The Income-tax Officer, Srinagar V. M/s. Bhat Carpets, Srinagar

ITA 403/ASR/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63600 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 24-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIK CHAND
• Keywords: Business income; Principle of natural justice; Additional evidence; Non compliance
• Section: 44AD; 142(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.403(ASR)/2010 ASSESSMENT YEAR:2007-08 PAN :AADFB5986H INCOME TAX OFFICER, VS. M/S. BHAT CARPETS, WAD 3(1), SRINAGAR . AHMED NAGAR, SRINAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. AMRIK CHAND, DR RESPONDENT BY:NONE DATE OF HEARING:26.11.2012 DATE OF PRONOUNCEMENT:29/11/2012 ORDER PER BENCH ; THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER OF THE CIT(A), JAMMU DATED 16.07.2010 FOR THE ASSESSMENT Y EAR 2007-08 ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) WAS JUSTIFIED IN REDUCING THE NET PROFIT RA TE OF 5% APPLIED BY THE AO TO 1.75% WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORDS BY THE AO. 2 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN NOT CONSIDERING ALL FACTORS LIKE PROFIT: TURNOVER RATIO OF THE ASSESSEE AND OTHER COMPARATIV E CASES WHILE ARRIVING AT THE NET PROFIT OF 1.75%. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN NOT APPRECIATING THE FACT T HAT ASSESSMENT IN THE CASE WAS COMPLETED U/S 144 OF THE I.T.ACT, 1961 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE EXPENDITURE CL AIMED ON ACCOUNT OF SALARY AND INTEREST PAID TO PARTNERS WIT HOUT APPRECIATING THE FACT THAT ASSESSMENT IN THE CASE W AS COMPLETED U/S 144 OF THE ACT. 2. THE BRIE FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME AT RS.23,650/- ON 24.08.2007 WHICH WAS PROCE SSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND EXPORT OF CARPETS. T HE AO ISSUED NOTICE U/S 143(2) ON 24.09.2008 FIXING THE CASE OF THE ASSESSE E ON 30.09.2009 BUT THE ASSESSEE DID NOT ATTEND THE HEARING. SUBSEQUENTLY, THE AO AGAIN ISSUED NOTICES U/S 142(1) OF THE ACT ON 03.02.2009, 10.08. 2009, 24.09.2009 AND 23.10.2009 REQUIRING THE ASSESSEE TO FILE THE COPY OF AUDIT REPORT AND BALANCE SHEET BUT NO COMPLIANCE WAS MADE TO ANY OF THESE NO TICES. THE AO ISSUED SHOW CAUSE NOTICE ON 27.11.2009 PROPOSING TO FINALI SE ASSESSMENT EX-PARTE U/S 144 OF THE ACT AND ESTIMATING THE INCOME BY APP LYING NET PROFIT RATE OF 5%. THE ASSESSEE AGAIN DID NOT ATTEND THE OFFICE O F THE AO NOR FILED ANY 3 REPLY TO THIS NOTICE ALSO. BUT ON 12.10.2009, THE A .R. OF THE ASSESSEE ATTENDED THE OFFICE OF THE AO AND FILED THE DETAILS AS REGARDS ADDRESSES AND BALANCES OF CREDITORS ONLY AND THE CASE WAS ADJOUR NED TO 15.12.2009. BUT NO COMPLIANCE WAS MADE. THEREAFTER, KEEPING IN VIEW TH E CONTINUED NON- COMPLIANCE AND IN THE ABSENCE OF ASSESSEE, THE AO F INALIZED THE ASSESSMENT UNDER