Penalty

No       

The answer is no. The penalty of any nature is not allowed to be debited to Income Tax. However, if it is Interest for late deposition then it can be debited to ITR.

then what about sec 37 in 1961 .

P. PENALTY PAID FOR ANY BREACH OF LAW

For the removal of the doubts, it is hereby declared 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. Therefore , the following expenditures are disallowable as deduction :

1.         Expenses incurred in defending the assessee in any proceeding for breach of any law relating to Sales Tax, Income Tax etc. (However, penalty or damages paid for breach of contract is allowed as deduction)

2.         Penalty paid for non-payment of Sales Tax, Excise, Custom etc. within prescribed time. (However, damage or penalty paid for infringement of law is not allowed as deduction).