THE CANNON INDUSTRIES PVT. LTD, MUMBAI V. M/S. ITO 1(1)(2), MUMBAI

ITA 3561/MUM/2008

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8024 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-08-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 22-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A PANT
• Assessee Lawyers: V K TULSIAN
• Keywords: Retrospective amendment
• Section: 143(3); 80HHC

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA U , JU DICIAL MEMBER . / ITA NO. 3561 /MUM./ 2008 ( / ASSESSMENT YEAR : 2002 03 ) M/S. CANNON INDUSTRIES PVT. LTD. 109, CHURCHGATE CHAMBERS 5, NEW MARINE LINES, MUMBAI 400 020 .. / APPELLANT V/S INC OME TAX OFFICER WARD 1(1)(2), MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACC2189D . / ITA NO. 4034/MUM./2008 ( / ASSESSMENT YEAR : 2002 03 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S M/S. CANNON INDUSTRIES PVT. LTD. 109, CHURCHGATE CHAMBERS 5, NEW MARINE LINES, MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER / REV E NUE BY : SHRI R.A. PANT / ASSESSEE BY : SHRI V.K. TULSIAN / DATE OF HEARING 04.08.2014 / DATE OF ORDE R 08.08.2014 M/ S. CANNON INDUSTRIES PVT. LTD. 2 / ORDER , / PER AMIT SHUKLA , J.M. THE SE CROSS APPEAL S ARE DIRECTED AGAINST THE IMPUGNED ORDER DATED 17 TH MARCH 2008, PASSED BY THE LEARNED COMMISSIONER (APPEALS) I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2002 03. IN THE APPEAL PREFERRED BY THE ASSESSEE, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. WHETHER THE LEARNED CIT(A) WAS JUSTIFIED BY UPHOLDING THE BROKERAGE AND COMMISSION OF ` 1,10,51,494 AND OTHERS OF ` 21,86,418 AS DIRECT COST INSTEAD OF INDIRECT MERELY BECAUSE GROUND NO.3, NOT BEING PRESSED BUT IN FACT THERE WAS NO SUCH SUBMISSION. 2. WHETHER THE LEARNED CIT(A) WAS JUSTIFIED BY UPHOLDING THE EXPORT TURNOV ER OF ` 1,13,95,965 INSTEAD OF CLAIMED EXPORT TURNOVER OF ` 11,22,96,866 JUST BY WAY OF THE GROUND NO.2, NOT BEING PRESSED IN FACT THE APPELLANTS SUBMISSION WAS QUITE DIFFERENT. 3. WHETHER THE LEARNED CIT(A) WAS JUSTIFIED BY NOT ALLOWING THE DEDUCTION IN RESPECT OF DEPB CLAIM OF ` 23,08,879 AND DUTY DRAWBACK OF ` 1,23,19,855 FOR THE PURPOSE OF SEC. 80HHC JUST ON THE GROUND THAT ARE NOT BEING PRESSED IN FACT THERE WAS NO SUCH SUBMISSION. 4. WHETHER THE LEARNED CIT(A) WAS JUSTIFIED TO UPHOLD THE LD. A.OS ORDER BY NOT ALLOWING THE DEDUCTION U/S 80HHC BECAUSE OF THE ABOVE ISSUE RESULTING PROFIT IN THE NEGATIVE. M/ S. CANNON INDUSTRIES PVT. LTD. 3 5. WHETHER THE LEARNED CIT(A) WAS JUSTIFIED TO UPHOLD THE LD. A.OS ORDER FOR REJECTION OF BOOKS BY INVOKING SEC. 145(3) JUST ON THE ASSUMPTION / PR ESUMPTION AND RESULTING IN THE NET PROFIT RESTRICTED TO 1% ON ESTIMATED BASIS ON LOCAL SALES BUT NO RELIEF IN THE PROFIT ON EXPORTS. 