Pre operative expenses

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 February 2013 Dear Sir,

Our company has incurred certain pre operative expenses (capital and revenue both). The actual operation will commence from 1.4.2013.

On that day, we will capitalise whatever capital expenses and direct expenses related to the asset to that particular asset.Similarly, we will charge all the general revenue expenses to Profit & loss a/c.

My question is:

1. whether the above accounting is correct?

2. whether we can claim depreciation on such capitalised expenditure in Income tax?

3. If we are charging all the pre operative expenses (of revenue nature) of preceding years in current years' P & L A/c whether this will be disallowed as treating it as prior period expenses u/s 37. If yes, what is the way out that the expenses wont be disallowed.

Please reply at the earliest.

Hari Beldona

Hari Beldona (Expert)
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06 February 2013 1.The above accounting is partially correct-General revenue expenses which are not relating to a particular asset (Even apportionment cannot be done) is called preoperative expenses.
2. You can claim depreciation on such capitlised expenditure which allocated to the asset
This will not be disallowed since prior period expense means a unit which commenced commercial production few years ago in any one of the years an expense is not accounted in that particular year such expense is accounted during the year then it is called as prior period expense
3.Preliminary and preoperative expenditure also can be claimed deduction under section 35D one fifth of such expenditure for five succeeding years if the business is setup after 31st March 1998 if before one tenth