NTT DATA FA INSURANCE SYSTEM INDIA PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX , BANGALORE

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ITA 2239/BANG/2026Status: DisposedITAT Bangalore07 October 2026AY 2021-226 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the issue is squarely covered in favour of the assessee by the decision of a Coordinate Bench in ITA Nos. 2889 & 2890/Bang/2025 for AYs 2023-24 and 2024-25. In that case, on an identical issue, the Coordinate Bench held that if the GST element is not routed through the profit and loss account by consistently following the exclusion method, then the question of taxing the GST refunds does not arise. The Tribunal found that the assessee consistently followed the exclusion method of accounting for GST, where purchases, sales, and inventories are recorded at their net value, excluding the tax component. The GST paid on inputs was debited to a separate "Input GST" account, and GST collected on sales was credited to an "Output GST" account as a liability. Since the GST element was not routed through the profit and loss account, the refund of GST cannot be taxed. The Tribunal noted that the revenue had not brought any material suggesting distinguishing facts or that the Coordinate Bench's decision was reversed. Therefore, the addition of Rs. 3,12,38,062 on account of GST refund was set aside, and the AO was directed to delete the addition. The grounds raised by the assessee were allowed.

What were the facts?

The assessee, NTT DATA FA INSURANCE SYSTEM INDIA PRIVATE LIMITED, is appealing an order from the CIT(A) for Assessment Year 2021-22. The dispute concerns the addition of a GST refund of Rs. 3,12,38,062 to the assessee's total income. The assessee, engaged in export of services, received this refund under GST laws. They followed an accounting policy of netting off input GST credit against expenditure, thus not crediting the refund to the Profit and Loss Account. The Tax Auditor, however, reported this refund in Clause 16(b) of the Tax Audit Report. This led to a notice u/s 143(1)(a) proposing an adjustment, which was added to the returned income during processing. A subsequent rectification order u/s 154 sustained this addition, resulting in a demand of Rs. 80,50,730. The assessee's appeal to the CIT(A) was dismissed.

What were the issues?

1. Whether the addition of Rs. 3,12,38,062, representing a GST refund, to the total income of the assessee is justified, considering the assessee's accounting policy of netting off input GST credit against expenditure? (Question of law and fact, turning on Section 143(1)(a) and Section 154 of the Income Tax Act, 1961). Assessee's contentions: The GST refund is not taxable as it represents unutilized Input Tax Credit and was not credited to the Profit and Loss Account due to the netting-off policy. The disclosure in the Tax Audit Report alone cannot lead to taxation. The adjustment made during processing and sustained in rectification was unjustified. Revenue's contentions: The adjustment was rightly made based on the disclosure in the Tax Audit Report. The assessee disclosed NIL in the ROI while the Tax Audit Report showed a significant GST refund. No revised ROI or Tax Audit Report was filed to reconcile this discrepancy. Disclosures in Form 3CD cannot be ignored, and an adjustment for an increase in income indicated in the audit report but not considered in the ROI is permissible u/s 143(1)(a)(iv). The assessee's claim did not arise from a mistake apparent from the record but required examination of books, hence not rectifiable u/s 154.

Which sections of the Income-tax Act were involved?

Section 143(1)(a),Section 154,Section 145A,Section 41(1),Section 28(i)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: WASEEM AHMED & SHRI SANDEEP SINGH KARHAIL

PER WASEEM AHMED, ACCOUNTANT MEMBER: The present appeal filed by the assessee pertaining to A.Y. 2021-22 is directed against the order of the Ld. Commissioner of Income Tax (Appeals) [hereafter “Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) dated 17.03.2026.

2.

In the memo of appeal, the assessee has raised seven grounds, which are interconnected and revolve around the validity of the rectification order passed u/s 154 of the Act and the addition of GST refund of Rs. 3,12,38,062 to the total income of the assessee.

3.

The brief facts of the case are that the assessee, a private limited company, is engaged in the export of services and is eligible to claim refund of unutilized Input Tax Credit under the GST laws. During the relevant previous year, the assessee received GST refund of Rs. 3,12,38,062 from the GST authorities. The assessee followed the accounting policy of netting off the input GST credit against the relevant expenditure and, therefore, the said refund was not separately credited to the Profit and Loss Account. However, the Tax Auditor reported the GST refund of Rs. 3,12,38,062/- in Clause 16(b) of the Tax Audit Report.

4.

On the basis of the aforesaid disclosure in the Tax Audit Report, the assessee received a notice u/s 143(1)(a) of the Act dated 17.05.2022 proposing an adjustment of Rs. 3,12,38,062 towards GST refund. The assessee filed its response on 15.06.2022 objecting to the proposed adjustment. However, while processing the ROI u/s 143(1) of the Act, the said amount was added to the returned income. The assessee thereafter sought rectification and reprocessing of the ROI. However, the adjustment continued to be sustained in the rectification proceedings, including the order passed u/s 154 of the Act dated 03.05.2023, resulting in a demand of Rs. 80,50,730.

