Preliminary Expenses not W/Off

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CA Garima Bhayana (Querist)
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29 February 2020 One party had preliminary exp in 2015-16 which was shown in Asset in balance sheet in that financial year and till now i.e. upto financial year 2018-19 that expenses were shown in asset side of balance sheet . If party wants to w/off in financial year 2019-20 then what is the treatment to w/off that preliminary expenses? Please explain the treatment in Accounts and provision as per income tax .

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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29 February 2020 + Can be w/off in accounts of FY 2019-20 with the support of a 'resolution'.

+ Pl see section 35D for income tax act.1961.

Akash Monwani

Akash Monwani (Expert)
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29 February 2020 As per AS 22 preliminary expenses should be debited to P/L in same year . You may debit it in current year but that will be treated as prior period item and disclosures regarding prior period item should be provided
And as per Section 35D of IT Act, the preliminary expenses should be amortised in five financial years beginning from the year of commencement of business or the extension of the undertaking is completed or the new unit commences production or operation as the case may be and the maximum limit of Expenses allowed is 5% of capital employed please check explanation under 35D for calculation of capital employed

CA Garima Bhayana

CA Garima Bhayana (Querist)
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29 February 2020 So can we w/off full amount in P&L of Financial year 2019-20 and what will be treatment as per 35D of income Tax ? As per 35 D we can w/off 1/5 th in every year but it was not w/off in past years and Financial year 2019-20 is 5th Year. Please tell me the treatment.

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