GST refund taxation fails where GST expense was never claimed in profit and loss under an exclusive accounting method.

GST refund received by an assessee who had treated GST paid on expenses as a current asset, and had not debited it to the profit and loss account, could not be taxed in isolation. The accounting treatment showed an exclusive method under which the GST outgo was never claimed as an expense, so bringing only the refund to tax would create a non-neutral result. The analysis noted that section 145A(ii) applied, but the refund had to be viewed with the corresponding expenditure treatment. On that basis, the addition of the GST refund was unsustainable and was deleted in favour of the assessee.

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Issues: Whether the GST refund received by the assessee was liable to be added to taxable income when the corresponding GST expenditure had not been claimed as an expense in the profit and loss account.

Analysis: The assessee had accounted for GST paid on expenses as a current asset and had not debited it to the profit and loss account. On receipt of the GST refund, the asset account was credited, and the refund was not treated as income in the books. Section 145A(ii) of the Income-tax Act, 1961 was applicable, but the accounting treatment showed that the assessee followed an exclusive method, under which the GST outgo was never charged to profits. In such a situation, if the refund alone were brought to tax, the corresponding expenditure would also have to be reflected in the profit and loss account, making the exercise tax neutral.

Conclusion: The addition of the GST refund was unsustainable and was directed to be deleted; the issue was decided in favour of the assessee.

Ratio Decidendi: Where GST expenditure has not been claimed in profit and loss account and the assessee follows an exclusive method of accounting, the corresponding GST refund cannot be taxed in isolation without making the overall treatment tax neutral.

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