2 . AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE ADJUDICATING THE ISSUE RAISED IN GROUND NO.1 TO 4, THE LEARNED COMMISSIONER (APPEALS) HAS WRONGLY INTERPRETED THAT THE ASSESSEE HAS NOT PRESSED THESE GROUNDS AT THE FIRST APPELLATE STAGE. ONLY WITH REGARD TO THE ISSUE RAISED IN GROUND NO.2, IT CAN BE HELD THAT THE GROUND WAS NOT PRESSED AS IN THE RECTIF ICATION PROCEEDINGS UNDER SECTION 154, THE ASSESSING OFFICER HAS ACCEPTED THE ASSESSEES CONTENTION AND RELIEF HAS BEEN ALLOWED. THEREFORE, SUCH A GROUND HAS BECOME INFRUCTUOUS. THEREFORE, GROUND NO.2, AT BEST CAN BE TREATED AS NOT PRESSED. AS REGARDS THE ISSUE RAISED IN GROUND NO.1, 3 AND 4, THE ASSESSEE HAD SUBMITTED BEFORE THE LEARNED COMMISSIONER (APPEALS) , THAT TH ESE ISSUE S HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AND, THEREFORE, THE ISSUE IS SETTLED. HOWEVER, THE LEARNED COMMISSIONE R (APPEALS) HAS INFERRED THAT THESE GROUNDS ARE NOT PRESSED. THEREFORE, THE ISSUES RAISED IN THESE GROUNDS REQUIRE ADJUDICATION IN LINE WITH THE DECISION TAKEN BY THE TRIBUNAL IN EARLIER YEARS. 3 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, S UBMITTED THAT THE MATTER SHOULD BE RESTORED BACK TO THE LEARNED COMMISSIONER (APPEALS) FOR DECIDING IT AFRESH. M/ S. CANNON INDUSTRIES PVT. LTD. 4 4 . AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS AND ALSO THE MATERIAL PLACED ON RECORD, WE FIND THAT INSOFAR AS THE ISSUE RAISED IN GROUND NO. 1, IS CONCERNED, THE ASSESSEE BEFORE THE LEARNED COMMISSIONER (APPEALS), IN THE WRITTEN SUBMISSIONS, HAD SUBMITTED THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001 02 BY THE TRIBUNAL, VI DE ORDER DATED 30 TH OCTOBER 2006 AND ALSO IN SOME OTHER CASE AND, THEREFORE, THE ISSUE IS SETTLED. THE RELEVANT SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER (APPEALS), IS AS UNDER: IN THIS GROUND WE HAVE CHALLENGED THE DETERMINATION OF DIRECT COST ATTRIBUTABLE TO EXPORTS. AS PER 10CCAC REPORT WE HAVE DETERMINED THE DIRECT COST AT ` 9,79,65,406 AS UNDER : OPENING STOCK ` 3,41,53,195 GOODS PURCHASED ` 2,78,19,755 GOODS TRANSFER A/C ` 4,85,32,496 FREIGHT ` 3,325 TOTAL: ` 11,05,0 8,771 LESS: CLOSING STOCK ` 1,25,43,365 GRAND TOTAL: ` 9,79,65,406 THE A.O. IN THE ASSESSMENT ORDER HAS COMPUTED THE DIRECT COST AS UNDER: OPENING STOCK ` 3,41,53,195 GOODS PURCHASED ` 2,78,19,755 GOODS TRANSFER A/C ` 1,85,32,496 FREIGHT ` 3,3 25 ` 11,05,08,771 LESS: CLOSING STOCK ` 1,25,43,365 ` 9,79,65,406 M/ S. CANNON INDUSTRIES PVT. LTD. 5 LESS: CLOSING STOCK ` 1,25,43,365 ` 9,79,65,406 ADD: BROKERAGE & COMMISSION ` 1,10,51,494 BANK INTEREST ` 11,83,377 EXPORT EXPENSES ` 6,89,744 FOREIGN TOUR ` 71,213 ADVERTISEMEN T ` 68,247 BANK CHARGES ` 55,575 LEGAL EXPENSES ` 1,05,000 OTHER EXPENSES ` 13,262 FROM THE ABOVE CALCULATION OF DIRECT COST BY THE A.O., IT MAY BE NOTED THAT THE A.O. HAS TAKEN BROKERAGE AND COMMISSION EXPENDITURE OF ` 1,10,51,494 AS DIRECT COST. WE OBJECT IN TAKING THE BROKERAGE AND COMMISSION EXPENDITURE OF ` 1,10,51,494 AS