Revenue has filed this appeal challenging order of CIT(A)-III, Kochi dt. 17th Sept., 2004 for asst. yr. 2001-02. assessee has also filed cross-objection in this appeal. We are taking up Revenue s appeal at first instance for decision. first issue which arises for our consideration is whether CIT(A) is justified in deleting addition made by AO under s. 43B of Act in respect of payment of EPF and ESI beyond due date. It was noticed by AO that assessee has not remitted amount of EPF and ESI within due date. AO, therefore, made disallowance of Rs. 1,42,984 under s. 43B of Act. contention of assessee was that though said amounts were paid beyond due date prescribed under relevant Act, but have been paid well within due date for filing return of income. contention of assessee was rejected by AO. assessee challenged said addition before CIT(A) and CIT(A) deleted addition. We have heard parties. learned chartered accountant for assessee submitted that identical issue has come for consideration of this Tribunal in case of Keltron Component Complex Ltd. being ITA No. 381/Coch/2003 vide order dt. 20th June, 2005. He further submitted that same issue was also considered by Special Bench of Tribunal in case of Kwality Milk Foods Ltd. vs. Asstt. CIT (2006) 102 TTJ (Chennai)(SB) 1: (2006) 100 ITD 199 (Chennai)(SB). learned Departmental Representative was fair enough to submit that this issue is covered in favour of assessee by decision of this Tribunal as referred to by learned chartered accountant s well as by Special Bench of Tribunal in case of Kwality Milk Foods Ltd. (supra). We find that identical issue had come for consideration before Special Bench of Tribunal in case of Kwality Milk Foods Ltd. (supra) and issue before Hon ble Special Bench was whether amendment in proviso to s. 43B by Finance Act, 2003 could be construed to be curative, as such retrospective in nature. Hon ble Special Bench has held as under: "34. We have considered entire conspectus of case. As per prescription of s. 43B of Act, deduction for statutory payments pertaining to labour, taxes, etc. are to be allowed as deductions, if they are actually paid during financial year. However, to mitigate unintended hardship it is stipulated in proviso that taxes are deemed to have been paid during financial year even if they are paid by due date of filing of return. In case of statutory payment relating to labour, it was sine qua non to make payment anytime before last date for payment of labour related liability. It was represented before Government that delayed payment of statutory liability related to labour should be accorded same treatment as delayed payment of taxes, etc. deduction if denied in year could not be claimed in subsequent year. On account of various reasons like postal delay, strikes or long holidays, payment of employer s contributions to respective authorities at times delayed even though payment tendered before due date. Having regard to this unintended hardship, by Finance Act, 2003 in first proviso of s. 43B, words, brackets and letters referred to in cl. (c) or cl. (d) or cl. (e) or cl. (f) have been omitted and second proviso was also omitted. Legislature removed differentiation between employee welfare payments and others. Uniform criteria was prescribed for allowability of claim. amendment was made to eliminate unintended consequences that caused undue hardship to taxpayers. Therefore, amendment in proviso to s. 43B by Finance Act, 2003 was curative in nature. Accordingly, it should be applied retrospectively." Respectfully following decision of Special Bench in case of Kwality Milk Foods Ltd. (supra), we hold that there is no reason to interfere with order of CIT(A) on this issue. Ground Nos. 2 and 3 are dismissed. next issue is whether CIT(A) is justified in deleting addition made by AO on account of depreciation on car on reason of personal use. It was noticed by AO that assessee has disallowed 1/4th of car expenses on account of personal use, but at same time, full depreciation was claimed on car. AO was of opinion that as assessee has admitted personal use of car, disallowance was called for and he made t h e disallowance of 1/4th of depreciation claimed and made corresponding addition to income of assessee. assessee challenged said addition before CIT(A) and CIT(A) deleted addition made by AO. Now, Revenue has challenged decision of CIT(A) before us. We have heard parties. short controversy before us is in respect of disallowance of depreciation for reason of personal use of car. Admittedly, as per facts on record, assessee itself has made disallowance in respect of expenses on car on reason of personal use. As per provisions of s. 38(2) if assets like building, plant or furniture is not exclusively used by assessee for purpose of business, then AO has been vested with power to restrict depreciation by taking fair proportionate part thereof. identical issue had come for consideration before Special Bench of Tribunal in case of Gulati Saree Centre vs. Asstt. CIT (2000) 66 TTJ (Chd)(SB) 286: (1999) 71 ITD 73 (Chd)(SB) and it was held that in spite of concept of block of assets, if asset is identifiable under provisions of s. 38(2) fair proportionate part of depreciation can be disallowed. On facts of present case, assessee itself has admitted element of personal use and accordingly, suo motu made disallowance in respect of expenses on car. In our opinion, AO has rightly made disallowance of 25 per cent of depreciation claimed by assessee. We do not agree with cryptic reasons given by CIT(A). We, therefore, decide this issue in favour of Revenue. We, accordingly, set aside order of CIT(A) on this issue and restore order of AO. Ground No. 4 is allowed. next issue is regarding addition made by AO on account of low gross profit and deleted by CIT(A). assessee