Section 35AD was inserted by the Finance (No. 2) Act, 2009, with effect from 01.04.2010 i.e. from assessment year 2010-11. Section 35AD of the Act extends investment linked incentives to taxpayers with respect to the capital expenditure incurred for setting up and operation of specified businesses. Further, once investment linked incentive for the capital expenditure is availed under this Section, no benefit shall be allowed in respect of such specified business under Chapter VIA (Deductions in respect of certain incomes) and Section 10AA of the Act.
Text of Section 35AD
Deduction in respect of expenditure on specified
business.
35AD. (1) An assessee shall,
if he optsbe allowed a deduction in respect of the whole of any expenditure of
capital nature incurred, 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 :
PROVIDED that the expenditure
incurred, wholly and exclusively, for the purposes of any specified business,
shall be allowed as deduction during the previous year in which he commences
operations of his specified business, if—
(a) the expenditure is incurred prior to the
commencement of its operations; and
(b) the amount is capitalised in the books of account
of the assessee on the date of commencement of its operations.
(1A) [Omitted by the Finance Act, 2016, with effect
from 01.04.2018]
(2) This section applies to the specified business
which fulfils all the following conditions, namely :—
(i) it is not set up by
splitting up, or the reconstruction, of a business already in existence;
(ii) it is not set up by
the transfer to the specified business of machinery or plant previously used
for any purpose;
(iii) where the business
is of the nature referred to in sub-clause (iii) of clause (c) of sub-section
(8), such business,—
(a) is owned by a
company formed and registered in India under the Companies Act, 1956 (1 of
1956) or by a consortium of such companies or by an authority or a board or a
corporation established or constituted under any Central or State Act;
(b) has been approved by
the Petroleum and Natural Gas Regulatory Board established under sub-section
(1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006
(19 of 2006) and notified by the Central Government in the Official Gazette in
this behalf;
(c) has made not less
than such proportion of its total pipeline capacity as specified by regulations
made by the Petroleum and Natural Gas Regulatory Board established under sub-section
(1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006
(19 of 2006) available for use on common carrier basis by any person other than
the assessee or an associated person; and
(d) fulfils any other condition as
may be prescribed;
(iv) where the business
is of the nature referred to in sub-clause (xiv) of clause (c) of sub-section
(8), such business,—
(A) is owned by a
company registered in India or by a consortium of such companies or by an
authority or a board or corporation or any other body established or constituted
under any Central or State Act;
(B) entity referred to
in sub-clause (A) has entered into an agreement with the Central Government or
a State Government or a local authority or any other statutory body for
developing or operating and maintaining or developing, operating and
maintaining, a new infrastructure facility.
(3) Where a deduction under this
section is claimed and allowed in respect of the specified business for any
assessment year, no deduction shall be allowed under the provisions of section
10AA and Chapter VI-A under the heading “C.—
Deductions in respect of certain incomes” in relation to such specified
business for the same or any other assessment year.
(4) No deduction in respect of the
expenditure referred to in sub-section (1) shall be allowed to the assessee
under any other section in any previous year, if the deduction has been claimed
or opted by the assessee and allowed to him under this sectionor under this
section in any other previous year.
(5) The provisions of this section shall apply to the
specified business referred to in sub-section (2) if it commences its
operations,—
(a) on or after the 1st
day of April, 2007, where the specified business is in the nature of laying and
operating a cross-country natural gas pipeline network for distribution,
including storage facilities being an integral part of such network;
(aa) on or after the 1st
day of April, 2010, where the specified business is in the nature of building
and operating a new hotel of two-star or above category as classified by the
Central Government;
(ab) on or after the 1st day of
April, 2010, where the specified business is in the nature of building and
operating a new hospital with at least one hundred beds for patients;
(ac) on or after the 1st
day of April, 2010, where the specified business is in the nature of developing
and building a housing project under a scheme for slum redevelopment or
rehabilitation framed by the 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;
(ad) on or after the 1st
day of April, 2011, where the specified business is in the nature of developing
and building a housing project under a scheme for affordable housing framed by
the Central Government or a State Government, as the case may be, and notified
by the Board in this behalf in accordance with the guidelines as may be prescribed;
(ae) on or after the 1st
day of April, 2011, in a new plant or in a newly installed capacity in an
existing plant for production of fertilizer;
(af) on or after the 1st
day of April, 2012, where the specified business is in the nature of setting up
and operating an inland container depot or a container freight station notified
or approved under the Customs Act, 1962 (52 of 1962);
(ag) on or after the 1st
day of April, 2012, where the specified business is in the nature of
bee-keeping and production of honey and beeswax;
(ah) on or after the 1st day of April, 2012,
where the specified business is in the nature of setting up and operating a
warehousing facility for storage of sugar;
(ai) on or after the 1st day of
April, 2014, where the specified business is in the nature of laying and
operating a slurry pipeline for the transportation of iron ore;
(aj) on or after the 1st
day of April, 2014, where the specified business is in the nature of setting up
and operating a semi-conductor wafer fabrication manufacturing unit, and which
is notified by the Board in accordance with such guidelines as may be
prescribed;
(ak) on or after the 1st day of
April, 2017, where the specified business is in the nature of developing or
operating and maintaining or developing, operating and maintaining, any
infrastructure facility; And
(b) on or after the 1st day of
April, 2009, in all other cases not falling under any of the above clauses.
