Beneficial Provision giving weighted deduction.

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Section – 35AD


Section – 35AD

Specified Business :

Section 35AD provides for an investment linked incentive to assesse carrying on the specified business.

Deduction under section 35AD to the extent of 100% is available to assesse carrying on the  following “Specified Business”.

  1. Setting up and operating a cold chain facility.
  2. Setting up and operating a warehousing facility for storage of agriculture produce.
  3. Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network.
  4. Building and operating, anywhere in India, a hospital with at least one hundred beds for patients.
  5. Building and operating, anywhere in India, a hotel of two star or above category as classified by the Central Government.
  6. Developing and building a housing project under a scheme for slum redevelopment or rehabilitationframed by the Central Government or aState Government,as the case may be, and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed.
  7. Developing and building a housing project under a scheme foraffordable housing framed by a Central Government or a State Government, as the case may be, and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed.
  8. Production of fertilizer in India, such business should commence its operations in a new plant or in newly installed capacity in existing plant for production of fertilizer.
  9. Setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962.
  10. Bee-keeping and production of honey and beeswax.
  11. Setting up and operating a warehousing facility for storage of sugar.
  12. Laying and operating a slurry pipeline for the transportation of iron ore.
  13. Setting up and operating a semi-conductor wafer fabrication manufacturing unit notified by the Board in accordance with such guidelines as may be prescribed.
  14. Developing or maintaining and operating or developing, maintaining and operating a new infrastructure facility.

 

Capital expenditure eligible for Deduction :

 

For Specified Business :

  1. 100% Deduction shall be allowed in respect of any expenditure of capital nature incurred wholly and exclusively for the purpose of any specified business carried on by him during the PY in which such expenditure is incurred by him.
  2. Therefore, capital expenditure incurred after the commencement of specified business is allowed as deduction to the extent of 100% of such expenditure, in the year in which such expenditure is incurred.
  3. Revenue expenditure will also be allowed as 100% deduction.

Expenditure incurred prior to commencement of operations also eligible for deduction :

For Specified Business :

Expenditure incurred wholly and exclusively, for the purpose of any specified business, shall be allowed as deduction to the extent of 100% of such expenditure, during the PY in which he commences operations of his specified business if :

  1. the expenditure is incurred prior to the commencement of its operations ; and
  2. the amount is capitalized in the books of account of the assesse on the date of commencement of its operations.

Therefore, expenditure incurred before the commencement of specified business shall be allowed as deduction to the extent of 100% of such expenditure, in the PY in which business is commenced provided such expenditure has been capitalized in the books of account.

Expenditure not eligible for deduction under sec. 35AD

Any expenditure of capital nature shall not include any expenditure incurred on :

  1. Acquisition of any land; or
  2. Goodwill ;or
  3. Financial instrument

Therefore, expenditure on acquisition of land, goodwill and any financial instrument is not eligible for deduction under section 35AD whether such expenditure is incurred before or after the commencement of business.

Further, any expenditure in respect of which payment or aggregate of payment made to a person of an amount exceeding ₹ 10,000 in a day otherwise than by account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account would not be eligible for deduction. (Added by FA 2017)

 

Conditions to be satisfied for claiming deduction :

  • it should not be set up by splitting up, or the reconstruction, of a business already in existence ;
  • it should not be set up by the transfer to the specified business of machinery or plant previously used for any purpose ;
  • In order to satisfy this condition, the total value of the plant or machinery so transferred should not exceed 20% of the value of the total plant or machinery used in the new business.
  • For the purpose of this condition, machinery or plant would not be regarded as previously used if it had been used outside India by any person other than the assesse provided the following conditions are satisfied :
    1. such plant or machinery was not used in India at any time prior to the date of its installation by the assesse ;
    2. the plant or machinery was imported into India from a foreign country ;
    3. no deduction in respect of depreciation of such plant or machinery has been allowed to any person at any time prior to the date of installation by the assesse.

Double Deduction is Not Allowed :

Once the assesse has claimed the benefit of deduction under section 35AD for a particular year in respect of a specified business, he cannot claim benefit under Chapter VI-A under the heading “C.-Deductions in respect of certain incomes” or section 10AA, for the same or any other year and vice versa.

 

Carry Forward and Set off of Losses by specified business :

The loss of an assesseclaiming  deduction under section 35AD in respect of a specified business can be set off against the profit of another specified business under section 73A, irrespective of whether the latter is eligible for deduction under section 35AD.

 

-Falguni Soni (Article Assistant)

-Nagpur

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