SECTION 144 OF THE ACT AND DETERMINED THE I NCOME BY APPLYING NET PROFIT RATE OF 5%, RESULTING IN ADDITION OF RS.37, 10,729/-. THE AO ALSO MADE AN ADDITION OF RS.2,28,264/- ON ACCOUNT OF INT EREST SEPARATELY AS INCOME FROM OTHER SOURCES, WHICH WAS CREDITED IN P & L ACCOUNT, VIDE HIS ASSESSMENT ORDER DATED 18.12.2009 U/S 144 OF THE AC T. 3. AGGRIEVED BY THE SAME, THE ASSESSEE FILED THE AP PEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY, WHO VIDE IMPUGNED ORDER DATED 16.07.2010 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY SUSTAINING TH E ADDITION OF RS.2,28,264/- AND REDUCING THE NET PROFIT @ 1.75% A GAINST 5% APPLIED BY THE A.O. 4. AGAINST THE IMPUGNED ORDER, THE REVENUE HAS FILE D THE PRESENT APPEAL BEFORE US. 5. NOTICE OF HEARING WAS ISSUED TO THE ASSESSEE BY RPAD. BUT NEITHER THE ASSESSEE NOR HIS AUTHORIZED REPRESENTATIVE APPEARED TO PROSECUTE THE MATTER IN DISPUTE NOR FILED ANY APPLICATION FOR ADJOURNMEN T. THEREFORE, WE ARE OF 4 THE VIEW THAT THE ASSESSEE IS NOT INTERESTED TO PRO SECUTE THE MATTER IN DISPUTE AND WE HAVE DECIDED TO DECIDE THE ISSUE IN DISPUTE EX-PARTE ASSESSEE. 6. AT THE TIME OF HEARING, THE LD. DR RELIED UPON T HE ORDER PASSED BY THE A.O. AS WELL AS AVERMENTS MADE IN THE GROUNDS OF AP PEAL. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T RECORDS AVAILABLE WITH US ON THE ISSUE IN DISPUTE AND WE ARE OF THE V IEW THAT THE ASSESSEE HAS FILED THE APPLICATION DATED 15.04.2010 UNDER RULE 4 6A(1B) OF THE INCOME TAX RULES 1961 FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL AND SUBMITTED THAT THE ASSESSEE COMMUNICATED TO HIS COUNSEL SH. A SHOK KOUL CA ABOUT THE NOTICE DATED 10.08.2009 ISSUED BY THE AO REQUI RING FOR FILING OF AUDIT REPORT AND BALANCE SHEET BUT COMPLIANCE TO THE NOTI CE COULD NOT BE MADE DUE TO SUDDEN DEATH OF ASSESSEES COUNSEL AND THE ASSES SEE HAS ALSO FILED COPY OF CONDOLENCE MESSAGE GIVEN BY THE ASSOCIATION OF CHAR TERED ACCOUNTANTS OF KASHMIR IN NEWSPAPER SHOWING THAT SH. ASHOK KOUL LE FT FOR THE HEAVENLY ABODE ON 17.09.2009. IN ADDITION TO THE ABOVE, THE ASSESSEE HAS ALSO SUBMITTED THAT THE NOTICES DATED 29.09.2009, 23.10 .2009 AND 27.11.2009 COULD NOT BE ATTENDED TO AS MS. GULSHAN, SISTER OF MANAGING PARTNER SH. MOHD. AMIN BHAT WAS SUFFERING FROM KIDNEY FAILURE A ND HER TREATMENT WAS GOING ON IN GANGA RAM HOSPITAL. NECESSARY EVIDENCES IN THIS REGARD HAVE BEEN FILED. THE ASSESSEE HAS ALSO FILED THE COPY OF BALANCE SHEET, AUDIT 5 REPORT, PARTNERSHIP DEED AND COMPARATIVE CASES IN S UPPORT OF NET PROFIT RATE. THE LD. CIT(A) FORWARDED THESE EVIDENCES TO THE AO VIDE LETTER DATED 15.04.2010 FOR COMMENTS ON ADMISSIBILITY OF EVIDENC ES AND REMAND REPORT. IN COMPLIANCE OF THE SAME, THE AO SUBMITTED HIS REM AND REPORT DATED 11.05.2010 BY STATING THAT SH. AMIN JAIN COUNSEL PR ODUCED COPY OF AUDIT REPORT AND PARTNERSHIP