DIRECT COST. THIS EXPENDITURE CAN NOT BE TERMED AS DIRECT COST. THE EXPENDITURE ON BROKERAGE AND COMMISSION IS INCURRED AFTER THE SALES HAVE BEEN AFFECTED AND THEREFORE THE SAID EXPENDITURE HAS TO BE TREATED AS INDIRECT EXPENSES. THIS ISSUE HAS ALREADY BEEN DECIDED BY YOUR PREDECESSOR IN THE APPELLANTS OWN CASE WHILE DECIDING THE APPEAL FOR A.Y. 2001 02 VIDE ORDER DATED 15.12.2004 (COPY ENCLOSED, PAGE 1 TO 11). THE HON'BLE ITAT BY ITS ORDER DATED 30.10.2006 (COPY ENCLOSED, PAGE 12 TO 14) IN THE CASE OF M/S. MERTINEZ ENTEX INDUSTRIES LTD. FOR A.Y. 1999 2000 ALSO HELD THAT THE COMMISSION ON EXPORT IS INDIRECT EXPENSES. THUS THIS ISSUE IS SETTLED. IN VIEW OF THE ABOVE SUBMISSIONS, YOUR HONOUR IS REQUESTED TO DIRECT THE A.O. TO RE COMPUTE THE DIRECT EXPENSES BY REDUCING THE EXPENSES ON COMMISSION AND BROKERAGE OF ` 1,10,51,494 AND TO RE COMPUTE THE ALLOWABLE DEDUCTION UNDER SECTION 80HHC ACCORDINGLY. 5 . THE LEARNED COMMISSIONER (APP EALS) HAS INFERRED THAT THE SAID GROUND IS NOT PRESSED. IT APPEARS THAT THERE IS AN ERROR IN HIS JUDGMENT TO THE EXTENT AND, THEREFORE, IN THE INTEREST OF JUSTICE, THE MATTER IS RESTORED BACK TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS) TO M/ S. CANNON INDUSTRIES PVT. LTD. 6 DECIDE THE ISSUE RAISED IN GROUND NO.1 IN ACCORDANCE WITH THE EARLIER YEARS ORDER. 6 . AS REGARDS THE ISSUE RAISED IN GROUND NO.3, I.E., THE DISALLOWANCE OF DEDUCTION IN RESPECT OF DEPB AND DUTY DRAW BACK, IT IS SEEN FROM THE WRITTEN SUBMISSION FILED BY THE ASSESSEE BE FORE THE LEARNED COMMISSIONER (APPEALS), THAT ASSESSEE HAS SPECIFICALLY CONTENDED THAT IT DID NOT WISH TO PRESS THIS GROUND. THE RELEVANT SUBMISSION MADE BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER (APPEALS) ARE AS UNDER: GROUND NO.4 : IN THIS GROUN D WE HAVE CHALLENGED THE A.OS ACTION IN NOT ALLOWING DEDUCTION IN RESPECT OF DEPB CLAIM OF ` 23,08,879. IN VIEW OF THE AMENDED PROVISIONS OF SECTION 80 HHC, WE DO NOT PRESSED THIS GROUND FOR THE TIME BEING IN VIEW OF THE AMENDED PROVISIONS OF SECTION 80 H HC. HOWEVER, IT IS SUBMITTED THAT THE APPELLANT HAD CHALLENGED THE CONSTITUTIONAL VALIDITY OF THE AMENDMENT WITH RETROSPECTIVE EFFECT BEFORE HON'BLE HIGH COURT OF BOMBAY FOR THE ASSESSMENT YEAR 2000 2001. WE THEREFORE REVERSE OUR RIGHT TO AGITATE IN THE MA TTER IN CASE THE HON'BLE HIGH COURT OF BOMBAY DECIDES THE MATTER IN FAVOUR OF THE APPELLANT . 7 . IN VIEW OF THE AFORESAID ADMISSION BY THE ASSESSEE, WE DO NOT FIND ANY MERIT IN THE CONTENTION RAISED BY THE LEARNED COUNSEL BEFORE US THAT THE LEARNED COMMISSIO NER (APPEALS) SHOULD HAVE DECIDED THE ISSUE ON MERITS. THUS, THE GROUND NO.3, AS RAISED BY THE ASSESSEE IS TREATED AS DISMISSED. M/ S. CANNON INDUSTRIES PVT. LTD. 7 8 . REGARDING GROUND NO.4, WE FIND THAT THE LEARNED COMMISSIONER (APPEALS) HAS NOT ADJUDICATED UPON THIS ISSUE AND, THEREFORE, WE RESTORE THIS GROUND TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS) TO DECIDE THE SAME IN ACCORDANCE WITH THE PROVISIONS OF LAW. 9 . THUS, GROUND NO.1 AND 4, ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES, WHEREAS GROUND NO.2 AND 3 ARE TREATED AS DISMISSED . 