Revaluation of fixed asset for propritorship concern

Proprietors usually do not revalue their assets and create reserve. The valuation is done only for Assets subject to Wealth Tax if required for which you are filing a separate return. Banks are accepting valuation report aproved by their empaneled valuators only to arrive at market value and residual life of assets offered as a colateral security. Do not tinker with the wdv or methods adopted for companies with a proprietor. It is not going to help with the Bank. As far as proprietor is concerned, if it is a bank loan only concentrate on viability of operations. Banks consider valuations for colateral. For income Tax, AOs dispute valution of assets purchased second hand also. The only instance they accept a second sale value is in case of Buildings as per valuation adopted by stamp duty officers. Chances are that AO may recalculate your depreciation and assess if you make an upward adjustment.

 Sir,the client has 4 building in the block out which 3 are being valued by registered valuer and 1 has higher stamp value.

I know a proprietor usually dont revalue his fixed asset but is there any law barring him from doing so?

If yes than please let me know.I have read A.S ,all A.S.I, gudines note,they only state that upward revaluation  should be transfered to Revaluation reserve and when there is profit on sale of revaluation,such reserve shuld be transfered to General reserve.

General reserve is a type of proprietor's fund and must be treated as Capital in case of Propritorship concern.

I m stressing so much on revaluation because my client can avail

1: higher depreciation on revalued figure (this is possible by following the method of charging additional depreciation to Profit & loss account  and keeping the revaluation reserve intact.)

2: following the block concept client will have to pay less capital gain and this reserve can be transfered to capital.

3: if all above benefit not available,my client wanna show books at true & fair view.

What's the solution?

Revaluing your assets will not entitle you to higher depreciation for tax purposes.

It is better for you to consider advantages for the proprietor before you do an excercise that will be too complicated for him.

1) If asset is chargeable to wealth tax, you are valuing it as and when necessary.

2) If asset is required to be offered as a colateral, bank will give you a list of its own approved valuers and you can get the valuation done as well has get the report on the residual life of the asset. As many banks have a risk limitation on proprietors they may ask for more than one valuer's report.

3) I strongly recommend not to increase depreciation by upward adjustment of wdv. Too many litigations and it will not help the proprietor. I have seen assessment orders where for machinery AOs have not been accepting purchase value of even second hand machines and they start at somepoint closer to the wdv for the previous owner. Going for appeals is indeed a cumbersome process.

Therefore you would go through all this only if the advantages outweighs the inconveniences.