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Facts
The assessee, M/s. Mindsprint Digital (India) Pvt. Ltd., filed its income tax return for AY 2021-22, claiming a refund. The CPC processed the return and proposed an addition of Rs. 15,33,09,868/- on account of inconsistency regarding GST refund. The assessee objected, stating that the refund was accounted as an asset and not income. However, the CPC made the addition. The assessee then filed a rectification application which was partially allowed, but the addition of Rs. 15,33,09,868/- remained.
Held
The Tribunal held that the Ld. CIT(A) erred by dismissing the appeal on technical grounds without adjudicating the merits of the addition. The Tribunal found that the adjustment made by the CPC required verification of accounts and that the Ld. CIT(A)'s action was mechanical. The Tribunal set aside the order of the Ld. CIT(A) and restored the appeal to his file for a decision on merits.
Key Issues
Whether the Ld. CIT(A) was justified in dismissing the appeal on technical grounds without deciding the merits of the addition related to GST refund.
Sections Cited
Section 246A, Section 154, Section 143(1), Section 43B, Section 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short "the Ld.CIT(A)”), Delhi, dated 04.03.2024 for assessment year (hereinafter in short ‘AY’) 2021-22.
The assessee has raised the following grounds:
1. The learned CIT(A) had erred in law and in facts by dismissing the appeal filed on 23 February 2023 under Section 246A of the Act preferred by the :: 2 ::
Appellant against the Rectification order passed on 24 January 2023 under section 154 of the Act.
2. The learned Respondent erred in law by failing to grant a sufficient opportunity to the Appellant to present their case during the rectification proceedings under section 154 of the Act.
3. The learned Respondent had erred in law by making the addition under section 143(1) of the Act and passing the rectification order under section 154 of the Act in a purely mechanical nature without any reasoning and application of mind.
4. The learned CIT(A) had erred in law and in facts by dismissing the CIT(A) appeal on the grounds that the addition of the GST refund received by the Appellant is not a mistake apparent on record and hence would be outside the purview of the rectification order.
5. The learned CIT(A) had erred in law by failing to adjudicate on the adjustment made by the CPC with regard to the addition of the GST Input tax credit refund received by the Appellant during the subject AY without taking the submissions made by the Appellant into consideration.
1. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, and to submit such statements, documents and papers as may be considered necessary either at or at any time before the hearing of this appeal.
The assessee has also moved an application for admitting & adjudicating additional grounds of appeal under Rule 11 of the Income Tax Rules, 1962, [ in short the Rules] which are reproduced as under:
On the facts and circumstances of the case and in law, the intimation order under section 143(1) of the Income-tax Act, 1961 ('the Act') dated 13 November 2022 and the rectification order under section 154 read with section 143(1) of the Act dated 24 January 2023, is wholly without jurisdiction as the adjustment made in the order do not fall under the nature of adjustments mentioned in clause (a) of sub- section (1) of section 143(1) of the Act, and therefore, liable to be quashed.
The Appellant craves leave to add, alter, amend and/or withdraw any of the above grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law.
The brief facts are that the assessee company is involved in the business of global integrated supply chain management and processing of agricultural products and food ingredients and supply of various products to customers worldwide. The assessee e-filed its income tax return [ITR] for AY 2021-22 on 10.03.2022 returning an income of Rs.60,86,00,560/- and claimed refund of Rs.1,16,93,840/-. The assessee’s return was processed by the CPC and the assessee received notice u/s.143(1)(a) of the Income Tax Act, 1961 (hereinafter in short ‘the Act’) vide DIN:
EFL/2122/G22/ ITR000218796608 dated 29 September 2022, proposing an addition of Rs 15,33,09,868/- to the returned income stating that there is inconsistency in amount mentioned in Sl. No. 5(b) of Part A Ol "The proforma credits, drawbacks, refund of duty of customs or excise or service tax, or refund of sales tax or value added tax, or refund of GST, where such credits, drawbacks or refunds are admitted as due by the authorities concerned of the ITR versus the concerned reporting done in clauses (16)(b) and 27(a) of the tax audit report ("TAR") e-filed for AY 2021-22”. In response to the notice above, the Assesse-Company e-filed a response objecting to the proposed addition and explained that the Company received Rs 15,33,09,868/- refund of GST/CENVAT which was initially accounted as asset and not claimed as expense in any assessment years, and since such receipts were only a realization of an asset/receivable balance reported in the balance sheet of the Company, the same will not constitute taxable receipts/income for AY 2021-22.