10 . 10. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11 . NOW, COMING TO THE ISSUE RAISED IN GROUND NO.5, I.E., THE LEARNED COMMISSIONER (AP PEALS) HAS ERRED IN CONFIRMING THE REJECTION OF THE BOOKS OF ACCOUNT UNDER SECTION 145(3) AND ESTIMATED THE NET PROFIT @ 1% ON LOCAL SALES. 12 . FACTS IN BRIEF : THE ASSESSEE IS AN EXPORTER OF HOSIERY AND TEXTILE GOODS. IT IS ALSO ENGAGED IN DOMESTIC SALES. ON THE EXPORT TURNOVER OF ` 11,05,14,853, THE ASSESSEE HAD SHOWN NET PROFIT OF ` 1,37,21,892. ON THE DOMESTIC SALE OF HOSIERY AND TEXTILE GOODS, THE ASSESSEE HAD SHOWN TURNOVER OF ` 9,89,48,451, WHEREIN IT HAD SHOWN NET LOSS OF ` 88,13,295. WHILE EXAMINING T HE INCOME FROM LOCAL SALES, THE ASSESSING OFFICER POINTED OUT VARIOUS INCONSISTENCY AND DEFICIENCIES IN THE BOOKS M/ S. CANNON INDUSTRIES PVT. LTD. 8 OF ACCOUNT AND VOUCHERS WHICH HAVE BEEN ELABORATED AT PARA 5 TO 10 OF THE ASSESSMENT ORDER. ONE OF THE IMPORTANT POINTS NOTED BY THE ASSESSING OFFICER WAS THAT THE PURCHASE VOUCHERS ALSO INCLUDED CERTAIN VOUCHERS WHICH WERE NOT ACCOUNTED FOR IN THE CASH BOOK. THERE WERE MORE THAN 200 TRANSACTIONS RANGING FROM ` 19,000 TO ` 20,000 AGGREGATING TO ` 40,46,955, WHICH WERE NOT ACCOUNTED IN THE CASH B OOK. THE ASSESSEES EXPLANATION HAD BEEN THAT THEY REPRESENT CANCELLED CHALLANS WHICH WERE ISSUED AT THE TIME OF ENTRY OF PURCHASE OF RAW MATERIALS AT THE TIME OF ENTRY AT GATE AND WHEN THE SAID MATERIAL / PURCHASES HAVE BEEN REJECTED BY THE INSPECTION DEP ARTMENT, THE SAID VOUCHERS WER E CANCELLED AND NO ENTRIES WERE MADE IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER ALSO FOUND THAT THERE WERE CASH PAYMENT WHICH WERE IN EXCESS OF ` 20,000 AND THERE WERE A CLEAR CUT VIOLATION OF SECTION 40A(3). ACCORDINGLY, THE ASSESSING OFFICER DOUBTED CORRECTNESS AND COMPLETENESS OF THE ACCOUNT AND AFTER INVOKING THE PROVISIONS OF SECTION 145(3), REJECTED THE BASIS OF ACCOUNT AND PROCEEDED TO ESTIMATE THE PROFIT. FIRST OF ALL, HE TOOK THE RATIO OF NET PROFIT ON THE EXPORT S ALES AND APPLIED THE SAME ON LOCAL SALES ALSO AND AFTER CONSIDERING CERTAIN DEFECTIVE MATERIALS WHICH WERE SOLD IN THE LOCAL MARKET RATE, HE TOOK THE PROFIT AT 12.05% AND MADE AN ADDITION OF ` 1,23,68,556. M/ S. CANNON INDUSTRIES PVT. LTD. 9 13 . BEFORE THE LEARNED COMMISSIONER (APPEALS), DETAIL SUBMISSIONS WERE MADE BY THE ASSESSEE AND THE REMAND REPORT WAS CALLED FOR. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS TAKEN EXTERNAL COMPARABLE CASE M/S. S. NANDA INDUSTRIES LTD., WHICH HAD REPORTED NET PROFIT RATE OF 0.40% TO 0.92%. AFTER CONSIDERI NG THE ENTIRE MATERIAL AND SUBMISSIONS OF THE ASSESSEE AS WELL AS THE COMMENTS OF THE ASSESSING OFFICER IN THE REMAND REPORT, THE LEARNED COMMISSIONER (APPEALS) UPHELD THE VALIDITY OF REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3). 