DEED WHICH WERE SUBJECTED TO EXAMINATION ON 07.05.2010. THE ORIGINAL DOCUMENTS EVIDENCING DEATH OF SH. ASHOK KOUL AND AILMENT OF SISTER OF MANAGING PARTNER WERE PROD UCED. THESE DOCUMENTS WERE SEEN TO BE BONA FIDE AND RECOMMENDED TO BE ALL OWED DURING THE APPELLATE PROCEEDINGS. IN VIEW OF THE PROVISIONS OF SUB-RULE (3) TO RULE 46A, THE AO HAS BEEN PROVIDED OPPORTUNITY AND THE LD. CI T(A) ADMITTED ADDITIONAL EVIDENCES PRODUCED BY THE ASSESSEE. 7.1. THE LD. FIRST APPELLATE AUTHORITY HAS DECIDED THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 144 OF THE ACT AGAINST THE ASSESSEE BY HOLDING THAT THERE WAS CONTINUED NON COMPLIANCE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE AO WAS FULLY JUSTIFI ED IN PASSING THE ORDER EX-PARTE U/S 144 OF THE ACT. BUT AS REGARDS TO THE ESTIMATION OF INCOME BY APPLYING NET PROFIT RATE OF 5% AS WELL AS ALLOWING INTEREST AND SALARY TO THE PARTNERS, THE LD. FIRST APPELLATE AUTHORITY HAS DIS CUSSED IN DETAIL THE ISSUE 6 RAISED BY THE REVENUE IN THE PRESENT APPEAL AT PAR AS 8 TO 8.2, WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED AS UNDER: 8. DURING THE COURSE OF APPELLATE PROCEEDINGS, SH. AMIN JAIN, AC, ATTENDED AS LD. COUNSEL FOR THE ASSESSEE AND FILED WRITTEN SUBMISSIONS. IT HAS BEEN CONTENDED THAT THE BOOKS OF ACCOUNTS WE RE AUDITED AND THE RETURN OF INCOME WAS FILED THROUGH E-FILING. THE AP PELLANT HAS TAKEN UP FIRST GROUND OF APPEAL REGARDING PASSING OF THE ASSESSMENT ORDER U/S 144 OF THE ACT. IN VIEW OF THE FACTS OF THE CAS E DISCUSSED IN PARA 4 OF THIS ORDER THAT THERE WAS CONTINUED NON COMPLIAN CE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO WAS FULLY JUSTIFIED IN PASSING THE ORDER EX-PARTE U/S 144 OF THE ACT. HENCE, THIS GROUND OF APPEAL IS DISMISSED. 8.1. THE APPELLANT HAS TAKEN UP GROUND NO. OF THE A PPEAL ON THE ESTIMATION OF INCOME BY APPLYING NP RATE OF 5%. IT HAS BEEN CONTENDED THAT THE AO HAS FAILED TO DISCLOSED ANY B ASIS ON WHICH THE INCOME OF THE APPELLANT WAS DETERMINED @ 5% OF GROS S SALES. THE LD. AO HAS FURTHER FAILED TO REALIZE THAT THE FIRM HAS BEEN IN THE BUSINESS SINCE 1980 AND THE AVERAGE NET PROFIT RATIOS BEFOR E ALLOWING INTEREST AND SALARY TO THE PARTNERS HAS BEEN 0.40$, 0.60% AN D 0.51% IN A.T.2004-05,2005-06 & 2006-07, RESPECTIVELY. UNDER THE CIRCUMSTANCES, THE NET PROFIT RATIO OF 5% ADOPTED B Y THE AO WAS ILLOGICAL AND IRRATIONAL. THE LD. COUNSEL HAS RELIE D UPON THE CASES OF M/S. MIR GULAM RASOOL & SONS, M/S. SRINAGAR CARPET FACTORY AND M/S. S.S. SHAWLS IN WHICH NET PROFIT RATE OF 0.94%, 0.59% AND 0.45% RESPECTIVELY, HAS BEEN DECLARED. IT IS CORRECT THAT THE AO HAS APPLIED NET PROFIT R ATE OF 5% FOR ESTIMATION OF INCOME IN PURSUANCE OF SHOW CAUSE NOT ICE IN WHICH THE AO PROPOSED TO ESTIMATE INCOME AT SUCH RATE. AS A M ATTER OF FACT WHEN NO OPPORTUNITY WAS AVAILED AND THERE WAS NO OBJECTI