Scribd Logo
Upload

Welcome to Scribd!

  • 80 views

    Deduction in Respect of Expenditure On Specified Business

    Uploaded by

    Mukesh Manwani
    The document discusses the tax deductions available under Section 35AD of the Income Tax Act for investments made in specified new businesses. Some key points: 1. Section 35AD provides a tax incentive for investments made in certain qualifying new businesses by allowing a deduction for capital expenditures incurred prior to business commencement. 2. The deduction is available if the business is included on the list of specified businesses and meets conditions like being newly set up. 3. The deduction amount depends on the date of business commencement and ranges from 100-150% of capital expenditures. 4. Claiming the deduction has consequences like restricting other deductions and requiring capital expenditures to be added back to profits over time.

    Copyright:

    © All Rights Reserved
    Download as RTF, PDF, TXT or read online from Scribd

    Deduction in Respect of Expenditure On Specified Business

    Uploaded by

    Mukesh Manwani
    80 views5 pages
    The document discusses the tax deductions available under Section 35AD of the Income Tax Act for investments made in specified new businesses. Some key points: 1. Section 35AD provides a tax incentive for investments made in certain qualifying new businesses by allowing a deduction for capital expenditures incurred prior to business commencement. 2. The deduction is available if the business is included on the list of specified businesses and meets conditions like being newly set up. 3. The deduction amount depends on the date of business commencement and ranges from 100-150% of capital expenditures. 4. Claiming the deduction has consequences like restricting other deductions and requiring capital expenditures to be added back to profits over time.

    Original Description:

    4

    Original Title

    4_

    Copyright

    © © All Rights Reserved

    Available Formats

    RTF, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses the tax deductions available under Section 35AD of the Income Tax Act for investments made in specified new businesses. Some key points: 1. Section 35AD provides a tax incentive for investments made in certain qualifying new businesses by allowing a deduction for capital expenditures incurred prior to business commencement. 2. The deduction is available if the business is included on the list of specified businesses and meets conditions like being newly set up. 3. The deduction amount depends on the date of business commencement and ranges from 100-150% of capital expenditures. 4. Claiming the deduction has consequences like restricting other deductions and requiring capital expenditures to be added back to profits over time.

    Copyright:

    © All Rights Reserved
    Download as RTF, PDF, TXT or read online from Scribd
    Download as rtf, pdf, or txt
    80 views5 pages

    Deduction in Respect of Expenditure On Specified Business

    Uploaded by

    Mukesh Manwani
    The document discusses the tax deductions available under Section 35AD of the Income Tax Act for investments made in specified new businesses. Some key points: 1. Section 35AD provides a tax incentive for investments made in certain qualifying new businesses by allowing a deduction for capital expenditures incurred prior to business commencement. 2. The deduction is available if the business is included on the list of specified businesses and meets conditions like being newly set up. 3. The deduction amount depends on the date of business commencement and ranges from 100-150% of capital expenditures. 4. Claiming the deduction has consequences like restricting other deductions and requiring capital expenditures to be added back to profits over time.

    Copyright:

    © All Rights Reserved
    Download as RTF, PDF, TXT or read online from Scribd
    Download as rtf, pdf, or txt
    of 5

    Deduction in respect of expenditure on specified business

    Section 35AD has been inserted w.e.f. AY: 2010 -11 to provide for investment- linked tax incentive by
    introducing the concept of allowing deduction for investment made in a new business based on
    investment. The deduction u/s 35AD is available subject to fulfillment of certain conditions which
    are as follows

    1 Deduction under Section 35AD shall be available only if the investment is made in a specified
    business (list of specified business appended below as Annexure-A)

    2 The specified business should be new i.e. the specified business should not be set up by
    splitting up, or the reconstruction of a business already in existence. Moreover, it should not
    be set up by the transfer of old plant and machinery. However, if the value of old plant and
    machinery transferred does not exceed 20% of the total value of plant & machinery used in the
    business the condition shall not be deemed to be violated.
    Further, where any machinery or plant is imported by the assessee from any country outside India
    it shall be treated as good as new machinery (provided the machinery was never used by the
    assessee at any time prior to its installation nor was depreciation claimed by him)

    3 Books of accounts of the assessee should be audited


    Manner of Claiming Deduction

    1 Deduction u/s 35AD is allowed on the Capital Expenditure incurred wholly and exclusively for
    the purpose of specified business if
    ) The expense is incurred prior to commencement of business and
    ) Capitalized in the books of assessee on the date of commencement of operation.

    2 Expenditure

    in capital nature shall not include any expenditure in nature of


    land/goodwill/financial instrument. i.e. deduction U/s 35AD cannot be claimed for the amount
    spend on land, goodwill & financial instrument

    3 The deduction available is 100% or 150% of the Capital Expenditure incurred depending upon the
    date of commencement of business (details provided in Annexure-A)
    Consequences of claiming Deduction under Section 35AD

    1 If deduction is claimed under Section 35AD the assessee shall not be entitled to claim deduction
    under the provisions of Chapter VIA under Section 80HH to 80RRB for the same or other
    assessment years.

