ACCOUNTING TREATMENT FOR EXPENDITURE

[NITIN DESAI]

SIR,

OUR'S IS PRIVATE LIMITED COMPANY. DURING F.Y. 2014-2015, WE HAVE SET UP NEW PROJECT IN DAHEJ SPECIAL ECONOMIC ZONE, DAHEJ. WE HAVE ELECTRICITY PURCHASE ARRANGEMENT FROM M/S TORRENT ENERGY LTD. NOW AT THE TIME OF PROVIDING ELECTRICITY LINE FROM THEIR POINT TO OUR FACTORY, WE HAVE PAID RS. 15 LAC TOWARD SERVICE LINE COST. THE COMMERCIAL PRODUCTION HAS COMMENCED IN MAY,2015. MY QUERY IS WHETHER SUCH EXPENDITURE IS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE OR DEFERRED REVENUE EXPENSES. PLEASE PROVIDE EXPERT OPINION WITH CASE LAW IF AVAILABLE.

AI Summary

Company Debates Accounting Classification for Rs. 15 Lakh Electricity Line Expense in SEZ: Capital or Revenue? A private limited company inquired about the accounting classification of a Rs. 15 lakh expenditure incurred for setting up an electricity service line to their factory in a Special Economic Zone. The discussion sought to determine whether this cost should be categorized as capital expenditure, revenue expenditure, or deferred revenue expenses. One participant suggested it is capital expenditure, prompting further questions on asset capitalization and depreciation. Another participant proposed classifying it under Plant and Machinery for tax purposes, indicating the need for expert opinions to finalize the classification.