14 . BEFORE US, THE LEA RNED COUNSEL R EGARDING NON ACCOUNTING OF CERTAIN PURCHASE VOUCHERS, SUBMITTED THAT THESE PURCHASE VOUCHERS WERE CANCELLED BECAUSE THE GOODS WERE FOUND TO BE DEFECTIVE AND WAS REJECTED BY THE ASSESSEES EXPERT TEAM AND, THEREFORE, SUCH VOUCHERS WERE NOT ENT ERED IN THE BOOKS OF ACCOUNT. THIS DOES NOT LEAD TO ANY ADVERSE INFERENCE FOR REJECTION OF BOOKS OF ACCOUNT. MOREOVER, ALL THE PURCHASES HAVE BEEN FOUND TO BE VERIFIABLE AND NO DISCREPANCY HAS BEEN FOUND IN THE PURCHASES AND SALES. BESIDES THIS MAKING PURC HASES IN CASH CANNOT LEAD TO ANY INFERENCE THAT BOOKS OF ACCOUNT OR THE VOUCHERS ARE DEFECTIVE. THUS, THE ENTIRE REJECTION OF BOOKS OF ACCOUNT IS NOT CORRECT. WITHOUT PREJUDICE, HE SUBMITTED THAT THE NET PROFIT RATE OF 1% AS TAKEN BY THE LEARNED COMMISSION ER (APPEALS) IS NOT CORRECT AND IF AT ALL ANY APPLICATION OF NET PROFIT RATE WAS TO BE APPLIED IN LOCAL M/ S. CANNON INDUSTRIES PVT. LTD. 10 SALES, THEN ASSESSEES PAST HISTORY SHOULD HAVE BEEN TAKEN INTO ACCOUNT AS THE ASSESSMENT HAVE BEEN DONE UNDER SCRUTINY PROCEEDINGS BY THE DEPARTMENT. I N ANY CASE, THE EXTERNAL COMPARABLE IS ALSO NOT APPLICABLE IN ASSESSEE S CASE AS IN CASE OF M/S. NAND INDUSTRIES, THEY WERE FULLY DOMESTIC TRADERS, WHEREAS THE ASSESSEE IS AN EXPORTER AND SELL THE GOODS IN THE DOMESTIC MARKET WHICH HAS BEEN REJECTED FOR TH E PURPOSE OF EXPORT. THUS, SUCH A COMPARABLE CANNOT BE MADE APPLICABLE. 15 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS AND FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) AS WELL AS THE FINDINGS OF THE ASSE SSING OFFICER AND SUBMITTED THAT THE BOOKS OF ACCOUNT HAVE RIGHTLY BEEN REJECTED BECAUSE THERE WERE MANY DISCREPANCIES POINTED OUT BY THE ASSESSING OFFICER NOT ONLY IN THE ASSESSMENT PROCEEDINGS BUT ALSO IN THE REMAND PROCEEDINGS. BASED ON THESE OBSERVATIO NS, THE LEARNED COMMISSIONER (APPEALS) HAS UPHELD THE REJECTION OF BOOKS OF ACCOUNT. ON THE APPLICATION OF NET PROFIT RATE, HE SUBMITTED THAT THE ASSESSEES OWN RATIO OF EXPORT BUSINESS WAS THE BEST PARAMETER. IN ANY CASE, THE LEARNED COMMISSIONER (APPEALS ) HAS RIGHTLY TAKEN THE EXTERNAL COMPARABLE AND HAS GIVEN SUBSTANTIAL RELIEF ON THIS ACCOUNT. 16 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED ON RECORD. INSOFAR AS THE REJECTION OF BOOKS OF ACCOUNT ARE M/ S. CANNON INDUSTRIES PVT. LTD. 11 CONCERNED, WE FIND THAT THE MAIN ALLEGATION AGAINST THE ASSESSEE IS THAT MANY PURCHASE VOUCHERS HAVE NOT BEEN ENTERED IN THE BOOKS OF ACCOUNT AND THE ONUS WAS ON THE ASSESSEE TO SHOW THAT SUCH PURCHASES HAVE BEEN CANCELLED . T HE ASSESSING OFFICER IN THE REMAND PROCEEDINGS, HA S ALSO CULLED OUT DETAILED REASONS ABOUT THE AUTHENTICITY OF ASSESSEES CLAIM. BEFORE US ALSO, SUCH AN ALLEGATION HAS NOT BEEN REBUTTED ON COGENT MATERIAL OR EVIDENCE ON RECORD EXCEPT FOR MERE CONTENTION WHICH WERE RAISED BEFORE THE AUTHORITIES BELOW. THUS, SO FAR AS TH E ISSUE OF REJECTION OF BOOKS OF ACCOUNT AFTER INVOKING SECTION 145(3) IS CONCERNED, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) AND THE SAME IS UPHELD. 