D.K. Srivastava, A.M. - (1.) THE appeal filed by the department is directed against the order of the learned CIT(A) on the following grounds : "(1) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the capital gains of Rs. 52,95,500 are not to be taken into account while computing the profits liable to be taxed under section 115JA of the Act and further that the decision of Bombay High Court in case of CIT v. Veekaylal Investment Co. (P.) Ltd. 249 ITR 597(Bom) was not applicable. (2) THE appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Addl. CIT Range 3(2) be restored. (3) THE appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
(2.) Parties represented by their representatives have been heard. Briefly, stated, the facts of the case are that the assessee-company had revalued certain shares at Rs. 53,30,500 and taken the difference between the revalued price of the shares and the book value of shares as shown prior to revaluation to the Investment Revaluation Reserve Account in the balance sheet during the previous year relevant to the assessment year under appeal. The assessee sold the shares subsequently, after revaluation, for Rs. 53,30,500 during the previous year relevant to the assessment year under appeal. Since there was no difference between sale price and revalued price at which the shares were shown in the books of account, the assessee did not show any profit on sale of shares in its profit & loss account prepared under the provisions of the Companies Act, 1956. The accounts as prepared under the Companies Act as also the book profit shown therein were duly certified by the statutory auditors of the assessee-company and filed along with the return of income for the purposes of section 115JA of the Income Tax Act, 1961. As far as the treatment of gains arising on sale of shares under the Income Tax Act is concerned, the long-term capital gain after indexation worked out to Rs. 5.22,92,160 as against which the assessee had invested Rs. 57,13,631 in equity shares of Reliance Port & Terminal Limited, which were the specified securities for claiming exemption from capital gains tax under section 54EA. It was further claimed that the capital gain realized on sale of the said shares was exempt under section 54EA to the extent of Rs. 52,92,160 and therefore no capital gains tax was chargeable. In nutshell, the assessee did not reflect the capital gain arising on sale of shares as part of 'book profit' in the Profit & Loss Account for three main reasons: one, there was no profit on sale of shares as the shares were sold at the revalued price and hence the same was not included in the book profit as shown in the Profit & Loss Account prepared in terms of Parts II and III to Schedule VI to the Companies Act, 1956; two, there was no capital gain on the sale of shares as the sale proceeds stood invested in specified securities under section 54EA of the Income Tax Act and hence there was no capital gain.' available for capital gains tax; three, the sold shares which were held as capital asset were substituted by another form of capital asset, i.e., equity shares in Reliance Port & Terminal Ltd., which were also a specified form of investment under section 54EA.
(3.) THE assessing officer on the aforesaid facts, however held that the capital gain, which is 'deemed' to be the income of the assessee under section 45 of the Income Tax Act, was liable to be included in the book profit as shown in the profit & loss account prepared under the Companies Act for the purposes of section 115JA of the Income Tax Act. He referred to the Accounting Standards notified by the Institute of Chartered Accountants of India and held that the assessee was obliged to include capital gains arising on sale of shares as part of its 'book profit' in the Profit & Loss Account. In this view of the matter, he added Rs. 52,95,500 being capital gain on sale of investments to the net profit of Rs. 12,76,512 shown in the profit & loss account certified by the statutory auditors of the assessee-company and brought the same to tax under section 115JA after making some other adjustments with which we are not concerned in the present appeal.;