Amortisation of certain Preliminary Expenses - Section 35D - Income Tax - Ready Reckoner - Income Tax

Amortisation of certain Preliminary Expenses - Section 35D Eligible Assessee : Indian company or any non-corporate assessee resident in India Eligible Deductions: If preliminary expenses are incurred (i) before the commencement of his business, or (ii) after the commencement of business in connection with extension of an undertaking or setting up a new unit. Amount Period of Deduction: From 01.04.1998:- 1/5th of qualifying expenditure for each of the 5 successive years beginning with the previous year of commencement or extension of business or the new unit commences production or operation as the case may be. Upto 31.03.1998:- 1/10th of qualifying expenditure for each of the 10 successive years beginning with the previous year of commencement or extension of business or the new unit commences production or operation as the case may be. [ Section 35D(5) ] Qualifying expenditure: From 01.04.1998 For an Indian Company 5% of cost of project or 5% of capital employed whichever is higher For all other assessee 5% of cost of project The excess shall be ignored for the purpose of computing deduction allowable u/s 35D . Upto 31.03.1998 For an Indian Company 2.5% of cost of project or 2.5% of capital employed whichever is higher For all other assessee 2.5% of cost of project The excess shall be ignored for the purpose of computing deduction allowable u/s 35D . Meaning of Cost of Project It means actual cost of fixed assets as on the last day of the year in which the business commences. In case of extension of business or setting up a new unit the fixed assets only in relation to such extension or new unit is taken as cost of project. Meaning of Capital Employed It means aggregate of the Issued share capital, debentures and long term borrowing as on the last day of the year in which the business commences. In case of extension of business or setting up a new unit, capital only in relation to such extension or new unit is taken as Capital employed. Expenditure eligible for deduction: Expenditure in connection with- i. preparation of feasibility report and project report ii. conducting market survey or any other survey necessary for the business of the assessee iii. engineering services relating to the business of the assessee iv. legal charges for drafting agreement v. legal charges for drafting the Memorandum and Articles of Association of the company vi. printing of the Memorandum and Articles of Association; vi. legal fees for registering the company vii. expenses on public issue of shares and debentures, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus. [ Section 35(2) ] w.e.f. 01.04.2024 The assessee shall furnish a statement in Form No. 3AF for expenditure specified in this clause (a) of Section 35D(2) (i.e. above i, ii, iii ), such form shall be furnished one month prior to the due date for furnishing the return of income as specified under section 139(1) . [ Proviso of section 35(2) read with Rule 6ABBA ] If deduction is claimed under this section, then deduction is not allowed for such expenditure under any other provision of this Act for the same or any other assessment year. [ Section 35D(6) ] Compulsory Audit of accounts:- Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible unless the accounts of the assessee for the year or years in which the expenditure is incurred have been audited by an Chartered accountant the audit report in Form No. 3AE shall be furnished for the First year in which deduction u/s 35D is claimed. Form no. 3AE is to be submitted electronically. due date is as follow:- form the A.Y. 2020-21:- One month prior to the due date of return of income upto the A.Y. 2019-20:- On or before the due date of submission of return of income [ Section 35D(4) ] Unamortized expenses in case of a Amalgamation or Demerger In the event, the deduction in respect of previous year in which the amalgamation or demerger takes place and the following previous year within the 5 year, will be allowed to the amalgamation company or resulting company and not to the amalgamating or demerged company [ Section 35(5A) ] Expenditure for raising capital for raising Capital/Loan is deductible under section 35D or 37(1) Different Expenses Incurred by a new concern before commencement of business Incurred by an existing concern after commencement of business Expenditure on issue of Bonus Share Section 35D Section 37(1) Expenditure on issue of share (Not Being Bonus share) Section 35D Section 35D Expenditure on issue of debenture Section 35D Section 37(1) Other Relevant Points - 1. Any expenses incurred for increase in Capital Base for the requirement of working capital is revenue expenses. DCIT, Circle-2 (1) , Hyderabad Versus M/S. KSK Energy Ventures Limited, Hyderabad 2022 (7) TMI 692 - ITAT Hyderabad . 2. Sum standing to credit of reserve and surplus account cannot be considered as part of issue of share capital. JCIT , SPL. RANGE 7. Vs Sirhind Steel Ltd. 2005 (9) TMI 218 - ITAT Ahmedabad-D. 3. Premium collected by an assessee company on subscribed share capital is not capital employed in business company within the meaning of section 35D. M/S Berger Paints India Ltd. Vs. C.I.T., Delhi 2017 (3) TMI 1531 - SC.