(6) The assessee carrying on the
business of the nature referred to in clause (a) of sub-section (5) shall be
allowed, in addition to deduction under sub-section (1), a further deduction in
the previous year relevant to the assessment year beginning on the 1st day of
April, 2010, of an amount in respect of expenditure of capital nature incurred
during any earlier previous year, if—
(a) the business referred
to in clause (a) of sub-section (5) has commenced its operation at any time
during the period beginning on or after the 1st day of April, 2007 and ending
on the 31st day of March, 2009; and
(b) no deduction for
such amount has been allowed or is allowable to the assessee in any earlier
previous year.
(6A) Where the assessee builds a
hotel of two-star or above category as classified by the Central Government and
subsequently, while continuing to own the hotel, transfers the operation
thereof to another person, the assessee shall be deemed to be carrying on the
specified business referred to in sub-clause (iv) of clause (c) of sub-section (8).
(7) The provisions contained in
sub-section (6) of section 80A and the provisions of sub-sections (7) and (10)
of section 80-IA shall, so far as may be, apply to this section in respect of
goods or services or assets held for the purposes of the specified business.
(7A) Any asset in respect of which
a deduction is claimed and allowed under this section shall be used only for
the specified business, for a period of eight years beginning with the previous
year in which such asset is acquired or constructed.
(7B) Where any asset, in respect of
which a deduction is claimed and allowed under this section, is used for a
purpose other than the specified business during the period specified in
sub-section (7A), otherwise than by way of a mode referred to in clause (vii)
of section 28, the total amount of deduction so claimed and allowed in one or
more previous years, as reduced by the amount of depreciation allowable in
accordance with the provisions of section 32, as if no deduction under this
section was allowed, shall be deemed to be the income of the assessee chargeable
under the head “Profits and gains of business or profession” of the previous
year in which the asset is so used.
(7C) Nothing contained in
sub-section (7B) shall apply to a company which has become a sick industrial
company under sub-section (1) of section 17 of the Sick Industrial Companies
(Special Provisions) Act, 1985 (1 of 1986), during the period specified in
sub-section (7A).
(8) For the purposes of this section,—
(a) an “associated person”, in relation to the
assessee, means a person,—
(i) who participates, directly or indirectly,
or through one or more intermediaries in the management or control or capital of
the assessee;
(ii) who holds, directly or indirectly, shares
carrying not less than twenty-six per cent of the voting power in the capital of
the assessee;
(iii) who appoints more
than half of the Board of directors or members of the governing board, or one
or more executive directors or executive members of the governing board of the assessee;
or
(iv) who guarantees not
less than ten per cent of the total borrowings of the assessee;
(b) “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 apiculture and processed food items under
scientifically controlled conditions including refrigeration and other
facilities necessary for the preservation of such produce;
(ba) “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;
(c) “specified business” means any one or more of the
following business, namely :—
(i) setting up and operating a cold chain
facility;
(ii) setting up and operating a warehousing
facility for storage of agricultural produce;
(iii) 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;
(iv) building and operating, anywhere in India,
a hotel of twostar or above category as classified by the Central Government;
(v) building and operating, anywhere in India,
a hospital with at least one hundred beds for patients;
(vi) developing and building a housing project
under a scheme for slum redevelopment or rehabilitation framed by the Central
Government or a State Government, as the case may be, and notified by the Board
in this behalf in accordance with the guidelines as may be prescribed;
(vii) developing and building a housing project
under a scheme for affordable housing framed by the Central Government or a
State Government, as the case may be, and notified by the Board in this behalf
in accordance with the guidelines as may be prescribed;
(viii) production of fertilizer in
India;
(ix) setting up and
operating an inland container depot or a container freight station notified or