    2 All such expenditure in respect of which deduction has been claimed under the Income Tax Act
    shall be added back to the Net Profit

    3 Any sum received by the assessee on account of any Capital asset in respect of which deduction
    u/s 35AD has been claimed shall be treated as the Income of the assessee and chargeable to tax
    under the head Business Profession
    Page 1 of 5

    1 Any loss arising in the specified business shall be available for set off only against the profits
    and gains of any other specified business. Unabsorbed loss if any will be carried forward in the
    following assessment year and so on

    2 If the assessee owns two units one of which qualifies for deduction u/s 35AD and the other one is
    not eligible for the same and there is inter-unit transfer of goods or services between the two units
    then for the purpose of Section 35AD calculation will be made as if such transactions are made at
    market value.
    Revised Return (Sec 139(5))

    1 For the AY 10-11 i.e. for the FY 09-10 the revised return should have been filed before
    31/03/2012.

    2 Similarly for the AY 11-12 the revised return should be filed before 31/03/2013. If, however, the

    assessment is completed before 31 st March, 2013 (say April 15, 2012) then the revised return
    should be filed before 15/03/2012

    Page 2
    of 5

    ANNEXURE-A

    Business for which deduction u/s 35AD is available are

    Sl
    i)

    Particulars

    Setting up and operating cold chain facility. (150%


    deduction)
    ii)
    Setting up and operating a warehousing facility for
    storage of agricultural produce. (150% deduction)
    iii)
    Petroleum oil pipeline
    iv) Building and operating hotel of two stars or above
    category.
    v)
    Building and operating hospital with one hundred bed
    or above (150% deduction)
    vi) Houses under slum redevelopment
    vii) Developing housing project under scheme for
    affordable housing. (150% deduction)
    viii) Production of fertilizer in India (150% deduction)
    ix) Setting up and operating inland container depot.
    x)
    Bee keeping
    xi) Setting up and operating a warehousing facility for
    storage of sugar.

    1*

    Deduction Allowed
    Date of Commencement of
    business on or after
    1/4/2009
    1/4/2012
    100%
    150%
    100%

    150%

    100%
    100%

    100%
    100%

    100%

    150%

    100%
    100%

    100%
    150%

    100%
    -

    150%
    100%
    100%
    100%

    Meaning of Date of Commencement of Business: The Section does not define Date
    of Commencement of Business but the date of commencement of business as is
    normally construed refers to the date of commencement of operations. In other words
    only when the business has established its profit-making structure and started its
    first commercial activity that it can be regarded as having commenced operation.
    Meaning of Cold chain facility: for storage or transportation of agricultural and
    forest produce, meat and meat products, poultry, marine and diary products, products
    of horticulture, floriculture and apiculture and processed food items under
    scientifically controlled conditions including refrigeration and other faculties
    necessary for preservation of such produce.

    Page 3
    of 5

    Illustration:
    Expenses incurred prior to April 1, 2009
    Purchase of land of warehouse
    Construction cost of warehouse
    Purchase of know-how for warehouse
    Salary to staff
    Construction of warehouse
    Purchase of old plant and machinery (from India)
    Purchase of old plant and machinery (from Germany)
    Purchase of new plant and machinery
    Purchase of goodwill

    Rs.
    50,00,000
    8,00,000
    10,00,000
    78,000
    60,00,000
    2,00,000
    4,00,000
    9,00,000
    3,50,000

    These expenses are capitalized on March 31, 2009


    Profit & Loss A/c. 2009-10
    Particulars
    Depreciation of machinery
    Depreciation of building @ 5%
    Cost of know-how (written off)
    Other operating expenses
    Donation to a political party
    Net profit as per companies act

    Amount Particulars
    3,50,000 Revenue
    3,40,000
    10,00,000
    7,51,000
    10,000
    53,49,000
    78,00,000

    Amount
    78,00,000

    78,00,000

    Solution
    Step-1 (Calculation of amount of deduction u/s 35AD)
    Purchase of land of warehouse
    Construction of cost of warehouse
    Purchase of know-how for warehouse
    Salary to staff
    Construction of warehouse
    Purchase of old plant and machinery (from India)
    Purchase of old plant and machinery (from Germany)
    Purchase of new plant and machinery
    Purchase of goodwill
    Total amount admissible for deduction under section 35 AD

    Total

    Nil
    8,00,000
    10,00,000
    78,000
    60,00,000
    2,00,000
    4,00,000
    9,00,000
    Nil
    -----------93,78,000

    Step-2
    Computation of Income as per I Tax Act for the PY 2009 - 10
    Net profit as per P/L A/c. (As per companies act)
    Add
    Depreciation of building disallowed since deduction claimed u/s 35AD
    Depreciation of plant and machinery disallowed since deduction
    claimed u/s 35AD
    Cost of know-how (claimed u/s 35AD so disallowed)
    Less : Deduction u/s 35AD
    Loss from warehouse in accordance with Income tax act

    53,49,000
    3,40,000
    3,50,000
    10,00,000
    93,78,000
    (23,39,000)
    Page 4
    of 5

    Step-3

    BOOK PROFIT

    53,49,000/-

    Tax on Book Profit (@18%+EC+SHE)

    9,91,705/-

    Tax liability
    The tax payable as per the IT Act is the higher of tax computed under the normal provisions and the
    tax computed under MAT. In the given example the tax computed under MAT provisions is higher
    than the tax computed under normal provisions and hence the assessee will be liable to pay tax of Rs.
    9,91,705/-.
    Carry forward of tax paid under MAT
    It must be noted that the extra tax which the company has to pay because of MAT provisions will be
    available for tax credit under Section 115JAA. This credit can be set off against the future tax
    liability of the company in the year in which the tax computed under the normal provisions is more
    than the tax computed under MAT.
    Carry forward of Loss
    It should be noted that the loss so incurred from the business of operating the warehouse (computed

    above) can be carried forward and set off against the income from the businesses specified u/s
    35AD only. In this case, there is no other specified business and hence loss will be carried
    forward (without any time limit) for being set off against income from operating warehouse
    or any other specified business under Section 35AD.

    <><><><><><><>

    Page 5 of 5

    You might also like