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2022 (10) TMI 825 - AT - Income TaxExpenses under the head punitive charges - punitive charges was the charges levied by the East Coast Railway for transport of the excess material as prescribed by the railways - whether allowable expenditure u/s 37(1)? - CIT-A deleted the addition - HELD THAT:- The term “prohibited by law” as occurring to Explanation 1 to Section 37(1) of the Act has been explained by the Hon’ble Supreme Court in the case of Apex Laboratories (P.) Ltd., [2022 (2) TMI 1114 - SUPREME COURT] as after considering the term “prohibited by law” came to the conclusion that such acts which would wholly undermine public policy and which would defeat the object of a statute or is an illegality which goes to the root of the matter, the expenditure in relation to the same is not allowable. If one is to understand the concept of punitive charges, clearly the punitive charges are plain and simple overloading charges. These charges are not levied on account of any act done by an assessee in violation of any law, nor it is a fine levied on the assessee for an infraction of the law much less the doing of a prohibited activity. This being so, we are of the view that the ld. CIT(A) was right in deleting the disallowance as made by the AO. Appeal of the revenue stands dismissed.
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