Interest Paid towards Excess Claim of Refund of Duty Drawback is not Penalty or Fine: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Bangalore Bench held that interest paid towards excess claim of the refund of duty drawback is not penalty or fine.

Assessee, Mahalasa Exports filed its return of income on 22.10.2018 disclosing an income of Rs.2,81,88,000. Thereafter the case was selected for scrutiny. During the course of assessment proceedings, the assessee was asked to furnish the details of duty drawback in specified format.

The Assessing Officer (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.

Thus, 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.

Similarly, the 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. Thus, the interest amount and recredit of duty drawback amount was added back to the total income of assessee.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) {CIT(A)}, who dismissed the appeal and observed that interest payment of Rs.3,30,674 on excess refund received is not allowable expenditure under Section 37 of the Income Tax Act.  Accordingly, against the order the assessee filed an appeal before the tribunal

During the proceedings Sandeep Chalapathy, counsel for the assessee submitted that the assessee wrongly claimed excess refund in which the assessee obtained interest. There was no malafide intention of the assessee for claiming excess refund, but it was an inadvertent mistake of the assessee.

Thus, the interest paid to the Government is compensatory in nature which could be allowed as a deduction under Section 37 of the Income Tax Act.

Counsel also pointed that as per Rule 17, if any person is paid erroneously or excess payment of drawback, then he has to pay interest on the excess amount which is not penal in nature.

Nischal B, Counsel for Revenue, 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 could not be adjusted from refund of duty drawback.

After reviewing the facts and submissions of the both parties, the two-member bench of George George K (Vice President) and Laxmi Prasad Sahu, (Accountant Member) determined that interest paid by the assessee towards excess claim of refund of duty drawback is not penal in nature.

Therefore, Explanation 1 to section 37 would not apply and assessee is eligible for claiming it as expenditure.

To Read the full text of the Order CLICK HERE

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