M/s. Indu Arts, Delhi V. ACIT, New Delhi

CO 382/DEL/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6391 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: C S AGGARWAL
• Keywords: Unexplained investment; Question of law; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 3396(DEL)/2010 ASSESSMENT YEAR: 2006-07 & ITA NO. 3397(DEL)/2010 ASSESSMENT YEAR: 2007-08 ASSISTANT COMMISSIONER OF INDU ARTS, INCOME-TAX, CIRCLE 19(1), VS. A-2 92, SHASTRI NAGAR, DELHI. NEW DELHI. CROSS OBJECTION NO. 381(DEL)/2010 (ARISING OUT OF ITA NO. 3396(DEL)/2010) ASSESSMENT YEAR: 2006-07 & CROSS OBJECTION NO. 382(DEL)/2010 (ARISING OUT OF ITA NO. 3397(DEL)/2010) ASSESSMENT YEAR: 2007-08 INDU ARTS, ASSISTANT COMMISSIONER OF SHASTRI NAGAR, DELHI. VS. I NCOME-TAX, CIRCLE 19(1), NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SALIL MISHRA, SR. DR ASSESSEE BY : S/SHRI C.S.AGGARWAL. ADVOCATE & GAUTAM JAIN, A.R ORDER PER BENCH THE APPEAL BY THE REVENUE FOR THE ASSESSMENT YEA R 2006-07 ARISES OUT OF THE ORDER OF LD. CIT(APPEALS)-XXII, NEW DE LHI. THE GROUNDS RAISED IN APPEAL ARE REPRODUCED AS OVERLEAF:- ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 2 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 3,36,000/- MADE BY THE ASSESSING O FFICER ON ACCOUNT OF WRONG PAYMENT OF SALARY AS PER PARTN ERSHIP DEED SINCE THE PAYMENT OF SALARY WAS TO BE MADE/ALLOWE D ACCORDING TO THE TERMS OF PARTNERSHIP DEED AND NOT IN ACCORDANCE TO THE MEMORANDUM OF UNDERSTANDING WHI CH CANNOT BE CONSIDERED AS A PARTNERSHIP DEED AS REQUIRED U/S 40(B)(V) OF THE I.T.ACT, 1961. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 2,22,447/- MADE BY THE ASSESSING O FFICER ON ACCOUNT OF 1/10 TH OF THE EXPENSES BEING NOT VERIFIABLE. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCES OF RS. 27,695/- AND RS. 16,472/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REPAIR AND MAINTE NANCE EXPENSES BEING NOT VERIFIABLE. 2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE TAX EFFECT IN THIS CASE IS LESS THAN RS. 3.00 LAKH. THIS POSITION IS ADMITTED BY THE LD. D.R. AS PER THE INSTRUCTION NO. 3/2011 DATED 09.02.201 1, THE REVENUE IS NOT PERMITTED TO FILE APPEAL BEFORE THE TRIBUNAL IF T HE TAX EFFECT IS LESS THAN RS. 3.00 LAKH. IN THIS CONNECTION, HE PLACED RELIAN CE ON THE DECISION OF HONBLE SUPREME COURT DATED 25.03.2011 IN ITA NO S. 3 TO 5/2010. ON THE OTHER HAND, LD. DR SUBMITTED THAT INSTRUCTION NO. 3/2011 IS NOT APPLICABLE IN RESPECT OF THE APPEALS FILED PRIOR TO THE DA TE OF ISSUE OF THE SAID INSTRUCTIONS. IT IS FURTHER SUBMITTED THAT THE D ECISION OF FULL BENCH OF ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 3 PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V S. VIRENDRA CONSTRUCTION CO., 239 CTR 1, THAT REVISED MONET ARY LIMITS ARE NOT APPLICABLE TO THE PENDING APPEALS, IS IN FAVOUR OF THE REVENUE. