Addition made by CPC as per Clause 16(b) of Tax Audit Report deleted as it was not stated in the report that it was income of the assessee
In a recent judgment, ITAT Delhi has deleted addition made by CPC on the basis of disclosure in Clause 16(b) of Tax Audit Report with respect to of refund of GST as it was not stated in the report that it was income of the assessee.
ABCAUS Case Law Citation:
4698 (2025) (08) abcaus.in ITAT
For the relevant Assessment Year the appellant assessee filed return of income declaring NIL income after setoff of brought forward unabsorbed depreciation. The case was processed u/s 143(1) by CPC by adding amount of GST refund as reported in clause 16(b) of the Form 3CD (Tax Audit Report).
The assessee filed rectification application against the same which was rejected. The assessee filed appeal before CIT(A) against the intimation order u/s 143(1).
The CIT(A) partly allowed the appeal of the assessee wherein adjustment made to the total income of the assessee on account of refund of IGST as reported in Tax Audit Report in clause 16(b) of Form 3CD i.e. Tax Audit Report as added by the CPC was confirmed and the other issues regarding set off of unabsorbed depreciation available was allowed.
The assessee challenged the order passed by the CIT(A) claiming that the amount of GST was never claimed as expense in Profit & loss account. It was submitted that impugned order passed by CIT(A) proceeded on legally incorrect notion that all items reported under item 16 of Tax audit report are income under section 28 without any requirement of further verification and hence further erred in assuming that all such items qualify for prima facie adjustment by exercise of section 143(1) of the Act.
It was submitted that the assessee was an exporter of the services and at the time of raising the bills, the IGST has to be deposited with the Government which is later on refunded after filing the necessary documents and evidences of export of services. The said IGST deposited was never claimed as expenses in the Profit & Loss Account and it is paid out of the regular bank account and treated as advance with the Government authorities and separately shown in the balance sheet under the head “balance with Government authorities” under the head “short term loans and advances”.
It was further submitted that the Tax Auditor in the Tax Audit Report has reported the same in Column No. 16(b) in Form 3CD and this amount had been treated as income of the assessee by the CPC though nowhere in the Tax Audit Report, it was certified by the Tax Audit Report that this amount is the income.
It was stated that in Clause 16, the Auditor has to report the amounts of receipts of any nature which are not credited to the Profit & Loss Account however, the same could not be treated as the income.
It was further submitted that in compliance to the show cause notice issued by CPC before making adjustments, it was explained to the CPC that this amount was never claimed as expenditure and therefore, no adjustment is required to be made.
It was further submitted that after processing u/s 143(1), the assessee also filed rectification application wherein all these facts were re-iterated however, CPC dismissed the petition filed u/s 154 of the Act.
The Tribunal noted that the assessee while filing the return of income had not claimed any expenditure with respect to IGST paid of which the refund was claimed. The assessee was engaged in the business of export of service where at the time of export of service, the amount of IGST is to be paid in advance and the same will be refunded after filing the necessary documents evidencing the export of services which are exempt from IGST. Therefore, 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 Tribunal also observed that the Tax Auditor in the Tax Auditor Report in Clause 16(b) had reported the amount of refund of goods and service tax however, nowhere in the said report, it was stated that this amount is the income of the assessee. It was further seen that the assessee in response to the show cause notice issued by the CPC before making the adjustments, had filed the response wherein it is categorically stated that at the time of making payment of IGST, the same was treated as deposits in its books and was not claimed as expense.
The Tribunal observed that CIT(A) wrongly observed that treatment given by the appellant of not claiming any expenditure in IGST, is an attempt to avoid disallowance u/s 43B of the Act. The CIT(A) failed to appreciate that the assessee was not liable to pay GST/IGST on the services export out of India and there is no such liability of the assessee to deposit GST/IGST however, in terms of the provisions of GST Act, advance IGST is to be deposited before exports of services which will be refunded at a later stage thus, it was not an expenditure for which the provision of section 43B could be applied.
Accordingly, the Tribunal directed the AO to delete the addition made on this count.
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