approved under the Customs Act, 1962 (52 of 1962);
(x) bee-keeping and production of honey and
beeswax;
(xi) setting up and operating a warehousing
facility for storage of sugar;
(xii) laying and operating a slurry pipeline for
the transportation of iron ore;
(xiii) setting up and operating a semi-conductor
wafer fabrication manufacturing unit notified by the Board in accordance with such
guidelines as may be prescribed;
(xiv) developing or
maintaining and operating or developing, maintaining and operating a new
infrastructure facility;
(d) any machinery or plant which
was used outside India by any person other than the assessee shall not be
regarded as machinery or plant previously used for any purpose, if—
(i) such machinery or plant was not, at any time
prior to the date of the installation by the assessee, used in India;
(ii) such machinery or plant is imported into
India from any country outside India; and
(iii) no deduction on
account of depreciation in respect of such machinery or plant has been allowed
or is allowable under the provisions of this Act in computing the total income
of any person for any period prior to the date of installation of the machinery
or plant by the assessee;
(e) where in the case of
a specified business, any machinery or plant or any part thereof previously
used for any purpose is transferred to the specified business and the total
value of the machinery or plant or part so transferred does not exceed twenty
per cent of the total value of the machinery or plant used in such business,
then, for the purposes of clause (ii) of sub-section (2), the condition
specified therein shall be deemed to have been complied with;
(f) any expenditure of
capital nature shall not include 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 drawn on a bank or an account payee bank draft or use
of electronic clearing system through a bank account or through such other
electronic mode as may be prescribed, exceeds ten thousand rupees or any expenditure
incurred on the acquisition of any land or goodwill or financial instrument.
Nature of expenditure
Capital expenditure excludes
expenditure on acquisition on land/ goodwill/financial instrument/any payment
or aggregate of payment made in a day by a mode other than by a/c payee
cheque/draft/electronic mode exceeding Rs. 10,000.
Eligible assessee
All
assessee
Deduction under section 35AD - Conditions to be
satisfied [Section 35AD(2)]
Deduction
under section 35AD shall be available if following conditions are satisfied :
(i) A unit is owned by:
|
Cross-country
oil pipeline |
Other
Business |
|
An
Indian company or by a consortium of such companies or by an authority or a
board or a corporation established or constituted under any Central/State Act
|
Any
assessee |
(ii) Date of commencement of business
|
Cross-country
oil pipeline |
Other
Business |
|
On
or after 01.04.2007 |
On
or after date given in Key Note below : |
NOTE
Date
of commencement of business (on or after)
|
Warehousing
facility
for storage
of agricultural
produce
01.04.2009
|
Hotel
01.04.2010
|
Slum
redevelop- ment
01.04.2010 |
Fertilizer
01.04.2011
|
Inland
container depot
01.04.2012 |
Warehousing
facility for storage of Sugar 01.04.2012
|
|
Hospital
01.04.2010
|
Affordable
housing
01.04.2011
|
Cold
chain facility
01.04.2009
|
Bee-keeping
01.04.2012
|
||
|
Slurry pipeline for transportation of iron-ore 01.04.2014 |
semi-conductor
wafer fabrication
manufacturing unit 01.04.2014 |
Infrastructure
facility
01.04.2017
|
|||
(iii) Restriction on usage
|
Cross-country
oil pipeline |
Other
Business |
|
It
has made not less than such proportion of its total pipeline capacity as
specified by the Petroleum and Natural Gas Regulatory Board available for use
on common carrier basis by any person other than the assessee or an
associated person# |
No
Restriction |
(iv) Unit of the specified business should be a new
one
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.
(v) New Plant Machinery
Such business should not be set up
by the transfer to the specified business of machinery or plant previously used
for any purpose.
20 per cent old machinery is permitted
If the value of the transferred
assets does not exceed 20 per cent of the total value of the machinery or plant
used in the business, this condition is deemed to have been satisfied.
Second-hand imported machinery is treated as new
Any machinery or plant which was used outside India by
any person (other than the assessee) shall not be regarded as machinery or
plant previously used for any purpose, if the following conditions are
fulfilled—
(i) Such machinery or plant was not, at any time
previous to the date of the installation by the assessee, used in India.