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND R IVAL SUBMISSIONS. INSTRUCTION NO. 3/2011 DATED 09.02.2011 HAS REVI SED THE MONETARY LIMITS FOR FILING THE APPEALS BEFORE INCOME-TAX APPELLAT E TRIBUNAL, HIGH COURTS AND SUPREME COURT. MONETARY LIMIT FOR FILING T HE APPEAL BEFORE THE TRIBUNAL IS RS. 3.00 LAKH; BEFORE HIGH COURT IS RS . 10.00 LAKH AND BEFORE SUPREME COURT IS RS. 25.00 LAKH. HONBLE HIGH CO URT IN THEIR ORDER DATED 25.03.2011 REFERRED TO ABOVE HAS HELD AS UNDER:- IT IS STATED THAT THE TAX IMPACT IN THE PRESENT CASES IS LESS THAN RS. 10.00 LAKHS. THE DEPARTMENT HAS RECENT LY ISSUED AN INSTRUCTION BEARING NO. 3/2011 DATED 09.02.2011, WHICH IS IDENTICAL TO ITS EARLIER INSTRUCTION BEARING N O. 5/2008 DATED 15.05.2008 EXCEPT THAT IN SO FAR AS THE HIGH CO URT IS CONCERNED, THE MONETARY LIMIT IN RESPECT OF APPEA LS WHERE THE QUESTIONS OF LAW RAISED NEED NOT TO BE ANSWERE D, HAS BEEN RAISED FROM RS. 4.00 LAKHS TO RS. 10.00 LAKHS. T HE DIVISION BENCH OF THIS COURT IN ITA NO. 89/1999 DECIDED O N 28.01.2011 HAS ALREADY HELD THAT THE INSTRUCTIO N BEARING NO. 5/2008 DATED 15.05.2008 WOULD APPLY EVEN TO THE OLD PENDING REFERENCES AND APPEALS. THIS PRINCIPLE WOULD TH US NATURALLY EQUALLY APPLY TO THE INSTANT INSTRUCTION BEARING NO.3/2011 DATED 09.02.2011, AS WELL. THE TAX EFFECT BEING LESS THAN RS. 10.00 LAKHS, THE QUESTION OF LAW DOES NOT REQUIRE TO BE ANSWERED. THE APPEALS ARE DISPOSED OF ACCORDING LY. ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 4 3.1 LD. COUNSEL HAS ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DELHI RACE CLUB LT D. IN ITA NO. 128/2008 DATED 03.03.2011 WHEREIN IT HAS BEEN HELD AS UNDE R:- THE TAX EFFECT INVOLVED IN THE PRESENT APPEAL IS RS. 4,65,860/-. AS PER THE RECENT GUIDELINES OF THE CBDT, APPEA L IN THOSE CASES WHERE THE TAX EFFECT IS LESS THAN RS. 10.0 0 LAKHS, ARE NOT TO BE ENTERTAINED. THIS COURT IN THE CASE OF CIT, DELHI-III VS. M/S P .S. JAIN & CO., BEING ITA NO. 179/1991 DECIDED ON 2 ND AUGUST, 2010 HAS TAKEN A VIEW THAT SUCH CIRCULAR WOULD ALSO APPLY TO PENDING CASES. 3.2 IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT, WHICH IS THE JURISDICTIONAL HIGH COURT IN THIS CASE, IT IS HEL D THAT INSTRUCTION NO. 3/2011 DATED 09.02.2011 WILL APPLY TO ALL PENDING APPE ALS. RESPECTFULLY FOLLOWING THE PRECEDENT, IT IS HELD THAT THE AP PEAL IS NOT MAINTAINABLE AS THE TAX EFFECT IS LESS THAN RS. 3.00 LAKHS. 4. AS THE APPEAL OF THE REVENUE HAS BEEN DISMISSED , THE CROSS OBJECTION OF THE ASSESSEE FOR THIS YEAR DOES NOT SURVIVE F OR ADJUDICATION. ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 5 5. COMING TO THE APPEAL OF THE REVENUE FOR ASSE SSMENT YEAR 2007-08, GROUND NOS. 1 AND 2 ARE TO THE EFFECT THAT THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 47,09,119/-, MADE BY THE AO ON ACCOUNT OF DISCREPANCY FOUND IN THE STOCK. 