However, the CPC brushed aside the objections filed by the Company, and passed an intimation u/s 143(1) of the act vide DIN
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CPC/2122/A6/312217856 dated 13 November 2022 making an addition of Rs 15,73,86,696/- to the returned income and demanding a sum of Rs 3,54,28,530/- payable for AY 2021-22. A summary of additions made u/s 143(1) of Act, is stated below:
S.No. Particulars Amount as Amount as per Proposed per the the TAR (INR) addition (INR) ITR (INR) 1 Inconsistency in any sum 10,40,718 - 10,40,718 payable towards leave encashment claimed in return and tax audit report 2 Inconsistency in any amount 30,36,110 - 30,36,110 debited to profit and loss account of the previous year but disallowable under section 43B claimed in retum and tax audit report 3 Inconsistency in amount - 15,33,09,868 15,33,09,868 mentioned in return at Sl. No. 5(b) of Part A OI "The proforma credits, drawbacks, refund of duty of customs or excise or service tax, or refund of sales tax or value added tax, or refund of GST, where such credits, drawbacks or refunds are admitted as due by the authorities concerned and tax audit report 15,73,86,696
5. According to the assessee company, since there were no inconsistencies in facts and figures concerning the total taxable income as reported in the ITR and the TAR for AY 2021-22; and since the proposed addition of Rs 15,73,86,696/- was determined as result of error in processing the return by the CPC and mistakes apparent from records which requires rectification u/s 154 of the Act, the assessee Company e- filed a rectification application and requested seeking reprocessing the ITR for AY 2021-22. Subsequently, the CPC passed a rectification order u/s 154 of the Act vide DIN: CPC/2122/ U6/319713238 dated 24 January 2023, deleting the addition of Rs.40,76,830/- by correctly capturing the disclosures made in the ITR and the TAR for AY 2021-22 concerning allowance under Section 43B of the Act. However, the addition worth Rs.15,33,09,868/- (issue highlighted in S. No.3 in the table supra) was not rectified. Aggrieved by the CPC order (supra), the assessee preferred an appeal before the Ld.CIT(A), and contented that since export of service constitutes the sole source of income, the Company under the Goods and Service Tax Laws, is eligible to claim refund of indirect taxes namely Service Tax (ST) and Goods and Service Tax (GST) paid by it during the course incurring various expenses. And pointed out that it regularly accounts the ST/GST payments made as an asset balance in its books of account. Thus, it was contented that no portion of ST/GST paid by the Company are passed through P&L in the year of incurrence. And during AY 2021-22, the assessee received GST Refund worth Rs.15,33,09,868/- relating to various periods, as detailed in the following table:
Refund period Amount in INR October 2014 to December 2014 2,40,35,808 April 2019 to June 2019 1,25,81,337 July 2019 to September 2019 1.18.90,420 January 2020 1,02.23,584 February 2020 4.86.41.488 September 2020 4,59,37,231 15,33,09,868
In the tax audit report ("TAR") for AY 2021-22, the GST Refund amount above was reported by the tax auditor in clause 16(a) as 'Refunds of Goods & Services Tax' under the head the proforma credits, drawbacks, refunds of duty of customs or excise or service tax or refunds of sales tax or value added tax or Goods & Services Tax, where such credits, drawbacks or refunds are admitted as due by the authorities concerned and in clause 27(a) as 'CENVAT/ITC Credit Utilized with remarks 'Amount of CENVAT credit availed or utilized is not passed through the statement of profit/loss'. And that the sum above reported in the TAR for AY 2021- 22 constitutes Service Tax and Goods and Service Tax paid by the Company in the past which was refunded by the tax authorities during AY 2021-22. At time of payment, the Company regularly accounted such amounts an asset balance, as such taxes were refundable in nature. In the financial statements, the same was reported under the head 'Balances with Government Authorities' under 'Note 13: Long term loans and advances in the asset side of the balance sheet. And during any assessment years, no portion of the above sum was debited to the profit and loss account as expense nor was claimed as a deduction for the purpose of computation of the total taxable income. Hence, it was contented that the proposal to treat the GST Refund of Rs.15,33,09,868/- was flawed/unwarranted.
However, the Ld.CIT(A) who was pleased to dismiss the same by holding as under:
DECISION: I have duly perused the Order of AO, submission of the appellant and other available material on record.
5.1. The appellant is in appeal against the rectification order u/s 154 of the Act dated 24.01.2023 passed by the CPC, Bengaluru wherein GST refund received by the appellant has been taxed, Appellant claims that he never routes GST taxes paid and charged through P & L account, but directly credits the same to the balance- sheet.
