Deduction in respect of expenditure on Specified Business - Section 35AD - Income Tax - Ready Reckoner - Income Tax

Deduction in respect of expenditure on Specified Business - Section 35AD 100% deduction of capital expenditure is ALLOWED in case of SPECIFIED BUSINESS No. Date of commencement of business on or after Specified business Who should own the business Approval (if any) 1. April 1, 2012 Setting up and operating a cold chain facility [See Note 1] Any Person Not required 2. April 1, 2012 Setting up and operating a warehousing facility for storage of agricultural produce Any Person Not required 3 April 1, 2007 Laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network. [Earlier this business was eligible for deduction u/s 80-IA(4)(vi) ] An Indian company or a consortium of Indian companies or an authority/Board/corporation established under any Central or State Act. Should be approved by Petroleum and Natural Gas Regulatory Board and notified by Central Government 4. On or after April 1, 2012 Building and operating, anywhere in India, any hospital with at least 100 beds for patients (applicable from assessment year 2011-2012) Any Person No approval required 5. On or after April 1, 2012 Developing and building a housing project (applicable from the assessment year 2012-2013) Any Person Developing and building the housing projects should be under a scheme for affordable housing framed by the Central Government or a State Government and notified by the board 6. On or after April 1, 2012 Production of fertilizer in India ( applicable from the assessment year 2012-2013) Any Person Not required Important Note:- The above deduction of 150% shall be restricted to 100% of Capital expenditure w.e.f. 1-4-2018. Any expenditure of capital nature shall not include expenditure for acquisition of land or goodwill or financial instruments. Note 1. cold chain facility . Cold chain facility means a chain of facilities for storage or transportation of agricultural and forest produce, meat and meat products, poultry, marine and dairy products, products of horticulture, floriculture and agriculture and processed food items under scientifically controlled conditions including refrigeration and other facility necessary for the preservation of such produce. 100% DEDUCTION AVAILABLE TO ASSESSEES CARRYING ON SPECIFIED BUSINESS No. Date of commencement of business Specified business Who should own the business Approval (if any) 1. On or after April 1, 2007 in the case of laying and operating a cross-country natural gas pipeline network for distribution or storage. In other cases on or after April 1, 2009 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 An Indian Company or a consortium of Indian companies or an authority/Board / Corporation established under any Central or State Act Should be approved by Petroleum and Natural Gas Regulatory Board and notified by the Central Government 2. On or after April 1, 2010 Building and operating, anywhere in India, a hotel of 2 star or above category (applicable from the assessment year 2011-12) Any Person No approval required; however, hotel should be classified by the Central Government as 2 star hotel or above category 3. On or after April 1, 2010 Developing and building a housing project (applicable from the assessment year 2011-2012) Any Person Developing and building the housing projects should be under a scheme for slum re-development or rehabilitation framed by the Central Government/State Government and notified by the Board in accordance with prescribed guidelines 4. On or after April 1, 2012 Setting up and operating an inland container depot or a container freight station Any Person As notified or approved under the Customs Act 5. On or after April 1, 2012 Bee-keeping and production of honey and beeswax Any Person No approval 6. On or after April 1, 2012 Setting up and operating aware-housing facility for storage of sugar Any Person No approval 7. On or after April 1, 2014 Laying and operating a slurry pipeline for the transportation of iron ore Any Person No approval 8. On or after April 1, 2014 Setting up and operating a semi-conductor wafer fabrication manufacturing unit Any Person As notified by the Board in accordance with such guidelines as may be prescribed. 9. On or after April 1, 2017 (inserted by FA, 2016, w.e.f. 1-4-2018) Developing or operating and maintaining or developing operating and maintaining any infrastructure facility Any Person No approval Note: 1. infrastructure facility means- (i) a road including toll road, a bridge or a rail system; (ii) a highway project including housing or other activities being an integral part of the highway project; (iii) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (iv) a port, airport, inland waterway, inland port or navigational channel in the sea Capital expenditure eligible for deduction For Specified Business 100% Deduction shall be allowed in respect of any expenditure of capital nature incurred after the commencement of business wholly and exclusively for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him. Revenue Expenditure will also be allowed as 100% deduction. For Specified Business essential for Indian Economy 150% Deduction shall be allowed in respect of any expenditure of capital nature incurred after the commencement of business wholly and exclusively for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him. Therefore, capital expenditure incurred after the commencement of specified business is allowed as deduction to the extent of 150% of such expenditure, in the year in which such expenditure is incurred. 