GST refund not taxable as income where indirect tax was never debited to profit and loss account

GST refund received under the exclusive method of accounting was not assessable as income under section 143(1) where the indirect tax component had been kept as a receivable and not debited to the profit and loss account. The refund merely represented recovery of an amount already reflected as receivable from the GST department, so its inclusion in the tax audit report did not by itself justify an addition. Income character would arise only if the tax component had earlier been claimed as an expense. The addition was therefore deleted in favour of the assessee.

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Issues: Whether the GST refund amount, not routed through the profit and loss account under the exclusive method of accounting, could be added as income under section 143(1) of the Income-tax Act, 1961.

Analysis: The assessee followed the exclusive method of accounting for indirect taxes, under which the tax component was kept separately as a receivable and not debited to the profit and loss account. The refund, therefore, represented recovery of an amount already reflected as receivable from the GST department. The addition could not be sustained merely because the amount appeared in the tax audit report, when the underlying tax had not been claimed as expenditure. The character of income would arise only where the tax component had earlier been debited as an expense.

Conclusion: The addition of the GST refund was unsustainable and was deleted. The issue is decided in favour of the assessee.

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