Addition u/s 68 - applied rate of profit

[Ashok Goyal]

A.O has applied rate of profit in case of civil contractor and also made additions u/s 68 for cash deposited in Bank.My query is regarding addition u/s 68 is weather A.O is justified in making separate additions when he has rejected books of account and applied net profit rate. I wants case laws in support.

[DEV KUMAR KOTHARI]

You need to establish that as per the GP rate taken by the AO, there will be cash generation which was deposited in bank. Cash generation is to be worked out on net basis that is after taking into account changes in other relevant current assets and liabilities. It is more a case to be won on facts and not on the basis of other case laws becasue facts have to be established on peculiar facts of your case.

[Ashok Goyal]

After addition by A.O u/s 68 CIT (A) has granted full relief by considering the matter as you have stated that availability of cash as per rate applied should be justified, But Tribunal has reversed the same. Sir, you are saying that it is matter of fact and could not be won on the basis of case law but for facts one authority is accepting and one is rejecting explain the remedy.

[DEV KUMAR KOTHARI]

You need to establish that you had cash balance when the deposit was made in bank. If it cannot be established, then addition can be made. Without full facts as found by CIT(A) and ITAT, it is difficult to suggest. In case Tribunal has mistaken in understanding facts based on records, a rectification petition can be made. It appears that addition u/s 68 is confirmed based on lack of identity, creditworthyness and capacity to pay money by the person from whom you received money. Otherwise addition will be u/s 69 or 69A. Check the facts and orders.

[Ashok Goyal]

Sir, addition u/s 68 in my case is made for cash deposited in Bank account. Cash deposited out of cash with drawls on earlier dates for example cash withdrawn from Bank in full year Rs. 100 lacs on various dates and deposited 45 Lacs in full year on various dates. Learned A.O has made addition of full 45 lacs cash deposited in Bank rejecting our contention that we have withdrawn cash for labour payments and deposited remaining in Bank un-utilized amount.CIT(A) has granted full relief based on facts, even considering monthly fund flow statement as books has been rejected by AO and applied NP rate also, but ITAT reversed the same. I am interested that when based on facts CIT (A) has granted full relief whether ITAT is correct in reversing the same. Their is no matter of genuiness or identification.I have seen some cases in which decided that when books of account rejected and NP rate applied no seperate additions can be made. Requirement of addition u/s 68 is that any credit entry found recorded in Books of account, in my case when books rejected NP rate applied in my opinion addition u/s 68 is not coorect and view taken by CIT(A) deleting the addition is correct. But the matter has been reversed by ITAT let me know the remedy available.

AI Summary

Additions under section 68 challenged where net profit rate applied-issue turns on proved cash generation and capacity to pay. Assessment officer applied a net profit rate after rejecting books and made separate additions under section 68 for cash bank deposits. The controlling enquiry is whether the applied profit rate, after adjusting for changes in current assets and liabilities, explains the cash generation used for deposits, and whether the persons credited meet tests of identity, creditworthiness and capacity to pay. Conflicting appellate outcomes reflect fact finding; where a tribunal misreads records, a rectification petition may be pursued.