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2023 (7) TMI 796 - AT - Income TaxAccrual of income in current AY - duty drawback and service tax refund - HELD THAT:- For the refund of duty drawback the assessee accounts the same when it gets the right to receive the duty drawback which is nothing but mercantile system of accounting. This fact has not been disputed by the revenue authorities in any of the previous years as submitted by the ld. AR. In the present case, we conclude that the income would be receivable only when the income accrues to the assessee and income would accrue to the assessee only when the assessee gets such a right to receive the income. The assessee would get a right to receive only when it is sanctioned to the assessee by the custom authorities and not when the assessee makes a claim of the same. This view is supported by the judgment of CIT v. Asea Brown Boveri Ltd [2020 (7) TMI 20 - KARNATAKA HIGH COURT] and CIT v. Sriyansh Knitters (P) Ltd. [2010 (10) TMI 638 - PUNJAB AND HARYANA HIGH COURT] - Ground No.2 raised by the assessee on this issue is allowed. Interest payment on excess claim of refund - addition u/s 37(1) - adjustment against the duty drawback for the period for which the assessee benefitted on the excess amount of duty drawback @ 1% instead of 0.15 - HELD THAT:- Rule provides refund of excess claim and interest thereon, but it is not in the nature of penalty or fine where the Rule itself provides for payment of principal as well as interest. Hence, in our considered opinion, it should not be considered as penalty or fine. Therefore, the assessee has not violated the provisions of Explanation 1 to section 37(1) of the I.T. Act. As relying n Attire Designers (P.) Ltd [2022 (9) TMI 1102 - DELHI HIGH COURT] we hold that the interest paid by the assessee towards excess claim of refund of duty drawback is not penal in nature. Therefore, Explanation 1 to section 37 will not apply and assessee is eligible for claiming it as expenditure. Since the assessee has adjusted the interest paid from the refund of export benefit, it will not affect the profitability of the company. Accordingly, this issue raised by the assessee is allowed.
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