5.1 THE FACTS MENTIONED IN THE ASSESSMENT ORDER ARE THAT THE POSITION OF STOCK AS ON 01.04.2007 WAS COMPARED WITH THE STOCK AS ON 31.03.2006. FOLLOWING DISCREPANCIES WERE FOUND THEREIN:- S.NO. ITEMS QUANTITY QUANTITY VALUE(RS.) VALUE(RS.) CLOSING STOCK AS ON 31.3.06 OPENING STOCK AS ON 1.4.06 CLOSING STOCK OPENING STOCK 1. BED SHEET-SINGLE BED NIL 2624 MIL 7,60,960 2. BED SHEET- DOUBLE BED NIL 3000 NIL 11,40,000 3. TABLE COVER NIL 784 NIL 3,56,095 4. THROWS 5624 NIL 24,52,064 NIL 5.2 IT WAS SUBMITTED THAT THE VALUE OF CLOSING STOCK OF THROWS AS ON 31.03.2006 WAS WRONGLY TAKEN AND THE CORRECT AM OUNT IS RS. 19,00,960/-. THE THROWS ARE USED FOR TWISTED YARN OUT OF WH ICH BED SHEETS ARE MADE. ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 6 THE CLOSING STOCK OF THROWS AS ON 31.03.2006 WAS S HOWN AT 5624. THIS ITEM WAS BIFURCATED IN THE OPENING STOCK OF THI S YEAR CONSISTING OF SINGLE BED-SHEETS NUMBERING 2624 AND DOUBLE BED-SHEETS NUMBERING 3000, AGGREGATING TO 5624. THE TABLE COVERS WERE CLASSI FIED AS FURNISHING ITEMS, BELTS ETC. NUMBERING 784, BUT HAVE BEEN CORRECTL Y SHOWN AS TABLE COVERS NUMBERING 784 IN THE OPENING STOCK. THEREFORE, T HERE IS NO DISCREPANCY IN THE CLOSING STOCK OF LAST YEAR VIS--VIS OPENING STOCK OF THIS YEAR. THE AO DID NOT ACCEPT THIS POSITION. CONSEQUENTLY, THE FOLLOWING CONCLUSIONS HAVE BEEN DRAWN:- (I) THE VALUE OF 784 TABLE COVERS HAS BEEN HELD TO B E UNDISCLOSED CLOSING STOCK OF THIS YEAR AND THE AMOUNT OF RS. 3,56,815/- HAS BEEN ADDED TO THE TOTAL INCOME; (II) IN RESPECT OF 5624 THROWS, VALUED AT RS. 24,52,0 64/-, IT HAS BEEN HELD THAT THESE ITEMS WERE THERE IN OPENING ST OCK BUT WERE NOT INCLUDED IN CLOSING STOCK. THEREFORE, THESE ITEMS HAVE BEEN SOLD WITHOUT RECORDING SALE PROCEEDS IN THE BOOKS OF ACCOUNT; AND (III) A SUM OF RS. 22,57,055/- HAS BEEN ADDED TO THE T OTAL INCOME AS UNEXPLAINED INVESTMENT. ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 7 THUS, A TOTAL ADDITION OF RS. 47,09,119/- HAS BE EN MADE TO THE TOTAL INCOME. 5.3 BEFORE THE LD. CIT(APPEALS), IT WAS SUBMITTE D THAT THE AO HAS MADE FOLLOWING ADDITIONS:- (A) THE ASSESSEE HAS SHOWN OPENING STOCK OF 2624 SING LE BED SHEET OF THE VALUE OF RS. 7,60,960/-, WHICH ACCORDING TO TH E ASSESSING OFFICER WERE NOT FORMING PART OF CLOSING STOCK AS ON 31.0 3.2006. (B) IT HAS BEEN OBSERVED THAT IN OPENING STOCK OF 300 0 DOUBLE BED SHEETS HAS BEEN SHOWN BY THE ASSESSEE AT RS. 11,40,000/- , WHICH ACCORDING TO ASSESSING OFFICER, DID NOT FORM PART OF CLOSIN G STOCK AS ON 31.03.2006. (C) ASSESSEES OPENING STOCK OF TABLE COVERS INCLUDE S 784 IN NUMBERS AT A VALUE OF RS. 3,56,815/- WHEREAS ACCORDING TO T HE ASSESSING OFFICER, THERE WAS NO SUCH STOCK OF TABLE COVERS IN THE C LOSING STOCK AS ON 31.03.2006; AND ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 8 (D) THE ASSESSING OFFICER HAS MADE A FURTHER ADDITI ON OF RS. 24,52,064/- IN RESPECT OF 5624 NUMBER OF THROWS WHICH WERE FOR MING CLOSING STOCK AS ON 31.03.2006 BUT WERE ALLEGEDLY NOT FO RMING PART OF OPENING STOCK FOR THE YEAR UNDER CONSIDERATION. 