(ii) Such machinery or plant is imported into India
from any country outside India.
(iii) No deduction on account of
depreciation in respect of such machinery or plant has been allowed or is
allowable under the Act in computing the total income of any person for any
period prior to the date of the installation of the machinery or plant by the assessee.
(vi) Books of the assessee are audited
Books
of account of the assessee should be audited by a Chartered Accountant.
(vii) Approved by the
Petroleum and Natural Gas Regulatory Board
Such
business has been approved by the Petroleum and Natural Gas Regulatory
Board established under sub-section (1) of section 3 of the Petroleum and
Natural Gas Regulatory Board Act, 2006 (19 of 2006) and notified by the Central
Government in the Official Gazette in this behalf;
(viii) When a prescribed
business is operating and managing the current infrastructure facility,
developing/operating, and maintaining/developing it:
(i)
The
company must be created and registered in India.
(ii)
It
must have signed a contract to operate and manage, develop/operate, and
maintain the current infrastructure with any statutory body/local
authority/state or federal government.
Quantum of Deduction
100% of capital expenditure
incurred for the purpose of business is allowed as deduction provided specified
businesses commence operations on or after the prescribed dates.
|
S. No. |
Nature of specified business |
Deduction upto Assessment year
2017-18 |
Deduction from Assessment year
2018-19 |
|
(i) |
Setting up and operating cold chain facility for
specified products [Section 35AD(8)(C)(i)] |
150% |
100% |
|
(ii) |
Setting up and operating a ware-housing facility for
storage of agricultural produce [Section 35AD(8)(C)(ii)] |
150% |
100% |
|
(iii) |
Building and operating a hospital with atleast 100
beds for patients anywhere in India [Section 35AD(8)(C)(v)] |
150% |
100% |
|
(iv) |
Developing and
building a housing project under a scheme for affordable housing framed by
the Central Government or a State Government and notified by the Board in
this behalf as per prescribed guidelines (w.e.f. Assessment Year 2012-13) |
150% |
100% |
|
(v) |
Production of
fertilizer in India (w.e.f. Assessment Year 2012-13) [Section
35AD(8)(C)(viii)] |
150% |
100% |
|
(vi) |
Developing and
building a housing project for slum redevelopment or rehabilitation scheme
framed by Central or a State Government and notified by Board as per guidance
as may be prescribed |
100% |
100% |
|
(vii) |
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 |
100% |
100% |
|
(viii) |
Building and operating hotel of two stars or above
category anywhere in India |
100% |
100% |
|
(ix) |
Setting up and
operating an inland container depot or a container freight station notified
or approved under the Customs Act, 1962 on or after 01.04.2012 |
100% |
100% |
|
(x) |
Bee keeping and production of honey and bees wax on
or after 01.04.2012 |
100% |
100% |
|
(xi) |
Setting up and operating a ware-housing facility for
storage of sugar on or after 01.04.2012 |
100% |
100% |
|
(xii) |
Laying and operating slurry pipeline for the
transportation of iron ore |
100% |
100% |
|
(xiii) |
Setting up and operating semi-conductor wafer
fabrication manufacturing unit |
100% |
100% |
|
(xiv) |
Developing/maintaining and perating/developing, maintaining and
operating a new infrastructure facility with effect from Assessment Year
2018-19 |
100% |
100% |
Capital Expenditure shall not include the following:
(a) Any expenditure
incurred on the acquisition of any land or goodwill or financial instrument is
not eligible for any deduction under section 35AD.
(b) Deduction under
section 35AD is not available (with effect from the assessment year 2018-19)
pertaining to any expenditure in respect of which payment (or aggregate of
payments) made to a person in a day otherwise than by an account payee
cheque/draft/ use of electronic clearing system through a bank accountor
through such other electronic mode as may be prescribed exceeds Rs. 10,000. [Section
35AD(8)(f)]
Exceptions
(i)
Not considered as capital expenditure:
Capital
expenditure does not include any expenditure incurred on the acquisition of any
land or goodwill or financial instrument.
(ii)
Pre-commencement expenditure:
Where the expenditure is incurred
prior to the commencement of its operations which has been capitalised in the
books of account of the assessee on the date of commencement of its operations,
shall be allowed as deduction in the previous year in which the assessee
commences such business.
No Double Deduction
If
deduction is claimed and allowed under section 35AD, the assessee shall not be
allowed any deduction in respect of the specified business under the provisions
of Chapter VIA under section 10AA or 80 HH to 80RRB for the same or any other
assessment year.
