I'd just hold firm that there is no harm in reading a book that he perceives to be a better level for him. What is the harm, please teacher tell me what will happen to my son if he reads a book at his level? (we know what will happen is that he'll possibly improve and that would put more distance between him and the other kids, widening any gap and making teaching more difficult for the next teacher).
If she pushes that comprehension is an issue, you could ask for evidence, or you could ask what she does for kids who have reading difficulty. What criteria is used for moving them forward? Do they have to stay at the same level even after they show mastery, or are they allowed to move on?
Good Advice MON ... Thanks!