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Issues involved: Interpretation of Section 37 of the Income Tax Act, 1961 regarding the allowability of expenses paid for regularizing building deviations.
Summary: The appellant, an assessee, challenged the order of the ITAT regarding the allowability of expenses paid for deviations in buildings constructed by them. The municipal authorities had levied a fine/penalty for the deviations, which the assessee sought to declare as allowable expenses under Section 37 of the Income Tax Act. The assessing officer and CIT (Appeals) rejected the claim, stating it did not fall under Section 37(1) of the Act. The ITAT upheld the decision, leading to the present appeal. The appellant argued that the amount paid for deviations should be considered an allowable expense under Section 37, citing a Supreme Court decision. On the other hand, the respondent contended that the amount was for compounding an offense under municipal laws and should be treated as a penalty under Section 37(1) of the Act. After hearing both parties and examining previous judgments, the High Court found that a similar issue had been addressed in a previous case where it was held that amounts paid for regularizing deviations fall under the explanation to Section 37(1) and are considered penalties. The appellant failed to show why this decision should not apply to their case. Consequently, the court concluded that no substantial question of law arose, and the appeal was dismissed.
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