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2023 (9) TMI 541 - ITAT KOLKATARevision u/s 263 - delayed payment - assessee had entered into an agreement with Director of Town & Country Planning Haryana whereby it was supposed to make the payments of external development charges (EDC). Such charges were not deposited with the Town & Country Planning within the due date stipulated in the agreement but rather payment was delayed - In the opinion of ld. Pr. CIT, this expenditure ought to have been disallowed to the assessee by the ld. Assessing Officer on the ground that it is penal in nature - HELD THAT:- We are of the view that Explanation appended to Section 37 of the Income Tax Act contemplates that if any expenditure is being incurred by an assessee on an item, which is prohibited by law, then, such expenditure will not be allowed as a deduction to the assessee. The payment herein was not for infringement of any law. Thus according to us, it is a compensatory payment, which does not fall in the category of any penalty. CIT has misconstrued the nature of this interest payment as a penalty and termed the assessment order as erroneous, which has caused prejudice to the interest of revenue by not charging of tax on this amount. Since we have held that it is not in the nature of penalty, rather a compensatory in nature, therefore, the deduction of this amount deserves to be allowed to the assessee and the AO has allowed it. AO has not committed any error and his order cannot be termed as erroneous, which has caused prejudice to the interest of revenue. Thus we allow this appeal of the assessee and quash the 263 order impugned herein. Appeal of assessee allowed.
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