Pre-operative expenses

[Guest]

Whether the company can account the EB charges spent on testing as pre-operative expenses and w.off in subsequent 5 years.

[CA Rachit Agarwal]

Section 35D of the Income Tax Act, 1961 speaks about the preliminary expenses to be written off in the five years. Preliminary and Pre-operative expenses are two different words.

Pre-operative expenses can be capitalized to the assets to which it relates and depreciation can be claimed.

[rishi mohan]

Preliminary expeneses are the nature of fictitious assets. These are the expenses of the company before the incorporation of the company.  These are transferred to the profit and loss accounts  and written off every year from the profits of the business. These expenses are shown on the assets of the balance sheet under the head misceallenous. Preliminary expenses shall be written of in five years u/s 35D.

Pre operative expenses are of capital nature are to be capatalised with cost of fixed assets in relaions to which they have incurred. whereas pre operative expenses are to be charged aganist profits in which year buisness has commenced.

[DEV KUMAR KOTHARI]

What exactly is EB charges- always give details of nature of expenses and the purpose. What for testing has taken place-  plant and equipment or or processes or  raw material or goods mfd. during trial run or some thing else?

[Guest]

The EB expenses is incurred on production trial run

AI Summary

Debate on accounting EB charges as pre-operative expenses under Section 35D: Capitalize or write off over five years? A discussion was initiated regarding whether a company can account for electricity board (EB) charges spent on testing as pre-operative expenses and write them off over five years. One participant clarified that under Section 35D of the Income Tax Act, preliminary expenses can be written off over five years, but pre-operative expenses should be capitalized to the related assets, allowing for depreciation claims. Another participant noted that preliminary expenses are fictitious assets incurred before incorporation, written off annually from profits. The original poster clarified that the EB expenses were incurred during a production trial run.