ORDER : Harsha Devani, J. 1. In this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the appellant - revenue has challenged the order dated 21.08.2015 passed by the Income Tax Appellate Tribunal, "B" Bench, Ahmedabad (hereinafter referred to as "the Tribunal") in ITA No. 1298/Ahd/2012, by proposing the following question, stated to be a substantial question of law: "Whether the Income Tax Appellate Tribunal has erred in law and on facts in upholding the order of CIT (A) in deleting the addition made by the Assessing Officer of Rs. 65,52,000/- in respect of penalty for breach of contract?" 2. Exide Technologies Inc. (Parent Company of Exide Group of which the respondent assessee - M/s. Tudor India Ltd. is a group company) entered into a contract with Deramic Group in relation to purchase of specified battery separators. In terms of the agreement, all the group companies of Exide group would purchase specified battery separators from Deramic Group. The assessee, during the year under consideration, purchased batteries from another entity because of which, Deramic Group imposed a penalty on Exide Technologies Inc. which was paid by Exide Technologies and thereafter recovered from the assessee. As such amount had been paid in normal course of its business; the assessee claimed deduction of such amount as expenditure in the return of income. 3. During the course of assessment proceedings, the Assessing Officer noticed that the payment of penalty amounting to Rs. 65,52,000/- for breach of contract with Deramic Group cannot be treated as within the norms of assessee's business and that the assessee had not submitted any evidence to show that the agreement between Exide Technologies and Deramic Group had a binding effect upon the assessee. The Assessing Officer also noticed that the acceptance of this payment by the Transfer Pricing Officer at arm's length price was irrelevant for determining the correct total income of the assessee and therefore, added such amount to the total income of the assessee. The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal. The revenue carried the matter in further appeal before the Tribunal, but did not succeed. 4. Mr. The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal. The revenue carried the matter in further appeal before the Tribunal, but did not succeed. 4. Mr. Sudhir Mehta, learned Senior Standing Counsel for the appellant, assailed the impugned order by submitting that the Tribunal has failed to appreciate that the assessee company was not a party to the contract and hence, there was no reason to make payment to the group company which was only in the nature of reimbursement of penalty amount. It was submitted that the Tribunal has failed to appreciate that the expenditure incurred by the assessee was not in the nature of expenditure which a prudent businessman would not incur and that the Tribunal has also failed to appreciate that the expenditure was of contingent nature depending upon the facts disclosed in the Tax Audit Report and that the acceptance regarding this payment by the Transfer Pricing Officer at arm's length price was irrelevant for determining the correct total income of the assessee. Therefore, the Assessing Officer has rightly added the same to the total income of the assessee. It was, accordingly, urged that the appeal does give rise to the question of law, as proposed or as may be formulated by the court. 5. The facts as emerging from the record are that the assessee is in the business of manufacturing and marketing of storage batteries for multifarious applications, viz., cars, LCV, HCV, tractors, earth moving equipments, inverters, gensets, etc. and is a subsidiary of CMP Batteries Limited, UK and the ultimate holding company is Exide Technologies Inc., USA. The assessee debited penalty for breach of commercial contract to the profit and loss account amounting to Rs. 65,52,000/- claiming it as commercial penalty resulting from breach of contract to compensate Exide Technologies. It was the case of the assessee that the payment was in the nature of commercial penalty resulting from breach of contract to compensate other parties. The facts of the transaction are that the assessee is a group company of the Exide group which operates worldwide. The Group, while selling its separator business to Deramic Group, in order to assure business and in order to maintain quality of the product, had agreed with Deramic Group that all the entities of Exide Group shall purchase specified battery separators only from Deramic Group. The Group, while selling its separator business to Deramic Group, in order to assure business and in order to maintain quality of the product, had agreed with Deramic Group that all the entities of Exide Group shall purchase specified battery separators only from Deramic Group. However, the assessee had purchased separators from another company and hence, under the agreement, Exide Technologies had to pay damages for breach of the contract. Since, these damages were occasioned on account of breach of contract of the assessee, the same were reimbursed by the assessee. 6. At this juncture, reference may be made to the provisions of section 37 of the Act, which provides that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1 to sub-section (1) of section 37 of the Act provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 7. In the facts of the present case, the assessee claimed deduction under section 37 of the Act in respect of Rs. 65,52,000/- which it had paid to Exide Technologies by way of reimbursement as Exide Technologies was required to pay such amount to Deramic Group on account of the default on the part of the assessee. As is evident from the facts noted hereinabove, there was an agreement between Exide Technologies and Deramic Group pursuant to purchase of the separator business of the Exide Group by Deramic Group to the effect that all the Group companies would purchase battery separators only from Deramic Group. Despite the aforesaid agreement, the assessee purchased separators from some other company. On account of such breach, Exide Technologies was required to pay the aforesaid amount to Deramic Group which would be in the nature of a compensatory amount. Despite the aforesaid agreement, the assessee purchased separators from some other company. On account of such breach, Exide Technologies was required to pay the aforesaid amount to Deramic Group which would be in the nature of a compensatory amount. Since, the amount was required to be paid by Exide Technologies for the default of the assessee; the assessee was required to reimburse the Exide Technologies in respect of such amount. Thus, the amount paid by the assessee is directly related to the amount paid by the Exide Technologies to Deramic Group on account of default on the part of the assessee and would squarely fall within the ambit of the term "expended wholly and exclusively for the purposes of the business or profession" as contemplated under sub-section (1) of section 37 of the Act. 8. On behalf of the appellant, the learned counsel has placed reliance upon the decision of the Supreme Court in the case of Prakash Cotton Mills P. Ltd. v. Commissioner of Income Tax, (1993) 201 ITR 684 , for the proposition that whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under section 37(1) of the Income Tax Act, 1961, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) wherever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities have to bifurcate the two components of the impost and give deduction of that component which is compensatory in nature and refuse to give deduction of that component which is penal in nature. 9. Examining the facts of the case in the light of the principles enunciated in the above decision, what the assessee had paid to Exide Technologies was with a view to compensate the holding company for the amount which it was required to pay to Deramic Group on account of the breach committed by the assessee of the conditions of the agreement between Exide Technologies and Deramic Group. The amount paid by the assessee is not penal in nature, but compensatory in nature and hence, the above decision of the Supreme Court, on the contrary, supports the case of the respondent assessee. 10. In the light of the above discussion, it is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to a question of law, much less, a substantial question of law, warranting interference. 11. The appeal, therefore, fails and is, accordingly, dismissed.