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Judgment
PER M. BALAGANESH, A. M.:
The appeal in ITA No.4616/Del/2025 for AY 2021-22, arise out of the order of the Addl. / Jt. Commissioner of Income Tax (Appeals)-5, Mumbai [hereinafter referred to as ‘ld. JCIT(A)’, in short] dated 28.03.2025 against the order of assessment passed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 14.08.2022 by the Assessing Officer, AO, CPC (hereinafter referred to as ‘ld. AO’).
At the outset, we find that there is a delay in filing of appeal by the revenue by 58 days. Considering the reason adduced in the condonation petition, in the interest of substantial justice, we are inclined to condone the delay and admit the appeal of the revenue for adjudication.
The only effective issue to be decided in this appeal of the revenue is as to whether the Learned Additional CITA was justified in deleting the addition of Rs 4,07,65,063/- made by the Learned CPC under section 143(1) of the Act on account of GST amount in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. The Assessee is a private limited company engaged in the business of providing manpower and staffing solutions, offering comprehensive workforce management services including recruitment, deployment, payroll processing and statutory compliance across multiple locations. The return of income for the assessment year 2021-22 was filed by the Assessee on 05-02-2022 declaring total income of Rs. Nil after claiming current year loss of Rs. 7,57,80,511. The return was duly processed under Section 143(1) of the Act. While processing the return, an adjustment of Rs. 4,07,65,063 was made on the basis of disclosure in Clause 16(a) of the Tax Audit Report in Form 3CD wherein it was stated that GST collected from customers had not been credited to the Profit and Loss Account. This adjustment was made by treating the said GST amount as income under the head “items falling within the scope of Section 28” and thereby restricting the loss returned by the Assessee. The GST amount represents a statutory levy collected on behalf of the Government and duly deposited with the appropriate authorities and in accordance with the consistent method of accounting followed by the Assessee, the same was not routed through the Profit and Loss Account. Aggrieved by the said adjustment made in the Intimation, the Assessee preferred an appeal before the Learned Additional CITA. Considering the detailed written submissions filed by the Assessee before the Learned Additional CITA together with the accounting treatment given for the GST by the Assessee, the Learned Additional CITA deleted the addition by observing as under:-
“5.Decision: I have gone through the facts of the case, the ground of appeal and the submissions made by the appellant. It is seen that all the grounds raised relate to the adjustment made on account of GST collected of Rs.4,07,65,063/- but not routed through the profit and loss account. This adjustment has been made on the basis of information furnished in the clause 16 of the tax audit report that GST collected was an item falling within the scope of section 28. It is submitted by the appellant that it was following the exclusive method of accounting and even if the GST is routed through the profit and loss account, then the same would have no impact on the net profit, as the effect of the GST entries would be on both sides of the profit and loss account i.e., GST that is collected would be taken into account along with gross receipts and GST that is remitted for purchases as well as overheads would be debited along with the said expenses and consequently the same would have no impact on the profit figure. Thus even if the GST component in the valuation of inventory/ sales/purchase is considered as per the inclusive method, it would be tax neutral.
5.2The appellant also furnished a certificate of its Chartered accountant as under-
5.3From the above certificate of Chartered Accountant, it is seen that even after making the adjustment as per the inclusive method there is no impact on the net profit of the appellant. Considering the factual matrix, the exclusive method of accounting for valuation of inventory is tax neutral in the case of the appellant, therefore the AO was apparently not correct in making an adjustment of Rs.4,07,65,063/-. The AO is, hence, directed to delete the addition of Rs.4,07,65,063/-. As the relief sought has been allowed to the appellant, the other grounds raised relating to validity of invoking of Section 143(1)(a)(iv) are not adjudicated.
6.In the result, the appeal stands allowed.”
We find that the Learned Additional CITA had taken due cognizance of the fact that there would be absolutely no impact on the profitability of the company under both Exclusive Method and Inclusive Method of Accounting of GST i.e. by routing GST portion through the profit and loss account and by excluding them. Hence we do not find any infirmity in the order of the Learned Additional CITA. Accordingly, the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.