Incorporation Expenses

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  1. pawankalyan

    pawankalyan New Member

    Respected all,

    My query is - can i file nil return for a company with out booking incorporation expenses to p&l a/c as no business activities has made in the FY 2015-16? i.e with no figures in p&l a/c.

    I would like to know AS 26 implications and its accountability in Financial Statements.

    Awaiting for your valuable replies
     
  2. ZED

    ZED Well-Known Member

    You can not file a nil return, if you will try that then you will receive notice for defective return u/s 139(9)
    Do Consider the preliminary expenses (if business was commenced)


    AS-26?
    Para 56. In some cases, expenditure is incurred to provide future economic benefits to an enterprise, but no intangible asset or other asset is acquired or created that can be recognised.

    In these cases, the expenditure is recognised as an expense when it is incurred. For example, expenditure on research is always recognised as an expense when it is incurred (see paragraph 41).

    Examples of other expenditure that is recognised as an expense when it is incurred include: (a) expenditure on start-up activities (start-up costs), unless this expenditure is included in the cost of an item of fixed asset under AS 10. Start-up costs may consist of preliminary expenses incurred in establishing a legal entity such as legal and secretarial costs, expenditure to open a new facility or business (pre-opening costs) or expenditures for commencing new operations or launching new products or processes (pre-operating costs);
     
    Last edited: Jun 19, 2016
  3. pawankalyan

    pawankalyan New Member

    Thanks a lot for replying me.

    Is that means to file a loss return, by booking incorporation expenses in p&l a/c?

    if i book all above said exp to p&l a/c as per AS 26 then it will be loss.

    but as per section 35D of IT act, 1961 we can book 1/5th exp from the year in which income generates.

    Let us assume that there was no income in CY. So i would like to know under which section, the above exp, will be disallowed in ITR6 while filing .

    Awaiting for your valuable reply
     
  4. ZED

    ZED Well-Known Member

    Even if no business activity has been carried out there still must be some fixed expenses like electricity, water , depreciation, rent(if any). There must be some expense.

    Preliminary expenses will be allowed when the business has commenced.

    35D.
    (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),—

    (i) before the commencement of his business, or

    (ii) after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit,

    the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation :

    Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words "an amount equal to one-tenth of such expenditure for each of the ten successive previous years", the words "an amount equal to one-fifth of such expenditure for each of the five successive previous years" had been substituted.
     
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