Tribunal rules revaluation reserve not to be added to book profit, upholds CIT(A) decision

The Tribunal held that the revaluation reserve directly taken to the balance sheet should not be added to the book profit. The decision upheld the CIT(A)'s ruling and dismissed the revenue's appeal, emphasizing that the revaluation of property was in accordance with Accounting Standard 10 and not a colorable device. The Tribunal reiterated that adjustments to book profit must align with specified provisions and that the net profit disclosed in the profit and loss account prepared under the Companies Act cannot be altered by the Assessing Officer.

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Issues Involved:
1. Computation of book profit under section 115JB.
2. Validity of revaluation of property and its impact on book profit.
3. Applicability of judicial precedents in computing book profit.

Detailed Analysis:

1. Computation of Book Profit under Section 115JB:
The primary issue in this appeal concerns the computation of book profit under section 115JB. The assessee sold a property and recorded a gain of Rs. 92,70,857. However, it debited Rs. 1,44,000 as a loss on the sale of the property in the profit and loss account after revaluing the property at Rs. 97,44,000. The Assessing Officer (AO) rejected the book loss shown by the assessee and added the gain of Rs. 92,70,858 to the book profit, citing it as a device to avoid tax.

2. Validity of Revaluation of Property and Its Impact on Book Profit:
The assessee argued that the book profit was computed based on the profit and loss account prepared under the Companies Act, 1956, and no addition could be made for revaluation reserves under section 115JB. The AO, however, considered the revaluation as a device to avoid tax, referencing the Supreme Court judgment in Mc Dowell & Co. Ltd. v. Commercial Tax Officer. The CIT(A) sided with the assessee, noting that the revaluation reserve was taken directly to the balance sheet and not debited to the profit and loss account, thus no addition could be made to the book profit.

3. Applicability of Judicial Precedents in Computing Book Profit:
The CIT(A) referenced the Supreme Court judgments in Apollo Tyres v. CIT and Malayala Manorama Co. Ltd. v. CIT, which held that the AO cannot alter the net profit disclosed in the profit and loss account prepared under the Companies Act. The Tribunal upheld this view, emphasizing that the AO can only make adjustments specified in the Explanation 1 to section 115JB(2). The Tribunal also noted that the revaluation of property was in line with Accounting Standard 10 (AS-10) and was not a colorable device. The Tribunal dismissed the revenue's appeal, affirming that no addition could be made to the net profit on account of revaluation reserve directly taken to the balance sheet.

Conclusion:
The Tribunal concluded that the revaluation reserve taken directly to the balance sheet should not be added to the book profit, upholding the CIT(A)'s decision and dismissing the revenue's appeal.

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