Expenses allowability for newly started company

This query is : Resolved

Dhirvir H Parmar (Querist)
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03 June 2018 Dear sir,
Our company was incorporated on 28-03-17. We are developing a tool that will capture the data from the pipeline of the petrol. It is basically research and development. We have incurred various expenses on tool so far. Tool is ready but no sales revenue is booked in the year 2017-18. It is likely to be sold in the year 2018-19. In 2017-18, we have incurred expenses only. I request the understanding on below points

1. Since, its a newly started company, we have incurred expenses only to develop a tool but it has not been commercialised i.e no sales have been booked in the year 2017-18.
So for the fy 2017-18, are we eligible to claim all the expenses and can we show the carry forward loss?

2. somewhere i have heard that since these are pre operative expenses, needs to be written off over a period of 5 years. I think these expenses should not be considered as pre operative expenses because the operation has already been started. The only thing is tool is not ready for sale and we have not recognised any revenue in fy 2017-18.
3. Can i be allowed all the expenses in the year 2017-18 and carry forward the loss to the next year?

Please suggest.

Dhirvir H Parmar

Dhirvir H Parmar (Querist)
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11 June 2018 is there anyone to answer the query?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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07 July 2024 Based on the information provided, here are the responses to your queries regarding the treatment of expenses incurred by your company in FY 2017-18:

1. **Claiming Expenses and Carry Forward Loss:**
- **Expenses Incurred:** Since your company has incurred expenses on developing a tool during FY 2017-18 but has not recognized any sales revenue, you are eligible to claim these expenses as deductions under the Income Tax Act, 1961.
- **Carry Forward Loss:** Yes, you can carry forward the loss incurred during FY 2017-18 to subsequent years. This is allowed under the tax laws to set off against future profits when your company starts generating revenue.

2. **Treatment of Pre-operative Expenses:**
- Pre-operative expenses typically refer to expenses incurred before the commencement of commercial operations. In your case, although the tool development is complete, the absence of revenue recognition in FY 2017-18 may still classify these expenses as pre-operative for tax purposes.
- The distinction lies in whether the operations have commenced and revenue has been recognized. Since no revenue was recognized in FY 2017-18, the expenses incurred can be considered pre-operative from a tax perspective.

3. **Allowance of Expenses and Carry Forward Loss:**
- **Expense Allowance:** You can claim all the expenses incurred during FY 2017-18 as deductions in that year, subject to applicable provisions of the Income Tax Act.
- **Carry Forward of Loss:** The loss incurred in FY 2017-18 can be carried forward to subsequent years up to a maximum of 8 assessment years immediately succeeding the assessment year in which the loss was first computed. This can be set off against future taxable profits.

**Key Points to Consider:**
- Ensure all expenses are properly documented and relevant supporting documents are maintained for audit and compliance purposes.
- Seek advice from a qualified tax consultant or chartered accountant to ensure compliance with tax regulations and to optimize the tax benefits available to your company.

In summary, yes, you can claim all expenses incurred in FY 2017-18 and carry forward the resulting loss to future years, provided you comply with the relevant provisions of the Income Tax Act and maintain accurate records.

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