ITAT Mumbai Ruling: Unrefunded GST Input Tax Credit Can Be Claimed as Business Loss Under Income Tax Act
The intersection of indirect taxes and direct taxes often creates complex compliance hurdles for an assessee. A recurring point of litigation is the treatment of Input Tax Credit (ITC) that is denied or remains unrefunded under the Goods and Services Tax (GST) regime. Can an assessee claim this unrefunded GST credit as a legitimate business expenditure or loss under the Income Tax Act 1961?
In a highly significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, addressed this exact conundrum in the case of Shivkrupa Synthetics Private Limited Vs DCIT. The Tribunal ruled that the mere rejection of a GST refund application by the GST authorities does not automatically disqualify the unrefunded amount from being claimed as a business loss under the Income Tax Act 1961.
This article provides a comprehensive summary and detailed legal analysis of the ITAT Mumbai order dated 21/08/2026 (Appeal Number ITA 3151/MUM/2026 for Assessment Year 2023-24), breaking down the four major disallowances faced by the assessee and the Tribunal's rationale for remanding them for fresh adjudication.
Background of the Dispute
The assessee, Shivkrupa Synthetics Private Limited, operates as a private limited company engaged in the business of textile processing and yarn job work. For the Assessment Year 2023-24, the assessee filed its return of income declaring a total income of Rs. 2,87,02,380/-. The return was initially processed under Section 143(1) of the Income Tax Act 1961.
Subsequently, the case was flagged for scrutiny under the Computer Assisted Scrutiny Selection (CASS) system. The primary reason for selection was a perceived low net profit in comparison to the revenue generated from operations. Following the issuance of statutory notices under Section 143(2) and Section 142(1), the Assessing Officer (AO) scrutinized the financial statements.
Despite the assessee providing detailed reconciliations, the AO passed an assessment order determining the total income at Rs. 6,26,40,766/-. This massive enhancement was the result of four specific disallowances aggregating to Rs. 3,39,38,386/-. The disallowances were made across the following heads:
- Labour Charges: Rs. 76,75,657/-
- Bad Debts: Rs. 1,21,06,298/-
- Repairs & Maintenance: Rs. 81,71,900/-
- GST Expenses (Unrefunded ITC): Rs. 59,84,531/-
The assessee appealed to the National Faceless Appeal Centre (NFAC) / CIT(A), which upheld all the additions made by the AO. Consequently, the assessee escalated the matter to the ITAT Mumbai.
Detailed Analysis of the Disallowances and ITAT's Verdict
The ITAT systematically evaluated each of the four additions. Because the lower authorities had largely relied on ad-hoc estimations or superficial rejections without delving into the evidentiary documents, the Tribunal found it necessary to intervene.