5.4 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE H AD SHOWN BED SHEETS AS THROWS IN THE CLOSING STOCK AS ON 31.3.2006. THE BED-SHEETS ARE MADE OF TWISTED YARN. THE ASSESSEE IS A REGULAR DEALER IN THESE ITEMS. THE ASSESSEE IS AN OLD ASSESSEE, WHO IS NOT LIKELY TO MAKE AN ERROR OF TREATING RAW-MATERIAL AS FINISHED GOODS. THE TOTAL NUMBER OF THE ITEMS IS THE SAME. THEREFORE, IT IS ONLY A CASE OF WRONG CLASSIFICA TION OF THE MATERIAL AS ON 31.03.2006. THIS MISTAKE HAS BEEN CORRECTED IN THI S YEAR. FURTHER, THE ASSESSEE HAD SHOWN OPENING STOCK OF 784 TABLE CO VERS AT RS. 3,56,815/- AND CLOSING STOCK AT NIL. IT WAS SUBMITTED TH AT THIS ITEM WAS ALSO WRONGLY CLASSIFIED UNDER MISCELLANEOUS HEAD LAST YEAR. IN THIS VIEW OF THE MATTER, NO ADDITION COULD HAVE BEEN MADE TO THE INCOME RE TURNED BY THE ASSESSEE. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE. HE ALSO CONSIDERED THE BILLS OF PURCHASE OF VARIOUS ITEMS AND EXAMIN ED THE QUANTITATIVE DETAILS. THIS EXERCISE SHOWED THAT THERE ACTUAL LY WAS NO DISCREPANCY. THEREFORE, THE ADDITION WAS DELETED. ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 9 6. BEFORE US, THE SUBMISSION OF THE LD. DR IS THAT THROWS AND BED-SHEETS ARE NOT THE SAME ITEMS. THERE IS ALSO DISCREPA NCY IN RESPECT OF TABLE COVERS. ACCORDINGLY, IT IS AGITATED THAT THE ORD ER OF THE LD. CIT(APPEALS) IN THIS MATTER MAY BE SET ASIDE, FOR WHICH HEAVY RELIANCE HAS BEEN PLACED ON THE ORDER OF THE AO. 6.1 IN REPLY, THE LD. COUNSEL SUBMITTED THAT THE A DDITION HAS BEEN MADE ON AN ASSUMPTION THAT THERE IS A DISCREPANCY IN THE OPENING STOCK OF THIS YEAR VIS--VIS CLOSING STOCK OF LAST YEAR. THIS DISCRE PANCY IS NOT BASED UPON THE BOOKS OF ACCOUNT BUT ON THE BASIS OF TAX-AUDITOR REPORT. THE AUDITOR HAD MADE THE FOLLOWING OBSERVATIONS:- (A) SINGLE BED SHEETS NUMBERING 2624 WERE SHOWN OPENI NG STOCK WHICH DID NOT FORM PART OF CLOSING STOCK AS ON 31.03. 2006; (B) DOUBLE BED SHEETS NUMBERING 3000 WERE SIMILARLY S HOWN AND WERE NOT PART OF CLOSING STOCK AS ON 31.03.2006; (C) TABLE COVERS NUMBERING 784 WERE AGAIN REFLECTED OP ENING STOCK AND WERE NOT SHOWN AS CLOSING STOCK AS ON 31.03.200 6; AND (D) LASTLY, THROWS NUMBERED 5624 WERE REFLECTED IN THE TAX AUDIT REPORT AS ON 31.03.2006 AS CLOSING STOCK BUT WERE REFL ECTED IN THE OPENING STOCK AS PAGE 175 OF PAPER BOOK. ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 10 6.2 IT IS FURTHER SUBMITTED THAT ITEM NOS. 1, 2 AND 3 OF THE TABLE DRAWN IN THE ASSESSMENT ORDER DID NOT APPEAR IN THE C LOSING STOCK OF LAST YEAR. FURTHER, ITEM NO. 4 APPEARED IN THE CLOSING STOCK BUT WAS NOT SHOWN IN THE OPENING STOCK OF THIS YEAR. THE FACT OF THE MAT TER IS THAT 5624 THROWS ARE NOTHING BUT 2624 SINGLE BED SHEETS AND 3000 DOUB LE BED SHEETS. THEREFORE, THIS DISCREPANCY STANDS RESOLVED AS A MERE MI S-DESCRIPTION WHICH CANNOT LEAD TO ANY ADDITION. THE QUANTITATIVE DETAILS HA VE BEEN FILED WHICH DO NOT SHOW ANY DISCREPANCY. COMING TO THE TABLE COVERS , QUANTITATIVE DETAILS HAVE BEEN FURNISHED, WHICH DO NOT SHOW ANY DISCREP ANCY. 6.