Tribunal held that  liabilities of gratuity and leave encashment as per provisions of AS-15 which were disclosed in Notes appended to accounts and adjusted against opening general reserve, should be reduced from current year’s profit for computation of book profit Notes to accounts are part of financial statements (profit and loss account and balance sheet, cash flow statement etc.) and, therefore, computation of book profit  should be done taking into account figures mentioned in Notes to accounts.  Adjustment in respect of prior period items comprising of impact of lease rent equalization and gratuity expenses of earlier years should be made, while computing book profit. The AO made upward revision in book profit computed under S. 115JB by making disallowance under S.14A. The CIT(A) upheld  action of the AO .Tribunal held that  the adjustment by the AO other  than those mentioned in Explanation 1 to S.  115JB to the net profit reflected in the accounts of any assessee and adjustment by way of disallowance under S. 14A is not included in the said Explanation. Dividend income is exempt in terms of section 10(34) and, therefore, it should be excluded in computing book profit in terms of clause (ii) of Explanation 1 to S. 115JB of the Act .    (AY. 2008 -09)