is engaged in textile business. assessee declared total turnover of Rs. 4,25,32,550 and declared gross profit at 12.75 per cent. AO was of opinion that average gross profit in textile business is 15 per cent as per returns of income filed by other dealers. AO also noted that in immediate preceding year, assessee itself has shown gross profit at 13.55 per cent AO, therefore, made addition of Rs. 3,44,285. assessee challenged said addition before CIT(A) and CIT(A) deleted addition made by AO on account of declaration of low gross profit. We have heard rival submissions of parties. We have also carefully considered facts as per material placed before us as well as reasons given by AO. AO has stated that average gross profit rate in textile business is 15 per cent as per returns of income filed by other textile dealers. He has further made observation that for ready-made items profit margin is normally about 30 per cent. We consider it necessary to reproduce here reasons given by AO for making addition for alleged low gross profit declared by assessee which are as under: "The assessee s business is biggest textile shop in Thodupuzha. On total turnover of Rs. 4,25,32,550, gross profit shown is only Rs. 54,18,875, which works out to only 12.75 per cent. average GP rate for textile business is 15 per cent as per returns of income filed by other textile dealers. In immediately preceding year, assessee itself has shown GP of 13.55 per cent By letter dt. 9th Sept., 2003 it was requested to explain whether there is any specific reason for fall in GP rate. assessee s reply states that there is increase in turnover by more than 10 per cent during year. It is only by selling at reduced rates that sales could be increased. assessee is dealing in various textile items including ready-made garments, umbrella, mosquito nets, etc. For ready made items profit margin is normally around 30 per cent. assessee is not maintaining stock register. stock inventory as on last day of accounting year produced is also not fully verifiable. On last day of accounting year, assessee has debited sum of Rs. 43,353 towards purchases. There was no voucher for that purchase. However, assessee s representative has subsequently furnished break up of that amount being interest on delayed payment, packing charges and good returned, etc. These items are also not supported with any evidence. In audit report, it is stated that no quantitative particulars have been kept by assessee as items dealt with are of innumerable varieties and with cost varying from time-to-time. Since assessee s account could not be verified properly, and also closing stock is not supported with any day-to-day stock book, I am not in position to stock is not supported with any day-to-day stock book, I am not in position to accept book results as admitted. Though average GP comes to 15 per cent, I adopt only rate of GP admitted by assessee in immediately preceding year. GP therefore, works out to Rs. 57,63,160. Deducting GP admitted viz. Rs. 54,18,875, addition works out to Rs. 3,44,285. This is added to total income returned." We find force in argument of learned chartered accountant that observations and findings of AO are not based on any evidence or material, but only general in nature. AO has also not given any instances for alleged 15 per cent gross profit in textile business. AO should have at least taken pains to give some of instances which would have supported his case that gross profit in textile business is 15 per cent. In our opinion, findings of AO are only surmises and without any base. It is well settled principle that no addition can be made only on surmises or presumptions. We are, therefore, of opinion that CIT(A) has rightly deleted addition made by AO for alleged declaration of low gross profit at Rs. 3,44,285. After giving thoughtful consideration to reasons of CIT(A), we do not find any reason to interfere with said findings. We, therefore, confirm order of CIT(A) on this issue and ground No. 5 filed by Revenue stands dismissed. Now, we turn up to cross objection filed by assessee. only i s s u e which arises for our consideration in cross objection is disallowance of remuneration to partners made by AO and confirmed by CIT(A). assessee is partnership firm which was constituted by deed of partnership dt. 18th Dec., 1992. AO examined deed of partnership more particularly cls. 6 and 7 and was of opinion that quantum of salary to be paid to partners is not specifically provided in partnership deed. assessee produced copy of resolution alleged to be passed by partners at 4 PM on 31st March, 2001 as per which salary payable to each partner was shown to be restricted to Rs. 48,000. AO relied on CBDT Circular No. 739 dt. 25th March, 1996 [(1996) 131 CTR (St) 53]. AO was of opinion that no deduction under s. 40(b)(v) of Act is admissible in respect of remuneration or salary paid to working partner unless partnership deed either specified amount of remuneration payable to each individual working partner or lays down manner of quantifying such remuneration. AO made disallowance of Rs. 1,44,000 claimed by assessee towards salary to working partners. assessee challenged said disallowance before CIT(A) but did not find favour as CIT(A) confirmed disallowance made by AO. We have heard rival submissions of parties. assessee has filed copy of partnership deed which is placed at pp. 32 to 34 of paper book. Clause No. 6 of partnership deed provides for salary to working partners and interest on capital of partner which is as under: "6. net profit of partnership as provided in cl. 5 above shall be after providing salary to working partners and interest on capital of partners as per provisions of IT Act applicable from time to time. It is expressly provided and agreed to by partners that partners shall