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE HAVE EXAMINED THE QUANTITATIVE DETAILS IN RESPECT OF THESE ITEMS. WE FIND THAT THERE IS NO DISCREPANCY IF MI SCLASSIFICATION IS TAKEN INTO ACCOUNT. OTHERWISE, THERE IS NO EVIDENCE REGARDIN G UNDISCLOSED STOCK OR SALES OUTSIDE THE BOOKS OF ACCOUNT. IN VIEW THE REOF, WE CONCUR WITH THE LD. CIT(APPEALS) THAT IT WAS ONLY A CASE OF CLA SSIFICATION UNDER DIFFERENT HEADS OF THE SAME ITEM OR MISCLASSIFICATION OF THE TABLE COVERS UNDER MISCELLANEOUS HEAD. THIS DOES NOT LEAD TO ANY ADDITION TO THE TOTAL INCOME. ACCORDINGLY, THESE GROUNDS ARE DISMISSED . ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 11 7. GROUND NO. 2 IS IN RESPECT OF DELETING THE AD DITION OF RS. 50,000/- MADE BY THE AO U/S 40(B). THE FACTS MENTIONED I N THE ASSESSMENT ORDER ARE THAT THE ASSESSEE DEBITED A SUM OF RS. 50,0 00/- TO THE PROFIT AND LOSS ACCOUNT AS PARTNERS REMUNERATION. THERE IS NO A UTHORIZATION IN PARTNERSHIP DEED FOR PAYMENT OF REMUNERATION. THE ASSESSEE H AS FURNISHED A MOU DATED 01.04.2005 WHICH INTER-ALIA PROVIDES THAT IT IS CONSIDERED EXPEDIENT AND DESIRABLE TO DETERMINE THE REMUNE RATION OF PARTNERS. THIS SHOWS THAT THE REMUNERATION HAD NOT BEEN DE CIDED EARLIER AND, THEREFORE, A NEED HAS ARISEN FOR DECIDING THE SAME. A PARTNERSHIP DEED CAN BE AMENDED, HOWEVER, THE MOU IS NOT AN AMEN DMENT TO THE PARTNERSHIP DEED. THEREFORE, THE PAYMENT IS NOT IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE PARTNERSHIP DEED. ACCORDINGLY, THE PAYMENT OF RS. 50,000/- HAS BEEN DISALLOWED. 7.1 THE MATTER WAS AGITATED BEFORE THE CIT(APPEA LS), WHO REFERRED TO HIS ORDER FOR ASSESSMENT YEAR 2006-07. IN THAT YEAR, THE ASSESSEE HAD PAID SALARY TO MRS. INDU SANGAL @ 15,000/- P.M, AND HITENDER SANGAL @ RS. 13,000/- P.M., THUS, THE TOTAL SALARY PAID TO BOTH THE PARTNERS IN THE WHOLE YEAR AMOUNTED TO RS. 3,36,000/-. HE REFERR ED TO THE PROVISION CONTAINED IN SECTION 40(B)(V) TO THE EFFECT THAT THE REMUNERATION PAID TO A ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 12 PARTNER IS DEDUCTIBLE IF (A) HE IS A WORKING P ARTNER, AND (B) HE IS AUTHORIZED BY THE PARTNERSHIP DEED FOR PAYMENT OF REMUNERATION. FURTHER, HE REFERRED TO BOARD CIRCULAR NO. 739 DATED 25. 