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Judgment
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of ld. ADDL/JCIT (A)-2, Vadodara [“Ld. CIT(A)”, for short] dated 26.02.2026 for the AY 2022-23 raising following grounds of appeal :-
“1.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) has grossly erred in upholding and/or failing to adjudicate properly the action of the Learned Assessing Officer, Deputy Director of Income Tax, CPC, Bengaluru, in treating the GST Input Refund amounting to Rs.3,98,152/- as income of the Appellant, The said adjustment has been made mechanically and without proper application of mind, ignoring the facts on record and settled legal position. The addition so made is unjustified, arbitrary, and liable to be deleted, and consequently, the demand raised thereon also deserves to be deleted.
2.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) has grossly erred in upholding and/or failing to adjudicate the validity of the order passed under section 154 of the Income-tax Act, 1961, wherein the Learned Assessing Officer rejected the rectification application without duly considering the mistake apparent from the record as specifically pointed out by the Appellant and without granting the opportunity of virtual hearing as requested. The impugned order has thus been passed in violation of the principles of natural justice and is arbitrary, unlawful, and liable to be quashed.
3.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in dismissing the appeal as non-maintainable, without appreciating that the order passed under section 154 rejecting the rectification application is an appealable order under section 246A of the Income-tax Act, 1961, and therefore the Learned CIT(A) ought to have adjudicated the appeal on merits; the impugned order is arbitrary, contrary to law, and liable to be set aside.”
Brief facts of the case are, assessee is an individual engaged in manufacturing business under the proprietorship concern “Sapan Hosiery”. The return of income for AY 2022-23 was filed on 05.11.2022 declaring total income of Rs.4,94,360/- as per audited books of account. The tax audit report in Form 3CB-3CD dated 01.09.2022 was furnished along with the return. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’) on 01.02.2023 wherein during processing, CPC treated GST refund amounting to Rs.3,98,152/- (as reported in clause 16(b) of Form 3CD) as taxable income and recomputed total income at Rs.8,92,510/-. The assessee then filed rectification application and vide rectification order dated 19.11.2024 u/s 154 of the Act, Assessing Officer confirmed the recomputation and demand of Rs.88,750/-
Aggrieved with the above order, assessee preferred an appeal before the ld. Addl/JCIT(A)-2, Vadodara and separate grounds were raised as well as detailed submissions were submitted which are reproduced at pages 4 to 9 of the appellate order. After considering the detailed submissions of the assessee, ld. CIT (A) dismissed the appeal.
Aggrieved with the above order, assessee is in appeal before us.
At the time of hearing, ld. AR of the assessee submitted that the return of income for AY 2022-23 was processed under section 143(1), wherein the said addition was made solely on the basis of disclosure in Clause 16(b) of the Tax Audi Report (Form 3CD), which reported "Refund of Goods & Services Tax". He submitted that the said disclosure has correctly made in compliance with the statutory reporting requirements and does not, by itself, determine the taxability of the amount. He submitted that GST is a statutory levy collected and paid on behalf of the Government and the assessee does not earn GST as income, rather, it merely acts as an intermediary for collection and remittance. He submitted that any refund of such tax is, therefore, in the nature of a return of tax paid and does not constitute income under the provisions of the Act. Further, he submitted that GST component paid on purchases and services was ever debited to the Profit & Loss Account and the same was accounted for in the GST Input Credit Ledger and reflected in the balance sheet. He submitted that since no expenditure on account of GST was claimed as a deduction, the refund thereof cannot be brought to tax. There is no element of profit, gain or benefit arising to the assessee from such refund. He submitted that the CPC has mechanically treated the disclosure in Form 3CD as taxable income without examining the accounting treatment or the nature of receipt and such an approach is contrary to settled principles of taxation, wherein only real income can be subjected to tax. He submitted that refund of GST/IGST does not constitute taxable income is squarely supported by judicial precedents, wherein identical addition made by CPC solely on the basis of disclosure in Clause 16(b) of Form 3CD have been disapproved. In this regard, he relied on the following decisions :-
ITAT, Delhi Bench in Coforge Limited vs. DCIT in ITA No.4333/Del/2024 order dated 30.09.2025 ITAT, Mumbai Bench in M/s Tanyo Exports Pvt. Ltd. v. DCIT (ITA No. 4959/Mum/2025. AY 2024-25, order dated 22.12.2025)
ITAT, Delhi Bench in the case of Ecoenergy Insights Limited vs. ACIT – ITA No.5413/Del/2024 order dated 13.08.2025.
On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that the aforesaid addition was made solely on the basis of disclosure in Clause 16(b) of the Tax Audi Report (Form 3CD), which reported "Refund of Goods & Services Tax". We observed that GST is a statutory levy collected and paid on behalf of the Government and the assessee does not earn GST as income, rather, it merely acts as an intermediary for collection and remittance. Further, we observed that any refund of such tax is, therefore, in the nature of a return of tax paid and does not constitute income under the provisions of the Act. We find that this issue is squarely covered by the aforesaid decisions of ITAT Benches, as relied upon by the assessee.
We observed that ITAT, Mumbai Bench in M/s Tanyo Exports Pvt. Ltd. v. DCIT (supra) dealt with an identical adjustment made under sections 143(1) and 154 in respect of IGST refund disclosed in Clause 6(b). The Tribunal accepted that where GST/IGST paid was never debited to the Profit & Loss Account and was accounted for through balance sheet ledgers, the refund thereof cannot be treated as income, and observed as under:
“The GST Liability & GST ITC credits have been shown under Duties & Taxes in the Balance Sheet and the same has been disclosed in Tax Audit Report Clause 16(b) only for the purpose of disclosure of details. The IGST on export sales is actually paid and thereafter claimed as refund. The GST refund received is only the refund of IGST which is first paid and then claimed as refund. Hence, the GST refund received is not an income and no addition should be made.”
Further, we observed that the same principle has been reiterated by the coordinate Bench in the case of Ecoenergy Insights Limited vs. ACIT (supra) wherein the tribunal deleted the addition made on account of IGST refund reported in Clause 16(d) holding that mere disclosure in the tax audit report does not render the receipt taxable. The coordinate Bench held as under :-
"The amount of IGST paid is neither claimed in the Profit & Loss Account nor was claimed as expenditure in any preceding year for which the refund could be held as the income in the year under appeal…The Tax Auditor in the Tax Audit Report in Clouse 16(b) has reported the amount of refund of goods and service tax, however, nowhere in the said report it is stated that this amount is the income of the assessee.”
Respectfully following aforesaid judicial precedents, we hold that the GST refund received is only the refund of IGST which is first paid and then claimed as refund. Hence, the GST refund received is not an income and no addition should be made. Accordingly, we allow the grounds raised by the assessee and direct the Assessing Officer to give the GST refund after going through the documents on record and as per law.
In the result, the appeal filed by the assessee is allowed.