be eligible for salary and interest on capital only to extent of profit available in business. In other words, in event of partnership making loss, partners shall not be eligible for any salary and interest. salary and interest to partners shall be settled only on ascertaining profit of business and at time of closing books of account. partners are at liberty to make withdrawals against salary and interest and such amounts shall be adjusted at year end." argument of learned chartered accountant is that s. 40(b) only prescribes ceiling and conditions for allowability of remuneration to partner. As per provisions of s. 40(b), expenditure in case of firm relating to salary, bonus, commission or remuneration paid to any partner is allowable expenditure on fulfilling following conditions: (i) He should be working partner (ii) It should be authorised by or should in accordance with terms of deed of partnership, and (iii) If any payment of remuneration to any working partner is authorised by or is in accordance with terms of deed of partnership but which relates to or is in accordance with terms of deed of partnership but which relates to any period falling prior to date of such partnership deed for which such payment was not authorised by or is not in accordance with any earlier partnership deed then that is not allowable. learned chartered accountant further submitted that as per cl. 6 of partnership deed, it is admitted fact that payment of salary to working partners is provided. It is not case of AO that salary provided is not as per terms of deed of partnership. It was further argued that as per Indian Partnership Act, partnership is created by contract between parties and parties are at liberty to determine terms of their contact. IT Act does not provide how partnership should determine terms in respect of determining quantum of salary or remuneration agreed to be payable to working partner but by way of provision of s. 40(b)(v) for allowing expenditure relating to salary or remuneration certain mandatory conditions are laid down by Act, but in those conditions, there is no condition that as far as quantification of remuneration and salary is concerned, it should be in particular manner. Once deed of partnership authorises payment of remuneration or salary to working partner and remuneration or salary provided or paid as per terms of deed of partnership there is no bar for allowing same. learned chartered accountant further argued that AO has placed reliance on Circular No. 739 dt. 25th March, 1996 and came to erroneous conclusion that said circular is only applicable for asst. yrs. 1993-94 to 1996-97. He, therefore, submitted that beneficial circulars are to be given liberal interpretation. Per contra, learned Departmental Representative supported orders of authorities below. We have heard rival submissions of parties. controversy is in respect of salary or remuneration claimed by assessee. There is no controversy that partners are not working partners. only grievance of AO is that quantification of salary is not provided in deed of partnership. We find force in argument of learned chartered accountant. Sec. 40(b) only speaks about condition in which remuneration or salary paid to partner is allowable and extent to which same is allowable. On perusal of provisions of s. 40(b), it is seen that partner who is paid remuneration or salary is working partner. Another condition is that said payment of remuneration or salary should be authorised by deed of partnership and payment also should be in accordance with deed of partnership. There was some confusion earlier when s. 40(b) was introduced to streamline assessment of firm w.e.f. asst. yr. 1993-94. There was lot of confusion on interpretation of s. 40(b). Some representations were made to CBDT as it is clear from Circular No. 739 dt. 25th March, 1996. CBDT has clarified that on identical clause adopted by assessee s in their partnership deeds, liberal view will be taken for asst. yrs. 1993-94 to 1996-97 and accordingly, CBDT declared that though there is no clear-cut quantification in respect of amount of remuneration, same will be allowed for asst. yrs. 1993-94 to 1996-97. As far as facts before us are concerned, partnership deed has provided payment of salary to working partners by stating that same will be as per provisions of IT Act applicable from time-to-time. It is further provided that salary and interest to partners shall be settled only on ascertaining profit of business and at time of closing books of account. In our opinion, once partnership deed has authorised payment of remuneration or salary to working partner then same is allowable as deduction provided deduction claimed is in accordance with terms of deed of partnership. We find that only grievance of AO is quantification of remuneration or salary is not provided in express terms. Moreover, CBDT vide Circular No. 739 dt. 25th March, 1996 has taken liberal approach. In our opinion, there is no reason why same approach should not be taken for other years. In this case, admittedly, assessee was providing remuneration to working partners based on cl. 6 and returns filed by assessee were accepted under s. 143(1) and assessee s case was selected for scrutiny for first time in asst. yr. 2001-02. We find force in argument of learned chartered accountant that liberal interpretation should be given to circulars which are beneficial in nature. We are, therefore, of opinion that AO as well as CIT(A) were not justified in rejecting claim of assessee. We, accordingly, set aside order of CIT(A) on this issue and direct AO to allow claim of remuneration in respect of working partners of assessee firm. In result, Revenue s appeal is partly allowed and assessee s cross- objection is allowed. *** INCOME TAX OFFICER v. PULIMOOTTIL SILK HOUSE