Allowability of pre-operative exp.

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SHALINI JAIN (Querist)
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17 July 2008 Dear Sir,
A company was incorporated in 2006, but business has started i.e first Sales made by the Company is in june 2008.Now the company has not prepared any P & l account for the last two years and have filed NIL IT Return and have debited the expense to pre-operative exp account. Now the Company prepares the P & L anccount and debit all expenses of the last two years including the current year exp. in the P & l Account.Is the treatment correct as the Company wants to rectify the entries which it has wrongly debited to Pre-operative exp Account.
a) Will the expenses which were debited to Pre-operative exp account be allowable as per IT act, as they relate to period other than the current financial year ?
b) As per It Act will the expenses be allowed if the operation of the Company has only started in June 2008.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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17 July 2008 Preoperative expenditure have to be transferred (apportioned)to Capital assets. The question of allowability of expenditure can be only through depreciation.

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