TMI Blog2023 (7) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No. 282/Bang/2023 - - - Dated:- 17-7-2023 - Shri George George K., Vice President And Shri Laxmi Prasad Sahu, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds are without prejudice to one another, the appellant seeks the leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or modify otherwise each or any of the grounds of appeal either before or at the time of hearing this appeal. 2. At the outset, the ld. AR submitted that grounds No.3 7 are not pressed. Accordingly these two grounds are dismissed as not pressed. 3. Now effectively two issues remain before us. The brief facts of the case are that the assessee filed its return of income on 22.10.2018 disclosing an income of Rs. 2,81,88,000. Return was processed and case was selected for scrutiny. Thereafter other statutory notices were issued to the assessee. During the course of assessment proceedings, the assessee was asked to furnish the details of duty drawback in specified format. In this regard, the assessee furnished the details and submitted that duty drawback and service tax was received in FY 2017-18 relating to FY 2016-17 as per Annexure-4 of Rs. 22,93,878 and received in FY 2017-18 relating to FY 2017-18 of Rs. 1,10,38,338. Further, Rs. 15,422 and Rs. 8200 was refunded and refund of export benefits enjoyed of Rs. 38,95,350 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid and cannot be adjusted to show less duty thereafter. Accordingly, the interest cannot be allowable u/s 37. The CIT(Appeals) dismissed the appeal of the assessee. Aggrieved by the order of the CIT(Appeals), the assessee is in appeal before us. 7. The ld. AR submitted in respect of ground No. 2 that the assessee has followed mercantile system of accounting, but right to receive the refund of duty drawback is received in the subsequent year, therefore the amount has not been offered in the impugned assessment year and it has been offered for taxation in the subsequent year He further submitted that both the authorities below are not justified since they have followed dual policy. The assessee received duty drawback and service tax for FY 2016-17 in the FY 2017-18 which has been offered for taxation and accepted by the revenue authorities. However, the refund amount of duty drawback of Rs. 1,50,215 which was received in the subsequent financial year pertaining to the impugned financial year has not been accepted by the AO. If the claim of the assessee is not accepted, then the amount received of Rs. 22,93,878 cannot be taxed in the impugned assessment year because it relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added back the duty drawback of Rs. 1,50,215 which has been received in the subsequent assessment year 2019-20 but pertains to the relevant current assessment year 2018-19. The ld. AR of the assessee submitted that the right to receive occurred in the subsequent year 2019-20 when the customs authority granted the refund of duty drawback, therefore the amount has been offered as income in the subsequent assessment year 2019-20. On going through the reconciliation statement submitted by the assessee before the AO, we note that the refund for FY 2016-17 has been offered as income in the impugned FY 2017-18 which has been accepted by the revenue. On the one hand, the revenue authorities have considered duty drawback service tax of Rs. 22,93,878 as income in the current assessment year which was received by the assessee in the impugned AY 2018-19 whereas it pertained to previous FY 2016-17 relevant to AY 2017-18. On the other hand, the amount of duty drawback and service tax refund of Rs. 1,50,215 has been received in the subsequent year, but considered as income in the current FY 2017-18. The amount of Rs. 1,11,88,603 has been arrived by the AO as under:- Refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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. A similar issue has been decided by the Hon ble High Court of Delhi in the case of Principal Commissioner of Income-tax v. Attire Designers (P.) Ltd. [2022] 145 taxmann.com 188 (Delhi) in which it has been held as under:- 10. As far as the second issue raised by the Appellant is concerned, this Court finds that the Appellate Authorities below have recorded that assessee had received incentive of Rs. 1,68,00,331/- from Custom Department Authority on export of 'technical textile'. However, later on, Deputy DGFT asked the assessee to refund the incentive received, as certain exports did not fall in 'technical textile' category for which the incentives were payable. The Appellate Authorities below noted that in the letter directing the assessee to refund the incentive, nowhere it was stated that assessee had committed any offence under foreign trade regulation. 11. The Appellate Authorities below further recorded that the Revenue has not placed any materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of machinery is an allowable business expenditure. Therefore, the addition made by the A.O. is deleted. 3. The Revenue's appeal before the Tribunal was that the disallowance directed to be set aside by the CIT (A) was not justified since the amount paid was penal in nature. The Tribunal considered the submissions and held that there was no infirmity in the order of the CIT (A) and the amount paid was not penal in nature as much as it was as per the declared policy of the government and occasioned by the failure of the assessee to meet its obligations. The amount being interest was compensatory and not penal according to the Tribunal. 4. The counsel for the Revenue attacked the reasoning of the Tribunal contending that since the assessee availed the facility without having fulfilled the obligations, there was a violation of the terms of the scheme, doing something that is prohibited by law. 5. The Revenue, in the opinion of the Court, has been unable to establish that the assessee's conduct was an offence or that it did anything that was prohibited by law . The Assessing Officer has not pointed out which provision of law was violated by the assessee. Even if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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