ON BY THE APPELLANT TO SUCH PROPOSAL OF ESTIMATION, NO FAULT CAN BE FOUND ON THE PART OF THE AO. IT IS ALSO A MATTER OF FACT THAT WH ILE PROPOSING TO ESTIMATE THE INCOME AT NET PROFIT RATE OF 5% IN THE SHOW CAUSE NOTICE AS WELL AS WHILE MAKING THE ASSESSMENT, THE AO HAS NOT GIVEN ANY BASIS SO AS TO JUSTIFY THE ADDITION ON THE BASIS OF NET PROFIT RATE OF 5%. EVEN IN THE CASE OF BEST JUDGMENT ASSESSMENT FINALI ZED FOR TOTAL NON COMPLIANCE ON THE PART OF ASSESSEE, THE HONBLE SUP REME COURT IN THE 7 CASE OF BRIJ BHUSHAN LAL PRADUMAN KUMAR VS. CIT [11 5 ITR 524] HAS HELD THAT THE AUTHORITY MAKING A BEST JUDGMENT ASSE SSMENT MUST MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME. THOUGH A RBITRARINESS CANNOT BE AVOIDED IN SUCH ESTIMATE, THE SAME MUST N OT BE CAPRICIOUS BUT SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND CIRCUMSTANCES OF THE CASE. IT IS ALSO A SETTLED PRI NCIPLE OF LAW THAT ESTIMATION MUST NOT BE ARBITRARY, VAGUE AND FANCIFU L BUT MUST BE LEGAL AND REGULAR. THE LAW SAYS THAT THE BEST JUDGMENT AS SESSMENT MUST BE MADE ACCORDING TO THE RULES OF REASON AND JUSTICE, AS HELD BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF MYSORE FER TILIZER CO. VS. CIT [59 ITR 269]. THE ASSESSMENT SHOULD ACCORD A FA IR PLAY AND JUSTICE AND NOT WITH A VIEW TO PUNISH THE ASSESSEE FOR NON-COMPLIANCE AND SHOULD TAKE INTO CONSIDERATION ASSESSEES CIRCU MSTANCES WHICH WILL ASSIST IN ARRIVING AT PROPER ESTIMATE. SUCH ES TIMATE MUST BE BASED ON ADEQUATE AND RELEVANT MATERIAL AND IT IS THE DUT Y OF THE AO TO OBSERVE THE PRINCIPLE OF NATURAL JUSTICE. THUS, FOR MAKING THE ADDITION, THE AO OUGHT TO HAVE MADE COMPARISON WITH THE NET P ROFIT RATE DECLARED BY THE OTHER ASSESSES IN THE SIMILAR LINE OF BUSINESS. FROM THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE COM PARABLE CASES RELIED UPON, IT IS SEEN THAT ALL SUCH ASSESSES ARE ENGAGED IN THE BUSINESS OF LOCAL TRADE, WHERE AS THE CASE OF THE A PPELLANT IS THAT OF BUSINESS OF EXPORTER. HENCE, THE NP RATE DECLARED I N THE CASES RELIED UPON BY THE APPELLANT CANNOT BE APPLIED TO ESTIMATE THE INCOME OF THE APPELLANT. IN THIS REGARD, THE NP DECLARED AND ACCE PTED BY THE CONCERNED AOS IN ASSESSMENTS HAS BEEN ASCERTAINED. IT IS SEEN THAT M/S. FARAGHAN CARPET COMPANY, M/S. BABA COTTAGE IND USTRIES AND M/S. SRINAGAR CARPET FACTORY HAVE DECLARED NET PROF IT RATE OF 3.44%, 1.88% AND 3.10% BEFORE INTEREST AND SALARY TO PARTN ERS ON THE TURNOVER OF RS.1.14 CRORES, RS.5.36 CRORES AND RS.2 .83 CRORES RESPECTIVELY. THEIR PROFIT RATES HAVE BEEN ACCEPTED BY THE RESPECTIVE BY THE AOS IN THE SCRUTINY ASSESSMENTS FOR THE AY 2 007-08. ALL THESE ASSESSES ARE ENGAGED IN THE BUSINESS OF EXPORT OF C ARPETS I.E. THE BUSINESS ACTIVITY SIMILAR TO THAT OF APPELLANT. IT WOULD THEREFORE, BE LOGICAL AND JUSTIFY COMPARING AND APPLYING THE AVE RAGE NET