Typically, a Late Policy implementing a deduction in grade just applies a penalty to the actual grade. It does record the original grade, then the penalty is subtracted. When you go into Grade Settings, the following warning is given next to the Late Policy settings:
"Changing the late policy will affect previously graded submissions."
So if you remove the late policy, it should just remove the penalty and revert grades to the actual earned # of points. But it will do it to ALL grades, not just those submitted after removal of the policy. One solution around this is to go into Speedgrader, which will list the penalty, and increase the grade by the penalty. I just checked this on my end. A student had a 15/15 with a -0.9 penalty. When I changed the grade to 15.9, the final grade was listed as 15. Time consuming if you have a lot of students, but this would allow you to remove the penalty from the desired assignment while keeping penalties on other assignments intact.