2025 (1) TMI 1649 - AT - Income Tax

GST refund on export of services deleted from taxable income under Section 145A(ii) as accounting method upheld

ITAT Mumbai allowed the assessee's appeal, directing deletion of the addition of a GST refund on export of services to taxable income. The tribunal found ... Adjustments of the refund of GST - assessee received a refund of tax paid on export of services - HELD THAT:- 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 considered view that, if refund of GST is added to the taxable income of the assessee then, the GST expenses should also be charged to the profit and loss account and this exercise would be tax neutral. Therefore, in our considered opinion, since the assessee is following exclusive method of accounting the same cannot be faulted with and the AO is directed to delete the impugned addition. Appeal of the assessee is allowed. Assessee received GST refund of Rs.1,86,58,736 relating to FY 2019-20 (relevant to AY 2020-21). GST paid on expenses had been recorded as a current asset ('Loans and Advances'/'Balance with Government Authorities') and never charged to the profit & loss account. Tax auditor reported the refund under clause 16(b) of the Tax Audit Report as 'any amount not credited to the P&L Account.' CPC added the refund to taxable income; CIT(A) upheld the addition relying on Section 145A(ii). Tribunal found it undisputed that the GST was never claimed as expense or charged to P&L and that Section 145A(ii) 'squarely apply' but held that treating the refund as income would require corresponding charging of GST expenses to the P&L to remain tax neutral. Given the assessee's consistent accounting method (exclusive method), the addition was deleted and the appeal allowed.