PROFIT RATE DISCLOSED BY THE ABOVE CONCERNS. THE AVERAGE N P RATE IN THE CASES OF ABOVE THREE CONCERNS BY CONSIDERING THE QU ANTUM OF GROSS PROFIT AND GROSS TURNOVER IN AGGREGATE WORKS OUT TO RS.2.44%. HOWEVER, IN THE CASE OF M/S. BABA COTTAGE INDUSTRIE S, THE SAME AO HAS ACCEPTED THE NET PROFIT RATE OF 1.88% AGAINST T HE TURNOVER OF RS.5.36 CRORES IN SCRUTINY ASSESSMENT. CONSIDERING THE FACT THAT 8 APPELLANTS TURNOVER IS MUCH HIGHER WHEREIN PROFIT MARGINS ARE LIKELY TO DECLINE AND THE FACT THAT NET PROFIT RATE OF EVE N 1.88% AND 3.10% BEFORE INTEREST AND SALARY TO PARTNERS ON THE TURN OVER RS.1.14 CRORES, RS.5.36 CRORES AND RS.2.83 CRORES, RESPECTIVELY. TH EIR PROFIT RATES HAVE BEEN ACCEPTED BY THE RESPECTIVE AOS IN THE SCR UTINY ASSESSMENTS FOR A.Y. 2007-08. ALL THESE ASSESSES ARE ENGAGED I N THE BUSINESS OF EXPORT OF CARPETS I.E. THE BUSINESS ACTIVITY SIMILA R TO THAT OF APPELLANT. IT WOULD THEREFORE, BE LOGICAL AND JUSTIFY COMPARIN G AND APPLYING THE AVERAGE NET PROFIT RATE DISCLOSED BY THE ABOVE CONC ERNS. THE AVERAGE NP RATE IN THE CASES OF ABOVE THREE CONCERNS BY CON SIDERING THE QUANTUM OF GROSS PROFIT AND GROSS TURNOVER IN AGGRE GATE WORKS OUT TO 2.44%. HOWEVER, IN THE CASE OF M/S. BABA COTTAGE IN DUSTRIES, THE SAME AO HAS ACCEPTED THE NET PROFIT RATE OF 1.88% A GAINST THE TURNOVER OF RS.5.36 CRORES IN SCRUTINY ASSESSMENT. CONSIDERING THE FACT THAT TURNOVER IS MUCH HIGHER WHEREIN PROFIT M ARGINS ARE LIKELY TO DECLINE AND THE FACT THAT NET PROFIT RATE OF EVEN 1 .88% HAS BEEN ACCEPTED BY SAME AO, IT WOULD BE FAIR AND REASONABL E THAT NET PROFIT RATE OF 1.75% IS APPLIED IN THE CASE OF APPELLANT FOR THE PURPOSE OF ESTIMATION OF INCOME. THE TURNOVER IN TWO OTHER CAS ES IS QUITE LOW AS COMPARED TO THE APPELLANT AND THEREFORE, THE MEAN N ET PROFIT RATE MAY NOT BE STRICTLY APPLIED. AS REGARDS CONTENTION OF T HE APPELLANT THAT NET PROFIT AT LOWER RATES DECLARED BY THE APPELLANT IN THE EARLIER YEARS BE CONSIDERED, THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS. THEREFORE, THE INCOME OF THE APPEL LANT BY APPLYING THE NET PROFIT RATE OF 1.75% WORKS OUT TO RS.12,98, 755/-. THE APPELLANT HAS FILED A COPY OF THE PARTNERSHIP DEED IN WHICH T HE PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS HAS BEEN AUTH ORIZED. KEEPING IN VIEW THE RATIONALE LAID DOWN IN THE PROVISO TO SUB SECTION (2) OF SECTION 44AD WHEREIN THE INTEREST AND REMUNERATION TO PARTNERS IS STATUTORILY ALLOWED AFTER ESTIMATION OF INCOME BY A PPLYING PROFIT RATE AS WELL AS THE FACT THAT COMPARATIVE NET PROFIT RAT E HAS BEEN APPLIED BEFORE THE INTEREST AND REMUNERATION TO PARTNERS, T HE INTEREST AND REMUNERATION TO PARTNERS SHALL BE ALLOWABLE AND DED UCTED FROM THE INCOME SO ESTIMATED. AFTER DEDUCTION OF THE INTERES T AND REMUNERATION TO PARTNERS AMOUNTING TO RS.3,54,801/-, THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WORKS