I have reproduced in my environment and expected results as below:
I have first faced same error as you(Created Standard Logic app) :

Then changed overwrite to Yes
, It worked :

Succeeded Output:

File Extracted in Blob Storage:

Code view :
{
"definition": {
"$schema": "https://schema.management.azure.com/providers/Microsoft.Logic/schemas/2016-06-01/workflowdefinition.json#",
"actions": {
"Create_blob_(V2)": {
"inputs": {
"body": "@variables('emo')",
"headers": {
"ReadFileMetadataFromServer": true
},
"host": {
"connection": {
"referenceName": "azureblob"
}
},
"method": "post",
"path": "/v2/datasets/@{encodeURIComponent(encodeURIComponent('AccountNameFromSettings'))}/files",
"queries": {
"folderPath": "/rithwik",
"name": "emo.txt",
"queryParametersSingleEncoded": true
}
},
"runAfter": {
"Initialize_variable": [
"Succeeded"
]
},
"runtimeConfiguration": {
"contentTransfer": {
"transferMode": "Chunked"
}
},
"type": "ApiConnection"
},
"Extract_archive_to_folder_(V2)": {
"inputs": {
"host": {
"connection": {
"referenceName": "azureblob"
}
},
"method": "post",
"path": "/v2/datasets/@{encodeURIComponent(encodeURIComponent('AccountNameFromSettings'))}/extractFolderV2",
"queries": {
"destination": "/rithwik",
"overwrite": true,
"queryParametersSingleEncoded": true,
"source": "/rithwik/emo1.zip"
}
},
"runAfter": {
"Create_blob_(V2)": [
"Succeeded"
]
},
"type": "ApiConnection"
},
"Initialize_variable": {
"inputs": {
"variables": [
{
"name": "emo",
"type": "string",
"value": "emo ra babu"
}
]
},
"runAfter": {},
"type": "InitializeVariable"
}
},
"contentVersion": "1.0.0.0",
"outputs": {},
"triggers": {
"manual": {
"inputs": {},
"kind": "Http",
"type": "Request"
}
}
},
"kind": "Stateful"
}