5.2. As per the GST Act, tax payer receives GST refund (specifically in appellant's case) when appellant is not required to charge GST on the sales made by it as the same is export while at the same time, appellant claims input tax credit of GST paid on its purchases. As per accounting standards, GST paid and charged are part of sales price and purchase costs. Therefore, the same should be routed through P & L account and when the same is not routed through the P & L account and directly credited to balance sheet, whether such entry is tax neutral or not is a matter of verification. Further, such GST refund will have interest component paid by the Govt. in it. Quantification of such interest income component is also a matter of verification from the accounts maintained by the appellant. Thus, it is clear that claim made by the appellant is not derived from the mistake apparent from the record but requires verification of the books of accounts of the appellant. Hence, this cannot be such matter of proceedings under sec. 154 of the Act. In view of this, grounds of the appellant are dismissed, accordingly.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. We don’t countenance the action of the Ld.CIT(A) dismissing the appeal preferred by the assessee merely on the ground that the grievance of the assessee couldn’t have been redressed by an application u/s.154 of the Act since it requires verification of books of accounts of the assessee. Hence, he declined to adjudicate the grounds of appeal and justified the action of the CPC passed u/s.154 of the Act and therefore, dismissed the grounds raised by the assessee.
10. We note that the assessee received notice u/s.143(1)(a) of the Act proposing an addition of Rs.15,33,09,868/- regarding the inconsistency in amount mentioned in 5(b) of Part A (supra) noted above. Thereafter, the assessee objected to the proposed addition and explained that the amount received i.e. Rs.15,33,09,868/- was GST/CENVAT refund which was initially accounted as asset and not claimed as expenses in any assessment year and since, such receipts were only a realization of an asset/receivables balance reported in the balance sheet of the company and the same will not constitute taxable receipts/income for AY 2021-22.
However, the CPC by intimation dated 13.11.2022 ignored the objection of the assessee and not only made adjustment in respect of the GST/CENVAT refund of Rs.15,33,09,868/- made adjustment in respect of leave encashment of Rs.10,40,718/- and also disallowed u/s.43B of Rs.30,36,110/-. Pursuant to the same, the assessee filed rectification application on 01.12.2022 and pointed out to us that in the format for it, the assessee had three options (i) return data correction offline mode (ii) tax credit mismatch correction (TDS/TCS advance) & (iii) re-process the return; and the assessee has selected “re-process the return” since the assessee’s case doesn’t fall under the other two modes. Thereafter, the assessee received a rectification order u/s.154 dated 24.01.2023 deleting the two-addition totaling Rs.40,76,830/- and restricted the addition to Rs.15,33,09,868/-. On appeal, the assessee assailed the addition reiterated by CPC of Rs.15,33,09,868/- and gave the explanation which we have noted supra. However, the Ld.CIT(A) has not gone into the merits of the addition but merely went by hyper technicality and like a computer has rejected the claim of assessee on the ground that it requires verification of facts and justified the CPC action u/s.154 of the Act. Such a mechanical action of the First Appellate Authority can’t be countenanced. In this case, the intimation of CPC u/s.143(1) of the Act dated 13.11.2022 has been substituted by the rectification order dated 24.01.2023; and only the rectification order dated 24.01.2023 survives.
Therefore, when assessee is aggrieved by the intimation order u/s.143(1)/154 of the Act then the Ld.CIT(A) can’t overlook the fact that in the first-place adjustment in question was made by the CPC u/s.143(1) of the Act. Thereafter, CPC while processing the rectification application [which is riddled with several practical problems] refused to interfere with the intimation u/s.143(1) of the Act meaning the adjustment made u/s.143(1) of Rs.15,33,09,868/- still subsists. The impugned action of the Ld.CIT(A) can be said to be akin to “missing the woods for trees”. If the argument of the Ld.CIT(A) not to interfere with the CPC is accepted, (i.e. issue raised by the assessee needs verification) then the Ld.AR wondered as to how CPC in the first place made such an adjustment and merely because assessee didn’t file appeal against the intimation order u/s.143(1) of the Act and proceeded under alternate procedure u/s.154 of the Act, the assessee should not be denied its claim, on hyper technical ground. It must be borne in mind that in the case of Owners & Parties interested in MV Vali Perov. Fernandeo Lopez AIR 1989 SC 2206, it was observed by Hon’ble Apex Court that Rules of procedure are not by themselves an end, but means to achieve the ends of justice. Rules of procedure are tools forged to achieve justice and are not hurdles to obstruct the pathway to justice. Construction of a rule of procedure which promotes justice and prevents its miscarriage by enabling the Court to do justice in myriad situations, all of which cannot be envisaged, acting within the limits of permissible construction, must be preferred to that which is rigid and negatives the cause of justice. Procedure is meant to subserve and not rule the cause of justice.
For the aforesaid reason discussed and applying the principle from the case law cited supra we don’t accept the impugned action of the Ld.CIT(A) and therefore, we set aside the same and restore the appeal back to his file with a direction to decide the grounds of appeal raised by the assessee on merits as contemplated under sub-section (6) of sec.250 (AY 2021-22) M/s.Mindsprint Digital (India) Pvt. Ltd. of the Act and in accordance to law; and if verification is required, the assistance of field Units may be taken by the Ld CIT(A) after hearing the assessee.
In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 20th day of November, 2024, in Chennai.