OUT TO RS.9,43,954/- . HENCE, THE ADDITION TO THIS EXTENT IS CONFIRMED AND BALANCE ADDITION OF RS.27,66,775/- IS DELETED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9 8.2. THE GROUND NO.3 RELATES TO THE ADDITION OF INT EREST OF RS.2,28,264/-. THE AO HAS TREATED THE INTEREST SEPA RATELY AS INCOME FROM OTHER SOURCES AND MADE ADDITION ACCORDINGLY. T HE APPELLANT HAS CONTENDED THAT THE SAME IS ALREADY INCLUDED IN THE P& L ACCOUNT AND NO SEPARATE ADDITION WAS REQUIRED TO BE MADE. HOWEV ER, IN PARA 8.1 ABOVE, THE BUSINESS INCOME OF THE APPELLANT HAS BEE N ESTIMATED BY COMPARING THE THREE CASES AS MENTIONED ABOVE. IN NO NE OF THE ABOVE CASES, THE ASSESSES HAVE DISCLOSED ANY INTEREST INC OME MEANING THEREBY THAT THE INTEREST INCOME HAS NOT GONE INTO THEIR PROFIT MAKING. KEEPING IN VIEW THE PRINCIPLE OF PARITY AND FAIRNES S, THERE IS NO JUSTIFICATION TO CONSIDER THE INTEREST AS PART OF B USINESS PROFIT IN THE CASE OF APPELLANT. HENCE, THE ADDITION OF RS.2,28,2 64/- MADE BY THE AO IS SUSTAINED AND THIS GROUND OF APPEAL IS DISMIS SED. 7.2. KEEPING IN VIEW THE AFORESAID FINDINGS OF THE LD. FIRST APPELLATE AUTHORITY, WE ARE OF THE CONSIDERED VIEW THAT THE L D. FIRST AUTHORITY HAS REDUCED THE NET PROFIT RATE TO 1.75% FROM 5% TO GIV E AVERAGE NET PROFIT RATIOS FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AN D 2006-07 I.E. 0.40%, 0.60% AND 0.51% RESPECTIVELY. THE LD. FIRST APPELLA TE AUTHORITY HAS RIGHTLY MODIFIED THE ORDER OF THE AO IN WHICH HE HAS ADOPTE D THE NET PROFIT RATE OF 5% AND HAS GIVEN THE RELIEF TO THE ASSESSEE ON THE BASIS OF VARIOUS COMPARABLE CASES MENTIONED IN THE FOREGOING PARAGRA PHS. THE LD. FIRST APPELLATE AUTHORITY HAS ALSO DISCUSSED IN DETAIL, T HE VARIOUS COMPARABLE CASES ALONGWITH THE PROVISIONS OF SUB-SECTION (2) OF SECT ION 44AD OF THE ACT, WHEREIN THE INTEREST AND REMUNERATION TO THE PARTN ERS IS STATUTORILY ALLOWED AFTER ESTIMATION OF INCOME BY APPLYING NET PROFIT RATE AS WELL AS THE FACT THAT COMPARATIVE NET PROFIT RATE HAS BEEN APPLIED BEFOR E THE INTEREST AND 10 REMUNERATION TO PARTNERS AND FINALLY HELD THAT INT EREST AND REMUNERATION TO THE PARTNERS SHALL BE ALLOWED AND DEDUCTED FROM THE INCOME SO ESTIMATED. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES EXPLAIN ED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. FIRST APPELLATE AUTHORITY. ACCORDINGLY, WE UPHOLD THE IMPUGNED ORDER OF THE LD. FIRST APPELLATE AUTHORITY BY DISMISSING THE APPEAL FILED BY THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH NOVEMBER, 2012. SD/- SD/- (B.P. JAIN) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29TH NOVEMBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. BHAT CARPETS, SRINGAR. 2. THE ITO WARD 3 (1), SRINAGAR. 3. THE CIT(A), JAMMU. 4. THE CIT, JAMMU. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.