OM YASH PROJECTS LIMITED,AHMEDABAD vs. THE ITO, WARD-3(1)(1), AHMEDABAD

The assessee is engaged in the business of EPC (Engineering, Procurement, and Construction) contracts for State and Central Government projects. The company procures work orders through government tendering processes.

The assessee filed its return of income for A.Y. 2023-24, declaring total turnover as per books of accounts at Rs. 1,07,22,34,247/-, whereas total gross receipts as per Form 26AS stood at Rs. 1,16,87,23,656/- The assessee claimed TDS credit of Rs. 2,46,82,297/-, reflecting the deduction made by government authorities. The CPC, Bangalore processed the return under section 143(1) and restricted the TDS credit to Rs. 2,26,56,755/-, disallowing Rs. 20,25,542/- by proportionately reducing the TDS claim to match the turnover reported in the books. As a result, instead of processing a refund of Rs. 1,79,440/-, CPC raised a tax demand of Rs. 21,23,920/-.

The assessee challenged CPC’s adjustment before the CIT(A), arguing that the entire TDS credit should have been allowed as reflected in Form 26AS. The assessee also argued that the TDS disallowance was erroneous since the mismatch arose due to the deductor’s method of deducting TDS on the gross invoice amount (including GST). Further the assessee argued that the CPC had no juri iction to proportionately restrict TDS credit under section 143(1), as such an adjustment requires detailed verification under scrutiny assessment (section 143(3)). The assessee also argued that the CPC failed to correctly apply CBDT Circular No. 23/2017, which clarifies that TDS should not be deducted on the GST component if separately indicated. Asst. Year : 2023-24

The CIT(A) dismissed the appeal on the ground that the assessee itself admitted that the tender amount always included GST and did not provide a bifurcation. Therefore, th CIT(A) concluded that the deduction of TDS on the gross invoice amount was in line with the contractual terms and CPC was justified in restricting TDS credit in proportion to turnover as per books.

Aggrieved by the order of CIT(A), the assessee is in appeal with following tabulated grounds of appeal:

The assessee also raised following additional grounds of appeal:

1 To substantiate its claim, the assessee submitted sample copies of invoices before us, demonstrating the bifurcation between taxable value and GST. The AR further contended that the CIT(A) failed to correctly apply CBDT Circular No. 23/2017 dated 19-07-2017, which explicitly states that TDS should not be deducted on the GST component if it is separately indicated in the invoice. Since the government deductors (Customers) erroneously included GST while deducting TDS, the CIT(A) ought to have directed CPC to grant full TDS credit instead of restricting it proportionately. By not granting the full TDS credit as reflected in Form 26AS, the CIT(A) acted contrary to the clarifications issued by the CBDT. The AR also placed on records two letters from Customers namely Executive Engineer, Panam Project Division Godhra Department and Watrak Project Canal Division confirming the fact that they have deducted tax on GST element of the invoice amount.

The assessee also placed reliance on the decision of the Co-ordinate Bench in Escorts Ltd. vs. DCIT (ITA No. 2436/Del/2005, order dated Asst. Year : 2023-24

05.2007), wherein the Bench held that TDS credit cannot be denied merely due to a mismatch between turnover as per books and Form 26AS, and that credit for TDS must be given in the year in which the corresponding income is assessable, provided the TDS has been duly deposited with the government.

The Departmental Representative (DR) on the other hand relied on the order of CIT(A).

We have heard the parties and perused the material on record. The primary issue in dispute pertains to the proportionate disallowance of TDS credit by the CPC, which was upheld by the CIT(A). The assessee contends that the difference between turnover as per books and turnover as per Form 26AS is solely due to the inclusion of GST in Form 26AS, whereas, in its books of accounts, GST is excluded as it is merely a statutory liability and not part of income. We find merit in the assessee’s contention that GST cannot be considered as part of income, as it is a tax collected on behalf of the government and does not accrue to the assessee as revenue. The CBDT Circular No. 23/2017 dated 19-07-2017 explicitly clarifies that TDS should not be deducted on the GST component if it is separately indicated in the invoice. In the present case, it is evident that government departments, who are customers of the assessee, deducted TDS on the gross invoice amount, including GST, leading to a mismatch between the turnover reflected in Form 26AS and the turnover recorded in the assessee’s books.

We further note that the CPC, while processing the return under section 143(1), proportionately restricted the TDS credit based on turnover as per books, thereby creating a tax demand of Rs. 21,23,920/- instead of Om Yash Projects Ltd. vs. ITO Asst. Year : 2023-24

In case of Executive Engineer Panam Project Division – GODH, the difference is -4.75%, which is lower than 18%; Executive Engineer Watrak Project Canal Division, where the difference is 12.32%, also lower than 18%; and in case of Executive Engineer Sujalam Suflam-GWRDCL, where the difference exactly matches 18%, supporting the assessee’s argument. This indicates that while GST contributes to the turnover mismatch, further verification is required to ensure that all amounts on which TDS was deducted are duly accounted for in the assessee’s total income. Asst. Year : 2023-24

The CIT(A) has relied on the terms of the contract to conclude that TDS was correctly deducted on the gross invoice amount, including GST. However, we find that the terms of the contract do not change the nature of GST as a statutory liability, distinct from taxable revenue. GST, by its very nature, cannot be considered part of the assessee’s income, and its inclusion in Form 26AS does not justify the proportionate disallowance of TDS credit. The government deductors’ failure (i.e. failure of assessee’s customers)) to bifurcate GST while deducting TDS does not alter the legal position that GST is not part of income and must be excluded while computing tax liability.

The assessee has relied on the decision of the Co-ordinate Bench in Escorts Ltd. vs. DCIT (ITA No. 2436/Del/2005, order dated 11.05.2007), wherein the Bench held that TDS credit cannot be denied merely due to a mismatch between turnover as per books and Form 26AS, and that credit for TDS must be given in the year in which the corresponding income is assessable, provided the TDS has been duly deposited with the government. We find that the CPC acted beyond its juri iction by making such an adjustment under section 143(1), as the verification of TDS credit requires detailed examination, which falls within the scope of scrutiny assessment under section 143(3) rather than summary processing under section 143(1). The CIT(A) also failed to appreciate this juri ictional issue and did not independently verify whether the amounts reflected in Form 26AS were duly accounted for in the assessee’s books.

In light of the above, we hold that the assessee’s claim regarding GST is prima facie correct, but further verification is necessary in cases where the percentage difference does not match 18% exactly. Accordingly, we direct the Om Yash Projects Ltd. vs. ITO Asst. Year : 2023-24

Accordingly, the appeal of the assessee is allowed for statistical purposes.

अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ ) अपील ( / The CIT(A) 5. िवभागीय Ůितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाडŊ फाईल / Guard file.