IGST Refund on Zero-Rated Exports Not Income: ITAT Remands Matter for Limited Verification of Refund Ledger [Read Order]

The Mumbai Bench of the Income Tax AppellateTribunal (ITAT) ruled that IntegratedGoods and Services Tax (IGST) refunds on zero-rated exports should not be treated as taxable income, provided they were accounting entries for the recovery of taxes previously paid, and remanded the matter for verification.

Tanyo Exports Pvt Ltd (assessee), a manufacturer and exporter of garments, filed an appeal against the order of the Commissioner of Income Taxes (Appeals) ( CIT(A) ) for Assessment Year 2024-25 regarding additions made on account of IGST refunds and duty drawbacks.

For the Assessment Year 2024-25, the CentralProcessing Centre (CPC), Bengaluru, processed the assessee's return and made additions totaling ₹1,42,12,552. This included ₹51,57,719 for duty drawback and ₹90,54,833 for IGST refunds on export sales, based on disclosures in the tax audit report under Clause 16(b) as "amounts not credited to the Profit and Loss Account".

The assessee filed a rectification petition under section 154, which was initially rejected by the CPC. During subsequent appellate proceedings, the assessee provided a revised Form 3CD and a clarificatory letter from a Chartered Accountant explaining that these items were pro forma credits and not taxable income.

Aggrieved by the AO’s order, the assessee filed an appeal before the CIT(A). The CIT(A) regarding the IGST refund only deleted ₹47,50,587 the amount actually received during the year and sustained the balance of ₹43,04,246. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The assessee argued that as an exporter paid IGST at the time of export and then claimed a refund from the GST Department. The counsel submitted that the assessee followed an accounting method where GST liability and credits were shown under "Duties & Taxes" in the Balance Sheet rather than the P&L Account. Therefore, the refund was merely a recovery of tax paid and not a source of income.

The two-member bench comprising Om PrakashKant (Accountant Member) and Anikesh Banerjee (Judicial Member), noted that the assessee produced the "IGST Refundable Ledger" for the period of 01.04.2023 to 31.05.2024 for the first time before them.

The tribunal observed that this specific ledger required factual verification to confirm the assessee's claim that the transactions were duly adjusted through ledger accounts without impacting the Profit and Loss Account.

The Bench concluded that in the interest of justice, the matter should be restored to the Jurisdictional Assessing Officer (JAO). The JAO was instructed to verify the IGST refundable ledger and examine the claim in accordance with the law after affording the assessee a reasonable opportunity to be heard. The appeal of the assessee was allowed for statistical purposes.

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