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2008 (2) TMI 815 - AT - Income TaxMAT - Computation of book profit u/s 115J - income from capital gains - Assessee transferred a portion of the surplus of the sale consideration, in excess of the cost of acquisition, directly to the capital reserve account of the assessee-company - HELD THAT:- According to the standard accounting practices as well as under the Income-tax Act, the assessee has two options to choose the manner in which the said surplus amount is to be accounted. The first method is that the surplus being a profit arising on a transaction, even though of an exceptional nature, may be credited to the profit and loss account and thereby transferred to the general reserve account of the assessee, if there is excess. That is the amount may pass through the profit and loss account by the credit side. The other option available is that the transaction being of an exceptional nature, the profit arising therefrom may directly be credited to the capital reserve account, without being reflected in the profit and loss account. In the case of CIT v. Veekaylal Investment Co. P. Ltd.[2001 (2) TMI 117 - BOMBAY HIGH COURT] held that the capital gains arising to a company should form part of the book profit for the purpose of section 115J. As far as this issue is concerned, there is no functional distinction between section 115J and section 115JB. Therefore, we find that the specific issue of capital gains, vis-a-vis minimum alternate tax profit has been decided by the jurisdictional High Court in the above judgment and we are bound to follow the above judgment. If so, the lower authorities have rightly held that the amount should be included in the book profit for the purpose of section 115JB. It is true that the hon’ble Supreme Court has held in the case of Apollo Tyres Ltd. v. CIT [2002 (5) TMI 5 - SUPREME COURT] that the assessing authority does not have the jurisdiction to make adjustments in the book profits certified by the statutory auditors of the company other than the adjustment provided under the Explanation thereto. But that is a general proposition of law declared by the hon’ble Supreme Court. On the other hand, the Bombay High Court in the case has specifically dealt with the question of capital gains. Therefore, we find that the decision in the case of CIT v. Veekaylal Investment Co. P. Ltd. is more applicable to the present case. Thus, we hold that this appeal filed by the assessee is liable to be dismissed.
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