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TMI Blog2023 (7) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Commissioner of Income-tax (Appeals) ought to have held that the duty drawback is offered to tax on receipt basis by the appellant which is allowed as per ICDS-VII and hence, the addition made by the learned assessing officer is not valid. 4. Without prejudice to the above grounds, the learned Commissioner of Income-tax (Appeals) ought to have held that the Duty Drawback of Rs. 1,50,265/- has to be reduced from the income declared for F.Y 2018-19 relevant to A.Y 2019-20 otherwise, the same will amount to double taxation. 5. That the learned Commissioner of Income-tax (Appeals) ought to have allowed the appellant to deduct the interest paid on refund of excess Duty Drawback claimed amounting Rs. 3,30,674/- as deductible expenses while calculating the taxable income for the A.Y 2018¬19. 6. That the learned Commissioner of Income-tax (Appeals) ought to have allowed the interest paid on refund of excess Duty Drawback claimed by the appellant amounting Rs. 3,30,674/-u/s.37 of the Act as deduction while calculating the income under the head "Profits and Gains from Business or Profession" by treating the same as compensatory in nature. 7. That the learned Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual i.e. FY 2017-18. 5. Further the AO observed from the computation of duty drawback & service tax, the assessee refunded in the relevant year Rs. 38,95,350 being excess duty drawback claimed @ 1% instead 0.15%. Resultantly the assessee paid interest of Rs .3,30,674 on the excess amount of refund claimed. The AO noted that interest against duty drawback received is not correct as interest is not part of duty drawback and interest was paid for the period for which the assessee was benefited by the excess amount received. Thus by claiming interest against duty drawback, the assessee has shown less duty drawback by an amount of Rs. 3,30,674 which cannot be adjusted towards duty drawback refund. Similarly assessee claimed deduction of Rs. 8,200 being re-credit of duty drawback which was repaid on 27.2.2018 and since amount was recredited no deduction was to be claimed from the income. Accordingly, Rs. 3,38,674 (3,30,674+8200) interest was added back to the total income of assessee. 6. Aggrieved, the assessee filed appeal before the CIT(Appeals). The CIT(A) confirmed the order of the AO on the addition of Rs. 1,50,215. He further observed that interest payment of Rs. 3,30,674 on exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of interest, therefore the assessee has not violated any provisions of the Act and it is not in the nature of penalty. He relied on the following judgments:- - Velankini Information Systems Ltd. v. DCIT, 173 ITR 19 - Lachmandas Mathuradas v. CIT, 122 Taxman 828 - CIT v. Catholic Syrian Bank Ltd., 130 Taxman 447 - CIT v. Dhanalakshmi Bank Ltd., 69 taxmann.com 284 9. On the other hand, the ld. DR relied on the orders of the lower authorities and submitted that the assessee is following hybrid system of accounting which is not permissible. The refund of duty drawback is due when the bills are submitted to the respective authorities and the assessee was knowing the amount of claim of duty drawback and therefore the amount accrued for the year. Therefore the assessee has to offer the accrued income in the impugned assessment year & should pass the necessary entry as receivables in the books of account. He further submitted that in respect of interest paid on excess duty drawback received, the assessee had got undue benefit and it was in the nature of penal interest and it cannot be adjusted from refund of duty drawback. He submitted that the lower authorities have rightly hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and CIT v. Sriyansh Knitters (P) Ltd. (336 ITR 235). Ground No.2 raised by the assessee on this issue is allowed. Accordingly the alternative ground No.4 does not require any adjudication. 11. Ground No.5 & 6 is in respect of interest payment of Rs. 3,30,674 on excess claim of refund which has been adjusted against the duty drawback for the period for which the assessee benefitted on the excess amount of duty drawback @ 1% instead of 0.15%. The lower authorities have not accepted that the interest paid is part of duty drawback. The ld. AR in this regard referred to Rule 17 which governs the repayment of erroneous or excess payment of drawback and interest which is as under:- "17. Where an amount of drawback and interest, if any, has been paid erroneously or the amount so paid is in excess of what the claimant is entitled to, the claimant shall, on demand by a proper officer of customs repay the amount so paid erroneously or in excess, as the case may be, and where the claimant fails to repay the amount, it shall be recovered in the manner laid down in sub-section (1) of section 142 of the Customs Act, 1962 (52 of 162) ". The above Rule provides refund of excess claim and inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id by the assessee cannot be allowed as deduction as it was penal in nature and, therefore, fell within the mischief of Explanation below section 37(1) of the Act. The assessee appealed to the Commissioner (A) who ruled in favour of the assessee in the following terms:- "3.2 During the course of appellate proceedings it has been submitted by the appellant counsel the interest is on late payment of customs duty and is not a penalty. The penalty was to surrender the special import licences equivalent to thrice the value of import license. Therefore, the A.O. has wrongly disallowed the amount. It was further submitted if any interest is paid for purchase of capital asset after commencement of the business the same is allowable as a business expenditure. 3.3 On going through the letter placed on record by the appellant counsel it is observed in the letter it is clearly mentioned that the entire duty saved along with interest @ 24% is to be deposited. It is also mentioned that SIL equivalent to thrice the value of import license is also required to be surrendered as penalty. Therefore, from this letter it is clear that the interest paid is not in the nature of penalty. It is also a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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