Pre incoporation exp

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Querist : Anonymous

Querist : Anonymous (Querist)

23 September 2015 Dear Expert

A newly company incorporated with capital of Rs. 1 lac in dec 14, not any business done till 31st Mar 15. Director has incurred 24250 for incorporation exp. Now how it will be treated under income tax and AS 26. As per AS 26 total exp should be debited to P&L, but as per section 35D only max 5% of capital employed, so if we take 5% of capital then only 5000 can be treated as exp under income tax and amortised will be in 5 years.

Please explain here treatment. m i correct?

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 Writing books of accounts be done as per AS 26

Computation of income be done as per 35D

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Querist : Anonymous

Querist : Anonymous (Querist)

23 September 2015 Thanks for reply

so here in first year only 1000 will be allowed under income tax and in the books of accounts permanent difference is here of Rs.19250(24250-5000) and timing difference is only of Rs 4000 so DTA will be calculated on 4000.

M i correct and DTA will also be calculated on Loss carried forward under income tax?

please confirm

Amol S Joglekar

Amol S Joglekar (Expert)
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23 September 2015 you are right in concept.

But tell me why do you say 1000? Where has that figure come from?

Querist : Anonymous

Querist : Anonymous (Querist)

23 September 2015 because as per 35 AD preliminary exp will be amortised in 5 years. Since here total 5000 only allowed u/s 35AD. so in first year only Rs 1000 will be allowed under income tax.

and in book total pre incorporation exp will be allowed as per AS 26

Amol S Joglekar

Amol S Joglekar (Expert)
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24 September 2015 Sec 35D(1) says the deduction is for 5 years.
Sec 35(2) gives the details of expenditure entitled to be included for deduction.
Sec 35(3) limits the expenditure to 5% of capital employed.

Why do you think that 5% is for ALL five years?

Why do not you think that 5% is for each of the 5 years?

Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2015 Thanks for reply,

Sir, but Sec 35D specifically mentions that the deduction shall be an amount equal to 1/5th of such expenditure for each of the five successive years beginning with the previous year in which business commences.

and further amount of such expenditure is limited to 5%.

Sir other query is here if pvt co incorporated on 11.03.14 and not operating till 31.03.14 it is operating from 08.04.14, then can we take previous year started from 08.04.2014 to file ITR? Sir what is your view here?

Amol S Joglekar

Amol S Joglekar (Expert)
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24 September 2015 01. But why are you interpreting it as 5% for all 5 years. It should be 5% EACH year for 5 years.

02. For pvt limited company, commensement of business is NOT required. So? You have a choice...file a NIL return for financial year 2013-14 OR start filing return from financial year 2014-15. Choice is with you.

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Querist : Anonymous

Querist : Anonymous (Querist)

26 September 2015 Thank u Sir,

can u please guide me how to show pre incorporation exp disallowed u/s 35D will be shown in ITR 6. I m unable to find respective field in schedule BP.

Amol S Joglekar

Amol S Joglekar (Expert)
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27 September 2015 we need to club it with disallowances u/s 36.

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Querist : Anonymous

Querist : Anonymous (Querist)

30 September 2015 Sir please one thing more

Office partition like with Timber, Aluminium for cabin, it will be covered under temporary builing eligbile for 100% dep under income tax?

and exp for 16000 incurred for website creation for company is intangible assets or should be debited to P&L as exp?

please guide

Amol S Joglekar

Amol S Joglekar (Expert)
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30 September 2015 01. Timber, Aluminium etc should be grouped under Furniture and Fixtures.

02. Normally these charges include different parts viz domain registration, hoisting charges, annual subscription.

While domain registration AND Hoisting Charges may be capitalised, annual subscription shall be treated as revenue expenditure.
(Taking into account your quantum, the whole of 16000, may even be charged off to P & L account)

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