ITAT Bangalore: GST and Indirect Tax Refunds Not Taxable Where Exclusive Method Followed Consistently — Double Addition Under Section 143(1) Struck Down
Case Reference
Dell International Services India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Assessment Years: 2023-24 and 2024-25
**ITA Nos.😗* 2889/Bang/2025 and 2890/Bang/2025
Date of Order: 20th April, 2026
Background and Nature of the Assessee's Business
Dell International Services India Pvt. Ltd. is a company engaged in the manufacturing and trading of computer systems, servers, and accessories, along with providing support and maintenance services. For Assessment Year 2023-24, the assessee filed its return of income on 28.11.2023 under the normal provisions of the Income Tax Act, 1961, declaring total income of Rs. 2006,57,49,679/- and claiming a refund of Rs. 3,42,93,210/- along with interest under Section 244A of the Act.
Following the filing of the return, the Centralised Processing Centre (CPC), Bangalore issued a notice under Section 143(1)(a) of the Income Tax Act, 1961 dated 5.12.2023, proposing the following adjustments to the declared income of the assessee:
- Addition of Rs. 345,28,51,548/- towards refund of Goods & Service Tax, Sales Tax, and Service Tax not credited to the Statement of Profit & Loss Account.
- Addition of Rs. 14,37,29,950/- on account of margin on finished goods converted into capital assets.
- Addition of Rs. 31,13,91,117/- pertaining to bad debts recovered.
The CPC subsequently passed an undated intimation under Section 143(1) of the Act for AY 2023-24, escalating the total income from Rs. 2006,57,49,680/- to Rs. 2315,88,80,990/-, while also short-crediting advance tax and TDS and levying interest under Section 234B and Section 234C of the Income Tax Act, 1961. This resulted in a substantial demand of Rs. 223,40,75,392/-.
Proceedings Before the First Appellate Authority
Aggrieved by the intimation issued under Section 143(1), the assessee preferred an appeal before the Addl./JCIT(A)-2, Mumbai.
GST, Sales Tax, and Service Tax Refunds
The Addl./JCIT(A) upheld the addition of Rs. 345,28,51,548/-, reasoning that the refund of GST, sales tax, or service tax flows directly from the assessee's trading activities. Since taxes were originally collected from customers during sales transactions and remitted to the government, any refund subsequently received constitutes a tangible business inflow. The first appellate authority further held that the method of accounting followed by the assessee — wherein taxes are recorded separately and not passed through the Profit & Loss Account — cannot alter the fundamental character of such receipts. The CIT(A) was of the view that the exclusive method of accounting is merely a presentational tool and cannot be deployed to keep legitimate business receipts outside the scope of taxable income.
Accordingly, the Addl./JCIT(A) concluded that the refunds represented remission of trading liability and were taxable either under Section 41(1) or, alternatively, under Section 28(i) of the Income Tax Act, 1961, and dismissed this ground of appeal.
Margin on Finished Goods Converted into Capital Assets
With respect to the addition of Rs. 14,37,29,950/- relating to margin on conversion of finished goods into capital assets, as disclosed under clause 16(a) of the Tax Audit Report in Form No. 3CD, the Addl./JCIT(A) held that the assessee had failed to produce adequate supporting documentary evidence — such as ledger extracts, journal vouchers, or corroborating records — to establish that this amount had been duly credited or debited in the Profit & Loss Account and included in the computation of taxable income. The CIT(A) further opined that the adjustment made by the CPC was specifically permissible under Section 143(1)(a)(vi) of the Income Tax Act, 1961, since the information furnished in the audit report was inconsistent with the return of income. The burden of proving double taxation was held to be unmet, and this ground was also dismissed.