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

ITA 1098/AHD/2026Status: DisposedITAT Chandigarh23 September 2026AY 2022-2319 pages
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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 upon obtaining BU permission, the sale of units became exempt from GST, making the accumulated input GST credit, to the extent it could no longer be utilized against output GST liability, unrecoverable and chargeable to the Profit & Loss Account as expenditure. The cash outflow for the GST on inputs had occurred in earlier years, and the reversal in AY 2022-23 was a statutory consequence of the project completion with unsold units, making the ITC cease to be recoverable. The Tribunal found that the CIT(A)'s reasoning conflated the original payment of GST with the later statutory extinction of the right to recover that GST. The Tribunal allowed grounds of appeal Nos. 2 to 4. For the issue of GST reversal/provision of Rs. 85,59,538 (Ground No. 5), the Tribunal allowed the appeal for statistical purposes, directing the AO to examine the claim for AY 2023-24 and allow the expense in only one year to avoid double deduction. The Tribunal's ratio is that a statutory reversal of unutilizable input tax credit, arising from a change in taxability upon project completion, constitutes an allowable business expenditure in the year of such reversal.

What were the facts?

The assessee, Mahika Infra LLP, a real estate developer, filed its return for AY 2022-23 declaring a total income of Rs. 1,25,59,430. The Assessing Officer (AO) completed the assessment under Section 143(3) at Rs. 5,50,78,930, making additions including Rs. 2,64,11,386 for GST reversal and Rs. 85,59,538 for GST reversal/provision. The assessee appealed to the CIT(A), who confirmed the additions of Rs. 2,64,11,386 and Rs. 85,59,538, aggregating to Rs. 3,49,70,924. The assessee's residential project received Building Use (BU) Permission on 20.11.2021. The assessee had opted for the old GST regime and reversed ITC in the ratio of unsold units to total units upon receiving BU permission.

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. The assessee contended that the GST reversal is a mandatory statutory cost under Rule 42 of CGST Rules, 2017, deductible under Section 37(1), and that GST collected from customers is a trust liability, not revenue. The assessee also relied on the Matching Principle under Section 145. The Revenue, through the AO and CIT(A), argued that the reversal does not involve actual cash outflow and is a post-facto adjustment of ITC availed in earlier years, thus not allowable in AY 2022-23. 2. Whether the GST reversal/provision of Rs. 85,59,538 is allowable as business expenditure under Section 37(1). The assessee argued this amount pertains to purchases of materials and services and should be allowed. The Revenue's position is implicit in the confirmation of the addition by the CIT(A).

Which sections of the Income-tax Act were involved?

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

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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