Tribunal Upholds Exclusion of Rs. 25,25,800 in Capital Gains from Book Profit Calculation u/s 115JA.

The Tribunal dismissed the Department's appeal, affirming the CIT(A)'s decision to exclude Rs. 25,25,800 in capital gains from the book profit calculation under section 115JA of the Income-tax Act. The Tribunal held that the Assessing Officer's adjustments exceeded the permissible scope under section 115JA, aligning with the precedent that certified accounts should be the basis for computation.

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Issues Involved:
1. Whether the capital gains of Rs. 25,25,800 should be included in the book profit for the purposes of section 115JA of the Income-tax Act.
2. The applicability of the decision in CIT v. Veekaylal Investment Co. Pvt. Ltd.
3. The jurisdiction of the Assessing Officer to re-scrutinize the company's accounts certified under the Companies Act.

Detailed Analysis:

Issue 1: Inclusion of Capital Gains in Book Profit under Section 115JA
- The assessee-company revalued certain shares and recorded the difference in the Investment Revaluation Reserve Account. These shares were later sold at the revalued price, and no profit was shown in the Profit & Loss Account as there was no difference between the sale price and the revalued price.
- The assessee claimed exemption from capital gains tax under section 54EA by investing the sale proceeds in specified securities.
- The Assessing Officer (AO) held that the capital gain, deemed as income under section 45, should be included in the book profit for section 115JA purposes, adding Rs. 25,25,800 to the book profit.
- The CIT(A) reversed this, holding that the AO's adjustment was beyond the scope of section 115JA and that the judgment in Veekaylal Investment Co. Pvt. Ltd. was not applicable.

Issue 2: Applicability of CIT v. Veekaylal Investment Co. Pvt. Ltd.
- The learned Departmental Representative (DR) argued that the capital gain should be included in the book profit as per the Veekaylal Investment Co. Ltd. case.
- The learned Authorized Representative (AR) for the assessee countered that the facts of the present case were different from Veekaylal Investment Co. Ltd., where the assessee had shown capital gains in the Profit & Loss Account.
- The AR referred to the Tribunal's decision in ITO v. Ranjana Traders (P.) Ltd., which had decided a similar issue in favor of the assessee, distinguishing it from Veekaylal Investment Co. Ltd.

Issue 3: Jurisdiction of the Assessing Officer to Re-scrutinize Accounts
- The AR cited the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, which held that the AO does not have the jurisdiction to go behind the net profit shown in the Profit & Loss Account, except to the extent provided in the Explanation to section 115J.
- The Bombay High Court in Kinetic Motor Co. Ltd. v. Dy. CIT reiterated that the AO could only examine whether the books were certified by the statutory auditors and make adjustments as provided in the Explanation to section 115J.
- The Tribunal observed that the accounts certified by the statutory auditors and accepted under the Companies Act should be the basis for computing income under section 115JA. The AO's adjustments were not authorized by the Explanation to section 115JA.

Conclusion:
- The Tribunal concluded that the AO's adjustments to the book profit were not sustainable in law, as they were beyond the scope of permissible adjustments under section 115JA.
- The appeal filed by the Department was dismissed, upholding the CIT(A)'s order that excluded the capital gains from the book profit.

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