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Preliminary expenses

Gaurav Garg (Others) (26 Points)

13 April 2015

In my company i have preliminary expenses that are being accumulated since 2004. Recently my company has statted functioning and has recieved some rent. Now i want to know whether all preliminary expenses can be write off at once or what should be the percentage that can be adjusted or since they comming from long time back thus cant be adjusted......

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4 Replies

Deepak Gupta (CA Student) (15922 Points)
Replied 13 April 2015

Whole amount of preliminary expenses should be written off by way of a charge to the profit and loss account in the period in which the same is incurred.
- Refer Para 56 of AS 26
.
Since the same has been treated incorrectly by the company in the year of incurrence, it should be rectified in the current year and disclosed appropriately as a prior period item in accordance with AS 5.

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CA Finalist (Article Assitant) (289 Points)
Replied 14 April 2015

However for the computation of Total Income under Income Tax Act, Preliminary Expenses shall be Ammortised over a period of 5 yrs in Equal Installments. - Sec 35D, if im not wrong.

Gaurav Garg (Others) (26 Points)
Replied 15 April 2015

Well thanks to Mr Deepak and CA Finalist for looking into query

I would like to know that

MCA says that preliminary expenses should be adjusted the same or the next financial year.

Income Tax says that it can be adjusted 1/5 th each year for next 5 years .

In my case since the preliminary expenses come fromm very long back then what shpuld i do

Also i would like to tell that i am not a ca or fellow student but since i am looking after the company i need to know each every aspect of it.

CA Finalist (Article Assitant) (289 Points)
Replied 15 April 2015

Considering the Standards specified by the Institute, as told by Mr.Garg, you should be debiting the amount in the Books of Accounts for the current fy, with disclosure of the same. While computing Total Income for Income Tax purpose while filing Return, you should recompute the Total Income, by apportioning the amount as said earlier. Im not sure if AO would agree with the apportionement in the CY, as the Act says, it should be apportioned from the year of commencement. Since in your case, apportionement has not been done since Date of Commencment, I dont know wat wud the AO say regarding the same. If I'm not wrong, just because a deduction was not claimed earlier, it cant be denied now. Or the company might need to to apply for Condonation for delay. P.S:-I'm students only.