Sale of asset for which deduction has been claimed
under section 35AD to be treated as business income (Treatment of Realisation)
If any asset, in respect of which
deduction has been allowed under section 35AD, is sold, destroyed, demolished,
discarded etc. the amount received or receivable (in cash or kind) on its sale,
disposal, etc. shall be treated as income of the assessee under the head
‘income from business/profession’.
Restriction of use of the asset (i.e. Assets cannot be
used for other purposes for 8 years)
Any asset in respect of which a
deduction is claimed and allowed under this section shall be used only for the
specified business, for a period of 8 years beginning with the previous year in
which such asset is acquired or constructed. In other words, the assets, the
cost of which has been claimed as deduction under section 35AD, must be used
for the specified business for a period of at least 8 years.
Consequences of usage of asset otherwise than for
specified purpose
If such asset is used for any
purpose other than the specified business within the period of 8 years, the
following amount shall be deemed to be the income of the assessee under the
head ‘Income from business/profession’ for the previous year in which the asset
has been so used.
|
(i) |
Total deduction allowed under section 35AD |
XXX |
|
(ii) |
Less : Amount of depreciation
allowable under section 32 |
XXX |
|
(iii) |
Amount deemed as income under the head PGBP |
XXX |
EXAMPLE:
Deduction claimed under section
35AD on a capital asset is Rs. 100 lakhs whereas depreciation eligible on such
asset under section 32 is Rs. 15 lakhs. In this case, an amount of Rs. 85 lakhs
would be deemed as the income of the assessee under the head 'Income from
business/profession'.
However, this provision will not
apply to a company which has become a sick industrial company under section
17(1) of the Sick Industrial Companies (Special Provisions) Act within the time
period of 8 years as stated above.
Set-off & carry-forward of losses of a specified
business covered under section 35AD [Section 73A]
Any loss computed in respect of the
specified business shall not be set off except against profits and gains, if
any, of any other specified business. To the extent the loss is unabsorbed, the
same will be carried forward for set off against profits and gains from any
specified business in the following assessment year and so on (no timelimit for
carry forward of such loss).
(a) Intra-Head Adjustment: Losses
of a business specified under section 35AD are allowed to be set-off only
against the income of another business specified under section 35AD.
(b) Inter-Head Adjustment: Losses
of a business specified under section 35AD cannot be set-off against income
under any other head.
(c) Carry Forward of
Losses: Unadjusted losses of a business specified under section 35AD are
allowed to be carried forward indefinitely for being set-off against the income
of a business specified under section 35AD in future years.
Transfer of operation
Where the assessee builds a hotel
of two-star or above category as classified by the Central Government and
subsequently, while continuing to own the hotel, transfers the operation
thereof to another person, the assessee shall be deemed to be carrying on the
specified business.
Inter-unit transfer
Where—
(i)
Assessee carries on at least two units
(ii)
Out of such units at least one is eligible under section 35AD and at least one
is not eligible for exemption
(iii)
Goods or services are transferred from eligible unit to any non eligible unit
or vice versa
(iv)
The consideration for such transfer does not correspond to the market value of
such goods as on the date of transfer then, deduction shall be computed as if
the transfer, in either case, had been made at the market value of such goods
or services as on that date.