3.1996, ISSUED BECAUSE OF REPRESENTATIONS RECEIVED IN THE MATTER. THESE REP RESENTATIONS BROADLY DEALT WITH TWO CATEGORIES OF CASES WHERE (A) PARTNERS AG REE THAT THE REMUNERATION TO A WORKING PARTNER WILL BE ALLOWED IN ACCORD ANCE WITH THE PROVISION CONTAINED IN SECTION 40(B)(V), AND (B) THE REMU NERATION PAID TO THE WORKING PARTNER WILL BE AS MUTUALLY AGREED UPON BETWEEN THE PARTNERS AT THE END OF THE YEAR. IT MENTIONED THAT THE PR OVISIONS CAME INTO FORCE WITH EFFECT FROM ASSESSMENT YEAR 1993-94 AND TH ESE MAY NOT HAVE BEEN CORRECTLY UNDERSTOOD, REQUIRING A LIBERAL APPRO ACH IN THE EARLIER YEARS. IN VIEW THEREOF, IT WAS FURTHER MENTIONED THAT IN FIRST CATEGORY OF CASES, THE REMUNERATION TO THE WORKING PARTNER MAY BE ALL OWED. HOWEVER, WHERE THE AMOUNT HAS NOT BEEN QUANTIFIED OR LIMIT OF THE AMOUNT HAS NOT BEEN SPECIFIED BUT THE SAME IS LEFT TO THE PARTNER FOR THE DECISION AT THE END OF THE ACCOUNTING YEAR, THE SAME MAY NOT BE ALLOWE D AS DEDUCTION IN COMPUTING THE INCOME OF THE FIRM. IT IS ALSO ME NTIONED THAT NO DEDUCTION UNDER THIS PROVISION WILL BE ADMISSIBLE AFTER ASSESSMENT YEAR 1996-97 UNLESS PARTNERSHIP DEED SPECIFICALLY PROVIDES F OR THE AMOUNT OF REMUNERATION PAYABLE TO EACH WORKING PARTNER OR LAYS DOWN THE MANNER OF ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 13 QUANTIFYING SUCH REMUNERATION. COMING TO THE FACTS OF THE CASE, IT IS MENTIONED BY THE LD. CIT(A) THAT THE ASSESSEE C ONSIDERED ONLY THE FIRST LIMB THAT THE PARTNERSHIP DEED I.E. IT SHOULD SPECIFY THE AMOUNT OF REMUNERATION PAYABLE TO THE WORKING PARTNER OR LA YS DOWN THE MANNER OF QUANTIFYING SUCH REMUNERATION. HE IGNORED THE SE COND LIMB THAT MANNER OF QUANTIFYING SUCH REMUNERATION IS ALSO LAID DO WN. THE PARTNERSHIP IS EVIDENCED BY THE DEED DATED 04.04.2000 EFFECTIV E FROM 01.04.2000. IN CLAUSES 7 AND 8 OF THE DEED, IT IS MENTIONED T HAT BOTH THE PARTNERS ARE WORKING PARTNERS AND THEY ARE ENTITLED TO MONTHLY R EMUNERATION AT SUCH RATES AS MAY BE MUTUALLY DECIDED BETWEEN THEM FROM T IME TO TIME. THE PARTNERS WILL BE AT LIBERTY TO INCREASE OR DEC REASE THE AMOUNT OF REMUNERATION WITH MUTUAL CONSENT FROM TIME TO TIM E. THE PARTNERS HAVE EXECUTED A MOU DEALING WITH THIS ISSUE AND SU CH MOU WAS EXECUTED ON THE FIRST WORKING DAY OF EACH YEAR UNDER CONS IDERATION. IT IS PROJECTED THAT THE TWO PARTNERS WILL GET REMUNERATION AT THE RATES OF RS. 15,000/- P.M. AND RS. 13,000/- P.M. WITH EFFECT FROM 01.04. 2005. ON FACTS, IT IS HELD THAT THE AMOUNT PAYABLE AS SALARY TO THE PAR TNERS HAS NOT BEEN QUANTIFIED AS THE DEED SPEAKS OF ONLY AUTHORIZA TION FOR PAYMENT OF SALARY. HE DID NOT AGREE WITH THE ASSESSEE THAT THE MOU MEETS THE REQUIREMENT OF BOARD CIRCULAR NO. 739 AS THE SAME FURNISHES THE MANNER OF ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 14 QUANTIFICATION OF REMUNERATION PAYABLE TO THE W ORKING PARTNER. ACCORDINGLY, THE ADDITION HAS BEEN DELETED. 7.2 THE CASE OF THE LD. DR BEFORE US IS THAT TH E PARTNERSHIP DEED CONTAINS A PROVISION AUTHORIZING THE PAYMENT OF REMUNERATION TO BE PAID TO THE WORKING PARTNERS. THE PARTNERS HAVE SIGN ED A MOU DETERMINING THE MANNER IN WHICH THE REMUNERATION SHALL BE PAID . HOWEVER, THE PARTNERSHIP HAS NOT BEEN AMENDED. THE MOU CANNO T BE A SUBSTITUTE FOR THE PARTNERSHIP IN THIS MANNER. THEREFORE, IT IS ARGUED THAT THE LD. CIT(APPEALS) ERRED IN ALLOWING DEDUCTION TO THE ASSESSEE. 