100% of Capital expenditure w.e.f 1-4-2018 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 before the commencement of business wholly and exclusively, for the purposes of any specified business, shall be allowed as deduction to the extent of 100% of such expenditure, during the previous year in which he commences operations of his specified business if: The expenditure is incurred prior to the commencement of its operations and The amount is capitalized in the books of account of the assessee on the date of commencement of its operations. For specified business essential for Indian economy Expenditure incurred before the commencement of business wholly and exclusively, for the purposes of any specified business essential for Indian Economy, shall be allowed as deduction to the extent of 150% of such expenditure, during the previous year in which he commences operations of his specified business if: The expenditure is incurred prior to the commencement of its operations and The amount is capitalized in the books of account of the assessee on the date of commencement of its operations. Key Note: 1. Where the assessee builds a hotel of two star or above category as classified by the Central Govt. and subsequently, while continuing to own the hotel, transfers the operations thereof to another person, the assessee shall be deemed to be carrying on the specified business. Conditions for claiming deductions: New Plant Machinery. Exceptions: i. Imported old Plant Machinery ii. 20% of total Plant Machinery can be old. Not formed by splitting or reconstruction of business already in existence. Assessee in business of laying cross country pipelines should make available for use on common carrier basis: i. 1/3 rd of total pipeline capacity for a natural gas pipeline network ii. 1/4 th of total pipeline capacity for petroleum product pipeline. Deduction u/s 80-IA to 80RRB and section 10AA shall not be allowed under Section 35AD . However, deductions under section 80C , 80D , 80E , 80G , 80TTA , 80U etc. shall be allowed. Capital expenditure which is allowed as deduction under section 35AD is not eligible for depreciation. Loss of specified business of section 35AD can be set off in current year and future years only against the profits of any specified business referred to in section 35AD . Loss of specified business referred in section 35AD carried forward indefinitely. If asset on which section 35AD is allowed is sold/ destroyed, then the entire sale price / insurance compensation taxable as PGBP. No capital gains shall arise even if sale price/ insurance compensation exceeds the cost of assets. If asset on which section 35AD is claimed to be sold in slump sale, then for computing net worth under section 50B , its cost shall be taken as NIL. If asset on which deduction under section 35AD is claimed is transferred under circumstances referred to in Section 47 , its actual cost to transferee shall be taken as NIL. Notes: Normal Depreciation and additional depreciation (in case of manufacture of fertilizers) shall be deducted. Depreciation shall be deducted from the previous year the asset was purchased and put to use to the Previous year in which asset is put to use for any purpose other than specified business. Nothing shall be added to WDV of block of assets in case the asset is used for a business other than specified business. The amendments shall not apply to a company which has become a sick company under SICA. Disallowance of Capital expenditure section 35AD on cash payment (inserted by FA 2017, w.e.f. 1-4-2018):- Any expenditure in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or any banking channel through a bank account, exceeds 10,000/-, then such expenditure shall be disallowed. Note: For the words bank account , the words bank account or through such other electronic mode as may be prescribed shall be substituted with effect from the 1st day of April, 2020. [Substituted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-04-2020 before it was read as bank account ]. Other Relevant Information- Leasing of Godown for Non-Agriculture purpose - Assessee has leased out 1 of the godown for Skimmed milk storage, Skimmed milk does not amount to agriculture produce thus, such leased out godown is disallowed for the purpose of deduction under section 35AD - The DCIT, B.K. Circle, Palanpur Versus Rushay Commodities Pvt. Ltd. 2023 (4) TMI 87 - ITAT Ahmedabad .