17 . NOW, COMING TO THE APPLICATION OF NET PROFIT RATE, WE FIND THAT TH ERE IS NO JUSTIFICATION BY THE ASSESSING OFFICER TO APPLY NET PROFIT RATE OF 12.5% ON THE LOCAL SALES BY ADOPTING THE NET PROFIT RATIO OF EXPORT TURNOVER. THESE ARE TWO DIFFERENT TYPES OF TRANSACTIONS AS THE MARGIN IN EXPORT IS MUCH HIGHER AS COMPARED TO D OMESTIC SALES , BECAUSE THE ASSESSEE HAS BEEN SELLING MOSTLY THE REJECTED LOT FROM THE EXPORT ORDER. BESIDES THIS, THE ASSESSEES NET PROFIT RATE IN THE EARLIER YEARS WERE MUCH BELOW 1%. EVEN IN THE EXTERNAL COMPARABLES IN CASE OF M/S. NAND INDUSTRIES, IT I S SEEN THAT THE NET PROFIT RATE RANGES BETWEEN 0.40% AND 0.92%. THE AVERAGE OF SUCH NET PROFIT COMES TO 0.65%. THUS, SUCH A COMPARABLE IF IS TO BE TAKEN AS A BENCH MARK FOR M/ S. CANNON INDUSTRIES PVT. LTD. 12 ESTIMATING THE NET PROFIT , THEN THE NET PROFIT OF THE ASSESSEE SHOULD NOT EXCEED 0. 65%. BEFORE US, THE LEARNED COUNSEL HAD SUBMITTED THAT HE IS READY TO PROVIDE EXTERNAL COMPARABLE S ON SIMILAR LINE OF BUSINESS AND MATTER CAN BE RESTORED BACK TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS). THUS, IN THE INTEREST OF JUSTICE, WE FEEL THAT THE ISSUE OF APPLICATION OF NET PROFIT RATE SHOULD BE SET ASIDE TO THE LEARNED COMMISSIONER (APPEALS) , WHO SHALL CONSIDER THE EXTERNAL COMPARABLE AS SUPPLIED BY THE ASSESSEE OR IF THE SAME IS NOT FOUND COMPARABLE THEN THE ASSESSEES OWN PAST HISTORY SHOUL D BE TAKEN INTO ACCOUNT. IT IS CLARIFIED THAT UNDER NO CIRCUMSTANCES THE ESTIMATION OF NET PROFIT RATE SHOULD EXCEED 1%. THUS, GROUND NO.5, IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. IN REVENUES APPEAL, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN DIN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT IT WILL BE REASONABLE TO APPLY A NET PROFIT RATE OF 1% ON THE DOMESTIC SALES WITHOUT APPRECIATING THE FACT THAT THE ASSESSING OFFICER HAS RIGHTLY ADOP TED THE NET PROFIT RATE OF 12.50%. 2. FURTHER, PLACED IN THE ABOVE FACTUAL AND LEGAL SCENARIO, THE IMPUGNED ORDER OF THE LEARNED CIT(A) IS, THE APPELLANT PRAYS, CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 18 . INSOFAR AS THE DEPARTMENTAL APPEAL IS CONCERNED, SINCE WE HAVE ALREADY GIVEN OUR OBSERVATION AND FINDING IN ASSESSEES APPEAL IN GROUND NO.5, AND THEREFORE, IN VIEW OF THE REASONS GIVEN THEREIN, WE DO M/ S. CANNON INDUSTRIES PVT. LTD. 13 NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE DEPARTMENT AND THE SAME IS DISMISSED. 19 . 1 9 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI