Prima-facie adjustment permitted for undisclosed GST refund; accounting non-compliance requires factual verification and remand for opportunity to be heard.

Permissibility of prima-facie adjustment: the authority held that prima-facie additions are allowable where the return and accompanying documents disclose an inadmissible claim, so the GST refund not routed through profit and loss could be adjusted under prima-facie scrutiny. Mandatory accounting compliance: adherence to mercantile accounting rules and notified ICDS requiring inclusive (gross) accounting is mandatory and the tax impact of the assessee's exclusive method requires factual verification of books and returns. Natural justice breach: appellate reclassification without specific opportunity was irregular; matter remitted for de novo adjudication with opportunity to be heard and produce records.

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Issues: (i) Whether a GST refund not routed through profit and loss account can be subjected to addition by prima-facie adjustment under section 143(1)(a)(iv) of the Income-tax Act, 1961; (ii) Whether the assessee's adoption of exclusive method of accounting (net of indirect taxes) in place of the inclusive method required by section 145(2) read with notified ICDS renders the GST refund exigible to tax or is tax-neutral; (iii) Whether the first appellate authority's treatment of the impugned item under section 28(iiic) of the Income-tax Act, 1961 without affording specific opportunity violated the principle of natural justice.

Issue (i): Whether a GST refund not routed through profit and loss account can be subjected to addition by prima-facie adjustment under section 143(1)(a)(iv) of the Income-tax Act, 1961.

Analysis: The Tribunal considered statutory scheme including section 143(1)(a)(iv) and relied on binding precedents holding that prima-facie adjustments under section 143(1) are permissible where, on the face of the return and accompanying documents (such as tax audit report), a claim appears inadmissible. The Tribunal noted the tax auditor's certification in Form 3CD clause 16A recording that the GST refund was not credited to profit and loss account and that the assessee maintained books on mercantile basis but followed exclusive accounting.

Conclusion: The addition of the GST refund by way of prima-facie adjustment under section 143(1)(a)(iv) is permissible and the orders of the authorities below in making that adjustment were not interfered with on this ground (decision against assessee on this issue).

Issue (ii): Whether the exclusive method of accounting adopted by the assessee, contrary to section 145(2) and applicable ICDS, is tax-neutral so as to negate the impugned addition.

Analysis: The Tribunal examined section 145 and the notified ICDS (notably ICDS II, IV and V) which mandate the inclusive (gross) method of accounting for taxpayers following mercantile system. The Tribunal observed that while the exclusive method may be argued to be tax-neutral in principle, compliance with section 145(2) and ICDS is mandatory and factual verification is required to determine whether non-adherence resulted in any revenue loss. The Tribunal held that such factual enquiry cannot be resolved on the basis of a certificate alone and requires verification of audited books, financial statements and returns.

Conclusion: The claim of tax-neutrality on account of adoption of exclusive method is not accepted at this stage; factual verification is required and the matter is remitted for de novo consideration (decision reserved to assessing/reappellate authority in favour of factual enquiry for assessee).

Issue (iii): Whether the first appellate authority violated the principle of natural justice by treating the impugned item as falling under section 28(iiic) of the Income-tax Act, 1961 without giving specific opportunity to the assessee.

Analysis: The Tribunal reviewed the appellate proceedings and the absence of opportunity to the assessee before treating the impugned item under the said provision. The Tribunal found that the appellate order suffered from procedural irregularity in this respect and that the matter could not be allowed to stand without affording the assessee an opportunity to place material and submissions on this classification.

Conclusion: The appellate order is irregular on this ground and is therefore set aside; the matter is remitted for fresh consideration permitting the assessee opportunity to be heard (decision in favour of assessee on procedural ground).

Final Conclusion: The Tribunal upholds the permissibility of prima-facie addition under section 143(1)(a)(iv) but finds procedural infirmity in the appellate treatment under section 28(iiic) and requires factual verification on the claimed tax-neutrality of the exclusive accounting method; accordingly the impugned orders are set aside and the matters are remitted for de novo adjudication with directions to decide after affording the assessee opportunities to produce records and make submissions; the appeals are allowed for statistical purposes.

Ratio Decidendi: Prima-facie adjustments under section 143(1)(a)(iv) are permissible where the return and accompanying documents disclose inadmissible claims; compliance with section 145(2) and notified ICDS is mandatory for assessees following mercantile accounting and factual verification is necessary to determine tax impact of accounting methods, and appellate classification that affects taxability must be preceded by adequate opportunity to the assessee.

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