MAHIKA INFRA LLP,AHMEDABAD vs. INCOME TAX OFFICE, AHMEDABAD

ITA 1098/AHD/2026Status: DisposedITAT Ahmedabad23 September 2026AY 2022-2319 pages
AI SummaryAllowed

What were the facts?

The assessee, Mahika Infra LLP, a real estate developer, filed an appeal against the order of the CIT(A) for Assessment Year 2022-23. The Assessing Officer (AO) had made additions totaling Rs. 5,50,78,930/-, including Rs. 2,64,11,386/- for GST reversal, Rs. 85,59,538/- for GST reversal/provision, and Rs. 75,48,573/- for Electricity Connection Charges. The CIT(A) confirmed the GST reversal and GST provision additions, aggregating to Rs. 3,49,70,924/-, but allowed the Electricity Connection Charges for statistical purposes, subject to verification. The assessee's residential project received Building Use (BU) Permission on 20.11.2021, the current financial year.

What did the Tribunal hold?

The Tribunal held that the GST reversal of Rs. 2,64,11,386/- is allowable as business expenditure. The Tribunal reasoned that GST collected from customers is not income but a statutory liability. The reversal of ITC, while not a fresh cash outflow in the current year, represents GST actually borne on project inputs that became irrecoverable due to the BU permission making the sale of units exempt from GST. The cash outflow for these inputs occurred in earlier years when the assessee paid suppliers, and the ITC was an asset. Upon BU permission, this asset was mandatorily extinguished to the extent attributable to unsold units, making it an irrecoverable component of project cost. The Tribunal found that the CIT(A)'s reasoning conflated the original payment of GST with the statutory extinction of the right to recover that GST. The reversal was a statutory consequence of the project completion with unsold units, not a voluntary write-off. Therefore, grounds of appeal Nos. 2 to 4 were allowed. For Ground No. 5, concerning Rs. 85,59,538/-, the Tribunal allowed the appeal for statistical purposes, directing the AO to examine the claim for AY 2023-24 to avoid double deduction.

What were the issues?

1. Whether the GST Input Tax Credit (ITC) Reversal of Rs. 2,64,11,386/- is allowable as business expenditure under Section 37(1) of the Income-tax Act, 1961. 2. Whether the GST ITC Reversal of Rs. 85,59,538/- is allowable as business expenditure under Section 37(1) of the Act. Assessee's contentions: - The GST reversal is a mandatory statutory cost under Rule 42 of CGST Rules, 2017 read with Notification No. 16/2019 and is deductible under Section 37(1). - GST collected from customers is a trust liability, not revenue. - Relies on the Matching Principle (Section 145) for deduction in the same year as income recognition. Revenue's contentions (as inferred from AO's actions and CIT(A)'s reasoning): - The AO disallowed the amount as the assessee did not demonstrate how GST collected from customers was accounted for, presuming GST was not recognized as income. - The CIT(A) held that GST reversal does not constitute a cash outflow and is a reversal of ITC availed in prior years, not an actual payment. - The CIT(A) further held that the reversal in AY 2022-23 is a post-facto adjustment and cannot be claimed fully in this year, as it relates to ITC availed in earlier years and does not align with the matching principle.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 139(1),Section 143(3),Section 145,Section 250,Section 17(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: DR. B.R.R. KUMAR, VICE-SHRI RAHUL CHAUDHARY

For Appellant: Shri S.N. Soparkar, Sr. Advocate &, Ms. Urvashi Shodhan, AR
For Respondent: Shri Amit Pratap Singh, Sr. DR
Hearing: 27.07.2026Pronounced: 23.09.2026

PER DR. B.R.R. KUMAR, VICE-PRESIDENT:

- This appeal has been filed by the assessee against the order dated 19.01.2026 passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2022-23. 2. The assessee has raised following grounds of appeal:- “[1] The Ld. Commissioner of Income Tax (Appeals) have erred in law and on facts in sustaining the addition of Rs. 3,49,70,906/-. [2] The Ld. Commissioner of Income Tax (Appeals) has erred in law and on

The order continues below.

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