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Bharat chandan (student) (158 Points)

18 March 2013

I jst got a query related to section 35D a company made an expense as audit fees as it is mendatory. but company has not yet started its operation. and there is no income. my question is whether it will be covered u/s 35D and 1/5 th deduction will be allowed or it will be covered u/s 37 and full deduction is allowed? or any other option????? thanx in advance

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9 Replies

vinay sharma (CA final (Article)) (327 Points)
Replied 18 March 2013

covered u/s 37 full deduction

Bharat chandan (student) (158 Points)
Replied 18 March 2013

on which basis can u explain me is there any case law referance

Hanish Chaudhary (Chartered Accountant) (333 Points)
Replied 18 March 2013

@ Bharat

In my opinion, it should be covered U/sec 35D.

The expenses of the company incurred after company formation but before commencement of business are called as Pre-operative expenses. Such expenses are covered U/sec 35D. Sec 35D(2)(d) postulates "such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed". Hence, in my opinion you should classify them as pre - operative expenses pending capitalisation. The deduction shall be available 1/5th from the year when the business is commenced.

Correct me if i am wrong.

vinay sharma (CA final (Article)) (327 Points)
Replied 19 March 2013

sectionn 35D cannot be dealt with audit fee as per my opinion. read the section againt, if u find any point then pls inform me also.

section dealt with specified purposes and audit fee is not mentioned in any clause.

vinay sharma (CA final (Article)) (327 Points)
Replied 19 March 2013

@ mr. harsh:-) whether the clause (d) of subsection (2) of section 35D , viz., "such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed" can be utilised, it can be possible only if the company, after the commencement of its business incurs the expenditure specified in sub-section (2) only if it is in connection with the extension of its undertaking or in connection with its setting up a new unit.The query merely states that "the company will issue fresh shares and use the funds to buy a property". .

This not cover the Audit fee also.

please reply if i m wrong

Bharat chandan (student) (158 Points)
Replied 19 March 2013

even I hv gone through sections auditing fees is not covered u/s 35D(2) . so, whether such expense will be allowed as deduction u/s 37 as it is a statutory requirement. but this expense is made before starting of operation or we can say before commencement of business my query is whether this exp shud allwed u/s 37 or any other section. I am confused bcoz sec 37 states exp related to business . is it like business incorporated or business commenced??????

vinay sharma (CA final (Article)) (327 Points)
Replied 20 March 2013

buddy when a company is formed it is mandatory to do audit whether business should be commenced or not it is mandatory in nature, so this is a expense related to business due to mandatory nature allowed u/s 37. u can claim expense or carrie forward the loss.(my opinion)