Pre-incorporation exps vs preliminary exps

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yashsr (Querist)
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06 June 2012 Hello,

What are pre-incorporation exps and how are they different from Preliminary exps? Are pre-incororation exps allowed as per the Income Tax Act once the company is incorporated? If so, under which section and how much in the 1st year?

Ajay Mishra

Ajay Mishra (Expert)
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06 June 2012 Hi

Preliminary expeses essentially associate with activities involved in the formation of the company, pre-operative expenses are those which are connected with actions that are required for start up of operations. Pre-operative expendiure can therefore be capitalised by apportionment/allocation to assets which are the subject matter of operation. Preliminary expenditure are written off as revenue and set off when the company generates profits. For more details please look into AS-26.

For more details, go to the following link:

https://www.caclubindia.com/forum/pre-operative-expenses-93123.asp#.T895x1HKnWU

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yashsr

yashsr (Querist)
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07 June 2012 Thanks for you reply!

Case:

3 people(foreigners) want to set-up a pvt ltd company to start a micro-brewery in India. Before setting up the business and before incorporation of the company, they visit India and roam all over India for survey purpose. They incur air travel, road travel, hotels, restaurant expenses etc. Now, can they claim this expenditure once they incorporate the comany? If yes, under which section in the Income Tax Act?

And whether these will be called:

1) Preliminary Exps

2) Pre-operative Exps

3) Pre-incorporation Exps

Ajay Mishra

Ajay Mishra (Expert)
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07 June 2012 Hi

I think, these expenses are not related incorporation of company so you can not treat it as pre incorporation expenses. Suppose after survey in India, if they don't want to open more than one company then how u will treat these expenses in two companies.

Other views are also solicited.

Regards

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yashsr

yashsr (Querist)
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07 June 2012 You obviously meant if they want to open more than one company??

So in short you mean that it not possible to obtain set-off of these exps after the Company is incorporated??

Ajay Mishra

Ajay Mishra (Expert)
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07 June 2012 Hi

I will suggest you to not take these expenses which are not related to incorporation of company.

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