Appeal fee deductible or not??

No..It is not an allowable expenditure as per Sec 37(1).

Ya, I had the same view as you had,

but it is not incurred for any intraction of law to be disallowed u/s.37(1)

I have arguments on both sides, if you can give the logic or reason behind this I will be more comfortable

Sec 37(1) states that any expenditure incurred wholy and exclusively for the purpose of business  or profession shall be allowed in computing the income chargeable under the head PGBP.

However,  amount incurred on account of Appeal Fees does not have any connection with the profitabilitly of the company and it cannot be said that it is incurred for the business of the company.

Hence, it is not allowed. 

stress is given for the purpose & nowhere it is said that the purpose should be profitability

This expense is incurred only because of the business, it doesn't have any personal nature...

It is allowable. as it has not nature of penalty.