Pre operative expenses

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

07 October 2011 An company has installed an plant in the nov11 but hav not started its operation yet. The plant is ready to be used. The company has capitalised all the expenses in past till as on date as an preoperative expenses. Is company proper in doing so?? Can we claim depreciaton on the same? What would be the Income Tax implication??

CA Chitresh Gupta

CA Chitresh Gupta (Expert)
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07 October 2011 Only the pre-operative expenses incurred by the company upto the plant is ready for its intended use (actal usage is irrelevent) can be capitalised along with the Plant Cost. All the further expenses till the till the plant is actually put into operation is to be charged off to the revenue.

In the Income Tax Act, there is no concept of pre-operative expenses, these has to be claimed as expenditure provided there is no benefit of enduring nature is derived from the expenses.

Hope this clarifies the matter.

Regards