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CS Professional · Corporate Restructuring, Valuation and Insolvency · Taxation and Stamp Duty Aspects of Corporate Restructuring

Bharat Auto Ltd transfers a unit by slump sale. The unit's books show a plant revalued upward by Rs 2 crore over its original book value of Rs 5 crore, with the revaluation surplus credited to reserves. How should the revaluation be treated while computing net worth under the Income-tax Act, 2025?

The revaluation is ignored. Under section 77, any change in the value of assets due to revaluation must be disregarded when computing net worth of the undertaking, so the plant is considered without the Rs 2 crore upward revaluation.

  1. AIgnored, so the plant is taken without the revaluation changeCorrect
  2. BIncluded, because the books show the revalued figure
  3. CIncluded only to the extent of 50%
  4. DIgnored only if an accountant's report is not furnished

Explanation

Section 77(5)(a) says that in computing net worth any change in the value of assets due to revaluation is ignored. Taking the revalued Rs 7 crore would inflate net worth and understate the gain. The accountant's report requirement does not alter this rule.

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