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Facts
The assessee received a refund of GST paid on export of services. The CPC added this refund to the assessee's taxable income, which was upheld by the CIT(A). The assessee argued that since GST expenses were never debited to the P&L account, the refund should not be treated as income.
Held
The Tribunal held that if the GST refund is added to the taxable income, the corresponding GST expenses should also be charged to the profit and loss account, making the exercise tax neutral. Since the assessee consistently followed a method of accounting, the AO was directed to delete the addition.
Key Issues
Whether a GST refund received by the assessee should be added to taxable income when the initial GST payments were not treated as expenses in the profit and loss account.
Sections Cited
145A(ii)
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the assessee is preferred against the order of the Addl./JCIT(A)-2, Surat [hereinafter ‘the ld. CIT(A)’] dated 01/10/2024, pertaining to AY 2022-23.
The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in upholding the action of the CPC in making adjustments of the refund of GST amounting to Rs.1,86,58,736/-. 3. Briefly stated the facts of the case are that during the year under consideration, the assessee received a refund of tax paid on export of services aggregating to Rs.1,86,58,736/- pertaining to F.Y. 2019-20, relevant to AY 2020-21. 4. The assessee recorded GST paid on expenses under “Loans and Advances” as Current Assets - Balance with Government Authorities in 2 the balance sheet at the time of its increments in the respective years. The same was not claimed as expenses while computing the taxable income for the respective years. Upon receipt of GST refund, the asset account was credited by the said amount. Since there was no element of income in the said GST refund, the same was not credited to the statement of P&L account. 5. The tax auditor reported such GST refund under clause 16(b) of the Tax Audit Report (TAR) for AY 2022-23 as any amount not credited to the P&L Account. 6. The CPC while processing the return of income has added this amount of GST refund for this the assessee preferred appeal before the ld. CIT(A) and vehemently contended that since no part of GST expenses was credited to the P&L account and since it was not charged to profit, the refund should not have been added as income. 7. Though the ld. CIT(A) was convinced that the said GST was not charged to profit, but drawing support from the provisions of Section 145A(ii) of the Act, the ld. CIT(A) was of the firm belief that GST refund shall result in increase in taxable income of the assessee and upheld the order of the CPC. 8. Before us, the ld. Counsel for the assessee, reiterated what has been stated before the ld. CIT(A). The ld. D/R strongly supported the findings of the ld. CIT(A). 9. We have given a thoughtful consideration to the orders of the authorities below. It is an undisputed fact that the assessee has never claim the GST payment as expenses and charged to its profit and loss account. It is equally true that the provisions of Section 145A(ii) of the Act, squarely apply in the facts of the present case. We are of the I.T.A. No. 6275/Mum/2024 3