7.3 IN REPLY, THE LD. COUNSEL SUBMITTED THAT TH E ASSESSEE-FIRM INCURRED LOSS IN THIS YEAR AND, THEREFORE, AGGREGATE REM UNERATION OF RS.50,000/- ONLY WAS PAID TO BOTH THE PARTNERS. THIS IS PER MISSIBLE AS PER STATUTORY PROVISION. THE MOU IS APPLICABLE TO THIS YEAR AL SO AS NO FURTHER MOU WAS SIGNED TILL THE CLOSURE OF THIS YEAR. THIS MOU IS IN THE NATURE OF AN AGREEMENT, WHICH HAS TO BE GIVEN EFFECT TO. IN OR DER TO SUPPORT THIS CONTENTION, RELIANCE HAS BEEN PLACED ON THE DECI SION OF HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF DURGA DASS DEV KI NANDAN VS. ITO, ]241 CTR 180. ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 15 7.4 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE-F IRM IS CONSTITUTED OF TWO PARTNERS HAVING EQUAL SHARES. CLAUSE NO. 7 OF TH E DEED STATES THAT BOTH THE PARTNERS ARE WORKING PARTNERS AND BOTH OF THEM AR E ENTITLED TO MONTHLY REMUNERATION AT SUCH RATES AS SHALL BE DECID ED MUTUALLY BETWEEN THEM FROM TIME TO TIME. THE PARTNERS WILL BE AT LIBERTY TO INCREASE OR DECREASE THE AMOUNT OF SUCH REMUNERATION WITH M UTUAL CONSENT FROM TIME TO TIME. THE PARTNERS SIGNED A MOU ON 01.04 .2005 WHICH STATES THAT IT IS MUTUALLY AGREED BETWEEN THE PARTNERS THAT RS. 15,000/- P.M. TO MRS. INDU SANGAL AND RS. 13,000/- P.M. TO SHRI HITENDER SAN GAL WILL BE PAID AS SALARY OR PARTNERS REMUNERATION WITH EFFECT FROM 0 1.04.2005. THE ASSESSEE HAD DEBITED PARTNERS REMUNERATION OF RS. 3,36,000/ - ON THE AFORESAID BASIS TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDE D ON 31.03.2006. HOWEVER, IN THIS YEAR, THE ASSESSEE DEBITED ONLY A SUM O F RS. 50,000/- AS PARTNERS SALARY. IN THE STATEMENT OF INCOME, THIS AMOUNT W AS INITIALLY DISALLOWED AND THEREAFTER CLAIMED AS DEDUCTION U/S 40(B) (V). THE QUESTION IS- WHETHER, THE AMOUNT IS DEDUCTIBLE IN COMPUTING THE TOTAL INCOME? ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 16 7.5 SECTION 40 CONTAINS A NON-OBSTANTE CLAUSE A ND DISALLOWS THE PAYMENTS MENTIONED IN THE SECTION NOTWITHSTANDIN G ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38. CLAUSE (B) DEA LS WITH THE PAYMENT OF REMUNERATION TO ANY PARTNER. IT IS INTER-ALIA PR OVIDED THAT PAYMENT OF REMUNERATION TO ANY PARTNER, WHO IS A WORKING PART NER, WHICH IS AUTHORIZED BY, AND IS IN ACCORDANCE WITH THE TERMS OF PART NERSHIP DEED AND RELATES TO ANY PERIOD FALLING AFTER THE DATE OF SUCH PART NERSHIP DEED, SHALL NOT BE ALLOWED IN SO FAR AS THE AMOUNT OF SUCH PAYMENT TO ALL THE PARTNERS DURING THE PREVIOUS YEAR EXCEEDS RS. 50,000/- IN A CASE WHERE THE BOOK PROFIT IS RS. 1.00 LAKH OR IT IS A CASE OF A LOSS. THE CASE OF THE LD. COUNSEL CRUCIALLY HINGES ON THE