GST Refund Cannot Be Treated as Taxable Income Merely on Tax Audit Disclosure:

The assessee is Subhash Chand Gulati who is an individual engaged in the manufacturing business through his proprietorship concern “Sapan Hosiery”, filed his return of income for AY 2022-23 declaring total income of Rs.4,94,360/- on the basis of audited books of account. The return was processed under Section 143(1) of the Income Tax Act, 1961.

During processing of the return, the CPC treated GST refund of Rs.3,98,152/- reported in Clause 16(b) of Form 3CD as taxable income and recomputed the assessee's total income at Rs.8,92,510/-. The assessee subsequently filed a rectification application under Section 154 of the Act, but the AO confirmed the recomputation and raised a demand of Rs.88,750/-. The appeal before the CIT(A) was also dismissed.

Before the Tribunal, it was submitted that the disclosure of GST refund in the Tax Audit Report was only a statutory reporting requirement and did not, by itself, establish that the receipt was taxable. The assessee contended that GST was a statutory levy collected and paid on behalf of the Government and that the GST component had not been debited to the Profit & Loss Account or claimed as a deduction. Therefore, there was no corresponding income, profit or benefit which could be subjected to tax.

The Tribunal noted that the addition had been made solely on the basis of the disclosure in Clause 16(b) of Form 3CD. It observed that GST is a statutory levy and that the assessee merely acts as an intermediary for collection and remittance. Consequently, a refund of such tax represents a return of tax already paid and does not constitute income under the Income Tax Act.

Accordingly, the Tribunal held that the GST refund represented only the refund of IGST first paid and subsequently claimed as refund. Mere disclosure of the refund in the Tax Audit Report could not make the receipt taxable. The Tribunal directed the AO to allow the GST refund after examining the documents on record and in accordance with law. The Tribunal therefore allowed the appeal filed by the assessee.