X is a private ltd. company. In its books of accounts the company has not written off the incorporation expenses and it is shown under the "Miscellaneous expenses(Assets)" every year since its incorporation. On the audit of the books,if the above situation arises what an auditor should do? As the amount of the expenditure is only 7000, whether the company can write off the 100% amount in the present year ? If so what are the tax consequences ? How the deferred tax liability is calculated in such situation ?
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Treatment of incorporation expenses
Replies (1)
As per my knowledge, this situation is an error arising because of ommission. Consequently the incorporation expenses will be written off in the current year itself, but as an prior period item (AS 5).
Income Tax Act works on a different principle. One cannot claim expense in the current previous year on merely the grounds that the same have not been claimed in the preceeding previous years. If there is an oppurtuinity for revising the ITR then the same should be preferred.
For deferred tax effects, even I am waiting for a more valuable response.
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