5.

Aggrieved by the rectification order passed u/s 154 of the Act, the assessee preferred an appeal before the Ld. CIT(A). It was submitted that the amount of Rs. 3,12,38,062/- represented refund of unutilized Input Tax Credit under the GST laws and did not constitute income of the assessee. It was further submitted that the assessee had followed the accounting policy of netting off the input GST credit against the relevant expenditure and the refund was not separately credited to the Profit and Loss Account. The assessee also contended that the mere disclosure of the refund in Clause 16(b) of the Tax Audit Report could not result in its taxation and that the adjustment made while processing the ROI and sustained in the rectification proceedings was not justified.

6.

The Ld. CIT(A), after considering the ROI, Form 3CD, the rectification order, and the assessee's submissions, dismissed the appeal, observing that the assessee had disclosed NIL in Sl. No. 5(b) of Part A-OI of the ROI, whereas the Tax Auditor had reported an amount of Rs. 3,12,38,062 in Form 3CD towards GST refund admitted as due by the concerned authorities. According to the Ld. CIT(A), the said amount was not taken into account while computing total income in the ROI, and no revised ROI or revised Tax Audit Report was furnished to reconcile or correct the discrepancy. The Ld. CIT(A) further observed that the disclosures made in Form 3CD, being part of the statutory audit report filed by the assessee, could not be ignored and that an adjustment in respect of an increase in income or disallowance indicated in the audit report but not considered in the ROI was permissible u/s 143(1)(a)(iv) of the Act. The Ld. CIT(A) therefore held that the adjustment of Rs. 3,12,38,062/- made by the CPC was in accordance with law.

7.

The Ld. CIT(A) further considered the assessee's contention that the GST refund was not taxable since the input GST credit had been netted off against the relevant expenditure. The Ld. CIT(A) observed that, in the case of the assessee, GST was not charged on export sales while input tax credit was claimed on purchases. According to him, the GST paid and charged formed part of the accounting of sales and purchases and the amount ought to be routed through the Profit and Loss Account. He further observed that, where the refund was directly credited to the Balance Sheet, verification of whether such treatment was tax neutral was required to be verified from the books of account. The Ld. CIT(A) also observed that the GST refund could contain an interest component from the Government, the quantification of which would also require verification. On this basis, the Ld. CIT(A) held that the assessee's claim did not arise from a mistake apparent from the record, but required examination of the books of accounts and, therefore, could not be adjudicated in rectification proceedings u/s 154 of the Act. Accordingly, the Ld. CIT(A) upheld the CPC's action in rejecting the rectification request and confirmed the addition of Rs. 3,12,38,062/- and the consequential demand of Rs. 80,50,730/- only.

8.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. The Ld. AR filed a paper book running from pages 01 to 358 and reiterated the submissions made before the lower authorities. The Ld. AR further submitted that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in ITA Nos. 2889 and 2890 for A.Ys. 2023-24 and 2024-25, vide order dated 20.04.2026.

9.

The Ld. DR, on the contrary, vehemently relied upon the orders of the lower authorities and submitted that the adjustment was rightly made on the basis of the disclosure appearing in the Tax Audit Report. He accordingly supported the order of the Ld. CIT(A).

10.

We have considered the rival submissions of both the parties and perused the materials available on record. We find that the issue involved in the present appeal is squarely covered in favour of the assessee by the decision of the Coordinate Bench in the case of Dell International Services India Pvt Ltd vs. DCIT in ITA Nos. 2889 & 2890/Bang/2025 for A.Ys. 2023-24 and 2024-25, vide order dated 20.04.2026, wherein on an identical issue the Coordinate Bench has held as under:

“10. We have heard the rival submissions and perused the materials available on record. Before us, the assessee has raised mainly two grounds for the AY 2023-24 i.e. first relating to addition of Rs.345,28,51,548/- towards refund of GST, sales tax and service tax not credited to profit & loss account and secondly relating to alleged double addition of Rs.14,37,29,950/- towards margin on finished goods converted into capital assets. Further, for the AY 2024-25, the assessee has raised the sole ground of addition of Rs.274,31,61,059/- towards refund of Goods & service Tax, Sales Tax and Service Tax not credited to profit & loss account. The contention of the ld. A.R. of the assessee is that the assessee is following the exclusive method of accounting GST consistently where the statutory dues i.e. GST, sales tax and service tax etc. are collected from the customer and such collection of statutory dues is treated as statutory liability and shown under liabilities in the balance sheet without charging it to the profit & loss account. Further, the ld. A.R. submitted that this method is being consistently followed by the assessee and it is also an acceptable method of accounting. After considering the submissions made by the ld. A.R. of the assessee as well as the material placed on record, we are of the considered opinion that if the GST element is not routed through the profit & loss account by consistently following the exclusion method, then the question of taxing the GST refunds does not arise in the case of the assessee. Thus, when the payment of GST is not claimed as expenditure by debiting the same to the profit & loss account, then in our opinion refund of the GST cannot be liable to be taxed for alleged non crediting the same to profit & loss account. We also take note of the fact that the assessee had categorically submitted before the ld. Addl/JCIT(A) that these refunds do not represent taxable income since the assessee consistently followed the exclusive method of accounting for GST, wherein such indirect taxes paid are neither debited to the profit & loss account nor claimed as deduction. We are of the considered opinion that the ld. Addl/JCIT(A) could not understand the real crux of the issues in the present case. We are also of the considered opinion that the ld. Addl/JCIT(A) also misdirected himself in holding that the benefit arise from the remission or cessation of a liability earlier incurred in the course of business would be taxable u/s 41(1) of the Act or, alternatively be liable to be taxed u/s 28(i) of the Act. 10.1 Undisputedly, in the present case, the assessee is following the exclusion method of accounting for GST consistently where purchases, sales and inventories are recorded at their net value, excluding the tax component. Under this method, the GST paid on inputs is debited to a separate "Input GST" account to be claimed as a credit, while GST collected on sales is credited to an "Output GST" account as a liability. Further, the assessee company has also made the disclosure in note no.9 & 14 of the audited financial statement which are reproduced below- We are of the considered opinion that following either the exclusive method or inclusive method consistently generally does not change the final taxable profit, provided the necessary adjustments are made. We also do agree with the contentions of the ld. DR that as per the provisions of section 145A of the Act, for the purpose of determining the income chargeable under the profits & gains of business, the valuation of purchase, sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation and for this reason only the Tax Auditor had made the observations 13 & 15 in the tax audit report as reproduced above. On going through the above, we noticed that the auditor had categorically observed that there are no deviations from the method of valuation prescribed u/s 145A of the Act except sales are net of goods and service tax(GST), purchases are valued exclusive of GST credits and effect of the above deviation, computed in the manner prescribed in the guidance note on tax audit u/s 44AB of the Act issued by the ICAI would not have any impact on the profit before taxation. Further, the auditor had categorically stated that the GST and input tax credits availed by the assessee on goods and service paid or incurred on purchase of raw materials including components are not included in the valuation of purchases and inventory, but carry forward under balance with Government authority under other current assets. Thus, we are of the considered opinion that once GST element were not routed through the profit & loss account, then question of taxability of the refunds of GST, Sales Tax and service tax does not arise in the case of the assessee company. After perusal of the materials on record, we also find that the ld. Addl/JCIT(A) had not disproved the claim of the assessee that it had neither debited the expenditure pertaining to GST/Service tax/sales tax to the profit & loss account nor credited the corresponding refund amount as per the accounting policy followed by the assessee company consistently over the number of years. 10.2 We noticed that the ld. Addl/JCIT(A) was himself confused whether the refund of GST, Sales Tax and service tax is taxable u/s 41(1) of the Act or section 28(1) of the Act without proper understanding the crux of the issue in hand. Thus, where the assessee is following exclusive method of accounting for GST consistently and has not debited the GST/sales tax/service tax to profit & loss account then the question of taxing the refunds of the same does not arise in the case of the assessee and accordingly, we allow this ground of appeal of the assessee for both these AYs in appeal before us.” 10.1 Before us, the learned DR has not brought any material suggesting any distinguishing facts and has failed to bring material suggesting that the above-mentioned decision of the Coordinate Bench has been reversed by the higher authorities or that any higher court has taken a contrary decision. Hence, respectfully following the aforesaid decision of the Coordinate Bench, we hold that the addition of Rs. 3,12,38,062/- on account of GST refund cannot be sustained in the facts of the case. Accordingly, the order of the Ld. CIT(A) on this issue is set aside, and the AO is directed to delete the addition. Hence, the grounds raised by the assessee are accordingly allowed.

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

Order pronounced in the open court on 7th October, 2026.

Sd/- Sd/- SANDEEP SINGH KARHAIL WASEEM AHMED JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore Dated: 7th October, 2026. Vms Copy to: NTT DATA FA INSURANCE SYSTEM INDIA PRIVATE LIMITED, 2ND FLOOR, TOWER 3 BLUE CHIP COLONY ADUGODI, BANGALORE, 1 DHARMARAM COLLEGE, S O BANGALORE, BENGALURU-560029, KARNATAKA

DEPUTY COMMISSIONER OF INCOME TAX , 2 BMTC BUILDING, KORAMANGALA, BENGALURU-560034, KARNATAKA

3 THE PCIT / CIT, 4 THE D.R., ITAT, BANGALORE BENCH 5 GUARD FILE

By Order ASSISTANT REGISTRAR / I.T.A.T., BANGALORE Digitally signed P G by P G RAJANI Date: RAJANI 2026.10.21 12:21:42 +05'30'

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