at the time of export of service, the amount of IGST is to be paid in advance and the same will be refunded after filing the necessary documents evidencing the export of services which are exempt from IGST. Therefore, the amount of IGST paid is neither claimed in the Profit & Loss Account nor was claimed as expenditure in any preceding year for which the refund could be held as the income in the year under appeal. The Tax Auditor in the Tax Auditor Report in Clause 16B has reported the amount of refund of goods and service tax of INR 7,36,09,571/- due however, nowhere in the said report, it is stated that this amount is the income of the assessee. It is further seen that the assessee in response to the show cause notice issued by the CPC before making the adjustments, had filed the response wherein it is categorically stated as under:-

Response to intimation issued u/s 143(1)(a) of the Act for AY 2021-22 "Assessee pays IGST on export of services and later receives refund of same from government. At the time of making payment of IGST, assessee Page | 5 accounts the same as deposits in its books and does not claim any expense. Further, when assessee receives refund, the same is knocked off with deposits booked. During AY 20-21, assessee receives refund of INR 73609571 on account of said IGST. Since assessee did not claimed any expense at time of making payment, the same is not offered to tax when refunded."

9.

Ld.CIT(A) while dismissing the appeal of the assessee on this account has wrongly observed that treatment given by the appellant of not claiming any expenditure in IGST, is an attempt to avoid disallowance u/s 43B of the Act. Ld.CIT(A) failed to appreciate that the assessee is not liable to pay GST/IGST on the services export out of India and there is no such liability of the assessee to deposit GST/IGST however, in terms of the provisions of GST Act, advance IGST is to be deposited before exports of services which will be refunded at a later stage thus, it is not an expenditure for which the provision of section 43B could be applied. In view of the above facts and in our considered opinion, the lower authorities have failed to appreciate the true nature of claim of refund of IGST and therefore, we hereby direct the AO to delete the addition made on this count. Accordingly, all the grounds of appeal taken by assessee are allowed.

10.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 13.08.2025.

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