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2016 (7) TMI 948 - ITAT PUNEDisallowance towards compounding fees paid by the assessee to the Reserve Bank of India - Held that:- Such a compounding fees charged to the assessee being compensatory in nature as is evident from the fact that though the amount to be charged could be up to ₹ 30.25 crores, the assessee was asked to pay sum of ₹ 45 lakhs in order to meet the ends of justice, established the case of assessee that the same was not in the form of penalty. Where the amount paid by the assessee is compensatory payment and was not by way of any penalty levied under the provisions of FEMA, then such amount is to be allowed as deduction in the hands of assessee. Coming to the stand of authorities below that such payment is covered by Explanation to section 37(1) of the Act. We find no merit in the said stand of CIT(A). The Explanation to section 37(1) of the Act was inserted in respect of any expenditure incurred for any purpose which was an offence or which was prohibited by law. The Circular of Reserve Bank of India itself provided that where the assessee had committed an irregularity while dealing in foreign earnings or expenditure outgoes, then such an action of applicant could be compounded as per Rules and Regulations provided in the said Circular. It is not a case where the assessee has been held to have committed an offence or the amount has been paid for purpose, which was prohibited in law, hence the provisions of Explanation to section 37(1) of the Act are not attracted. In view thereof, we hold that the assessee is entitled to the claim of deduction under section 37(1) of the Act. - Decided in favour of assessee
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