Tax audit and tax return

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2010 A private limited company was incorporated in 3 February 2010 with the authorised and subscribed equity capital of Rs. 70,00,000.

The Company received its equity capital on 15 April 2010.

The company has selected period of 3 February 2010 to 31 March 2011 as it first accounting year.

There were no transaction (income or expense) between 3 Feburary 2010 to 31 March 2010. Does the Company need to file the income tax return for the period ended 31 March 2010 and get it tax accounts audited ?

Aditya Maheshwari

Aditya Maheshwari (Expert)
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15 September 2010 No. If no substantial work was done upto 31.03.2010 no need to get accounts audited.

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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15 September 2010 Tax Audit is applicable as per section 44AB and in this case it is not applicable.

However ITR is filed as per the provisions of section 139(1). According to me there will be prepaid expenses which are considered under section 35D as on 31-03-2010. As per said section these expenses shall be w/o in 5 years. Accordingly, if there is no income then there will be loss and to carry forward these losses you need to file loss return u/s 139(3).

If there is no prepaid expenses then there is no need to file ITR.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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15 September 2010 I think you mean to say preliminary expenses and not prepaid expenses.

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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15 September 2010 Thanks for the correction. Yes, it is preliminary expenses instead of prepaid expenses.

Querist : Anonymous

Querist : Anonymous (Querist)

16 September 2010 Many thanks Aditya and Sudhanshu.

Querist : Anonymous

Querist : Anonymous (Querist)

23 September 2010 I think in this case for not filing income tax return what is more important is the definition of Previous year” which is defined as under:

3. For the purposes of this Act, “previous year” means the financial year immediately preceding the assessment year :

Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.]

Can some body guide as to in case of company when it is asssumed that the business or profession has been set up under income tax ? On incorporation or when the company start busniess i.e. invoicing or incurring expenses ?

Asha Kanta Sharma online

Asha Kanta Sharma online

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26 July 2025 Great question! Here's the detailed clarification based on Income Tax provisions:

### When is a business assumed to be set up for tax purposes for a company?

According to the Income Tax Act:

* The **"previous year"** is defined as the financial year immediately preceding the assessment year.
* For a **newly set up business or profession**, the previous year is the period **starting from the date of setting up the business or profession till the end of the financial year**.

Now, for a company:

* **Incorporation date alone** does not necessarily mean the business is “set up” for income tax purposes.
* The business is considered “set up” when **actual business activity starts**, i.e., when it **starts operations**, like:

* Invoicing customers, or
* Incurring business expenses (except preliminary expenses), or
* Generating income.

### Application in your case:

* Company incorporated on 3 Feb 2010.
* No transactions (income or expenses) from 3 Feb 2010 to 31 Mar 2010.
* Hence, **business is not considered started** during this period.
* So, **previous year for income tax will be from 1 Apr 2010 to 31 Mar 2011**.
* No requirement to file ITR or get tax audit done for period ending 31 Mar 2010 since business not set up.

### Summary:

* **Incorporation date ≠ business start date** for Income Tax.
* Business start date is when operations start (invoicing/incurring expenses).
* Only if business is set up in the previous year, return and audit obligations apply.

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If you want, I can help draft a concise explanation or provide references to relevant sections (like Section 2(13) for previous year and judicial pronouncements). Would that help?

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