Pre-operative expense treatment

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CA. NIDHI JHUNJHUNWALA (Querist)
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18 June 2013 A company incorporated in year 2000 has not yet started commercial operations.
1. What will be the treatment of the administrative expenses like rent, electricity, accountant's and auditor's fees in the books of accounts and as per Income Tax Act.
2. Will the company get deduction of the same as pre-operative expense u/s. 35D after 10-15 years of incorporation also if commercial operations are started that late?

ravi mohare

ravi mohare (Expert)
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07 November 2013 Dear Nidhi,

There are several case laws involving this issue, but nothing is clear in this regard. The business must be set up to claim revenue expenditure and what constitute Setting up of business is not clearly defined in the IT act. Honable courts have taken different views on setting up of business.

To claim revenue expenses, the business must be set up. It is not necessary that all business activity should start immediately.

As per my research and most of the experienced professionals, One should start business activity even it means issuance of single tax invoice during the relevant financial year.

Please refer following case laws,
1.Western vegetables
2.Saurashtra Cement
3.Hughes Escort Communication
4.Burger Implex P Ltd
5.Deccan Goldmine Ltd (ITAT)

Please revert back if you have different opinion.

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