COMPUTATIONAL PART OF THE PROVISION. HOWEVER, IT IS QUITE CLEAR THAT THE PAYMENT I S NOT IN ACCORDANCE EVEN WITH THE MOU AS THE SAME PROVIDES FOR PAYMEN TS @ RS. 15,000/- P.M. AND RS. 13,000/- P.M. FOR THE TWO PARTNERS. THE WORDS TO THE EFFECT THAT THE REMUNERATION IS AUTHORIZED BY AND IS IN ACCORDANCE WITH THE TERMS OF PARTNERSHIP DEED OR IS QUALIFIED FURTHER BY THE WORDS THAT THE AMOUNT OF SUCH PAYMENTS EXCEEDS RS. 50,000/-, IN SO FAR AS THE FACTS OF THIS CASE ARE CONCERNED. THEREFORE, EVEN IF IT IS TAKEN T HAT THE MOU, WHICH IS A WRITTEN DOCUMENT, IS IN AID OF THE RELEVANT CLAUS E OF THE PARTNERSHIP DEED, IT IS CLEAR THAT THE PAYMENT IS NOT IN ACCORDANCE WI TH MOU. THEREFORE, WE ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 17 ARE OF THE VIEW THAT ON PLAIN READING OF THE PROV ISION, THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION OF THE AMOUNT. COMING TO THE DECISION IN THE CASE OF DURGA DASS DEVKI NANDA, THE MAIN PART OF THE DECISION IS THAT A BOARD CIRCULAR IS NOT BINDING ON THE COURT TO THE EXTE NT IT IS IN DEROGATION OF THE STATUTORY PROVISION. THEREFORE, THE CIRCULAR IS SUBJECT TO THE STATUTORY PROVISION. HOWEVER, IT IS ALSO CLEARLY MENTIONED THAT THE SECTION PROVIDES THAT IN CASE THE PAYMENT OF REMUNERATION MADE TO ANY WORKING PARTNER IS IN ACCORDANCE WITH THE TERMS OF THE PARTNERSHIP DEED AND DOES NOT EXCEED THE AGGREGATE AMOUNT AS LAID DOWN IN THE SUBSEQ UENT PORTION OF THE SECTION, THE DEDUCTION IS PERMISSIBLE. ACCORDING TO THIS DECISION, TWO CONDITIONS HAVE TO BE SIMULTANEOUSLY SATISFIED- ( A) THE PAYMENT OF REMUNERATION IS IN ACCORDANCE WITH THE TERMS O F PARTNERSHIP DEED; AND (B) IT DOES NOT EXCEED THE AMOUNT MENTIONED IN COMPUTATIONAL TABLE. IN THIS CASE, THE AMOUNT IS NOT PAID IN ACCORDANCE WITH THE MOU. THEREFORE, THE ASSESSEE IS NOT ENTITLED TO GET THE DEDUCTIO N. 7.6 THE CROSS OBJECTION IS AGAINST LACK OF PROPER APPRECIATION OF THE PROVISION CONTAINED IN SECTION 40(B)(V) BY THE LD. CIT(APPEALS). IT IS SEEN THAT THE LD. CIT(APPEALS) HAS GRANTED RELIEF TO THE ASSESSEE AND, THEREFORE, THE OBJECTION RAISED IS OF ACADEMIC INTEREST ONLY. FURTHER, THE ITA NOS. 3396&3397(DEL)/2010 & C.O.NOS. 381 & 382(DEL)/2010 18 REMUNERATION HAS NOT BEEN PAID AS MUTUALLY DECID ED BETWEEN THE PARTNERS. THEREFORE, THE OBJECTION IS TO BE REJECTED. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT: (I) THE APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 ARE DISMISSED; AND (II) THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE FO R THIS YEAR IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 5.08.2011. SD/- SD/- (I.P. BANSAL) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 05.08.2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- INDU ARTS, SHASTI NAGAR, DELHI. ACIT, CIRCLE 19(1), NEW DELHI. CIT CIT(APPEALS) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.