MARKET
VALUE IN RELATION TO ANY GOODS OR SERVICES
|
Case
|
Market
value means |
|
Sold
or supplied |
The price that such goods or services would fetch if
these were sold by the unit in the open market, subject to statutory or
regulatory restrictions, if any. |
|
Acquired
|
The price that such goods or services would cost if
these were acquired by the unit from the open market, subject to statutory or
regulatory restrictions, if any. |
Provisions
of section 35AD do not specify that assessee has to construct entire
building by itself or own building and land - Lessee entitled for Section
35AD deduction though lessor constructed basic civil structure of building
Assessee
engaged in business of running hotels and resorts filed its return of income
claiming deduction under section 35AD on ground that it had incurred
expenditure towards construction of new Five Star Hotel. On scrutiny
assessment, Assessing Officer disallowed claim of deduction under section 35AD
on ground that assessee did not build hotel building and had been operating
same on leasehold land and building and intention of section 35AD is to promote
fresh investment but not to accommodate old investments and give tax benefits. Commissioner
(Appeals) confirmed disallowance. However, it was found that provisions of
section 35AD do not specify that assessee has to construct entire building by
itself or own building and land. Provisions only specify that specified
business should be in nature of building and operating a new hotel of 2 star or
above category as classified by Central Government. From lease deed produced by
assessee it was apparent that assessee was also required to spend considerable
amount for constructing a portion of building such as interior civil works,
plumbing works, electrical works and other civil work relating to erecting
equipments, elevators, firefighting equipment, etc. Therefore, it could not be
said that assessee had not participated in constructing building, though basic
civil structure was constructed by lessor. Therefore, where entire investment made by
assessee was for constructing a portion of building and for operating a new
hotel of category specified under Act, assessee would be entitled for benefit
of deduction under section 35AD and accordingly, Assessing Officer was to be
directed to grant deduction to assessee under provisions of section 35AD. [In
favour of assessee] (Related Assessment year : 2012-13) - [Taj GVK Hotels
& Resorts Ltd. v. ACIT, Hyderabad (2022) 193 ITD 104 : 135 taxmann.com 81 (ITAT
Hyderabad)]
Loss
incurred by assessee in respect of its business unit claiming deduction under
section 35AD could be set-off against profit of assessee from another unit
which was not eligible for deduction under said section
As
per the clarification note on Finance Bill 2011, the clarification note state
as below:—
‘Under
section 73A, any loss of a “specified business” (under section 35AD) is allowed
set off against profit and gains of any other “specified business”. In order to
remove any ambiguity in this regard in respect of the business of hotels and
hospitals/it is proposed to remove the word “new” from the definition of “specified
business” in the case of hotels and hospitals under section 35AD(8)(c). With
this, the loss of an assessee on account of a “specified business” claiming
deduction under section 35AD would be allowed to be set off against the profit
of another “specified business” under section 73A, whether or not the latter is
eligible for deduction under section 35AD. Therefore, an assessee who currently
operates a hospital or a hotel would be able to set off the profits of such
business against the losses, if any, of a new hospital or new hotel which
begins to operate after 1st April, 2010 and which is eligible for deduction of
expenditure under section 35AD. This amendment will take effect retrospectively
from 1st April, 2011 and will, accordingly, apply in relation to the assessment
year 2011-12 and subsequent years.’
From
the above, it is clear that the loss of assessee on account of a specified
business claiming deduction under section 35AD would be allowed to set of
against the profit of another specified business. Under section 73A, whether or
not the later is eligible for deduction under section 35AD.
Therefore, by the above clarification, it is clear that assessee can claim set
off against the profit from specified business units of Mumbai and Indore. We
notice from the record that assessee has acknowledged that it is not claiming
deduction under section 35AD only. But we came to conclusion that assessee is
not claiming deduction under section 35AD as well as surrendering the set-off under
section 73A. From the records placed before us, we direct Assessing Officer to
allow the assessee to claim set off against the profit earned from units Mumbai
and Indore against the carry forward losses of Chandigarh units, as per the
amended provision and clarification note given for Finance Bill 2011.
Accordingly, MA filed for both the Assessment years are allowed. [In favour of
assessee] (Related Assessment years : 2011-12 and 2012-13) – [Sarovar Hotels
(P) Ltd. v. DCIT (2021) 188 ITD 498 : 126 taxmann.com 177 (ITAT Mumbai)]
Once the conditions of section 35AD are fulfilled, the
section, per se, not requiring any specific date of operation, the deduction
thereunder cannot be disallowed.
Facts:
Assessee is aggrieved by the order of CIT (A) in not granting deduction claimed
by the assessee Company under section 35AD.
Held,
that provisions of section 35AD contain conditions which require to be
satisfied before the assessee becomes entitled to deduction. These conditions
are that the expenditure should have been incurred prior to the commencement of
the operation; that the amount should be capitalized in the books of account on
the date of commencement of the operations; that the unit is not set up by
splitting up, or the reconstruction of a business already in existence; and
that the unit is not set up by the transfer, to the specified business, of
machinery or plant previously used for any purpose. The last two conditions
have not been challenged as being relevant to the dispute under consideration.
The “specified business” has also not been disputed to be that of building and
operating a new hotel of a two-star or above category, in keeping with the
provisions of section 35AD(5)(aa). Then, the incurrence of expenditure for the
construction of The Gateway Hotel by the assessee has also not been disputed as
having been done prior to the commencement of the operations of the business.
Further, neither of the authorities below has made out that the amount was not
capitalized in the books of account of the assessee. It is, thus, seen that
none of the conditions of provisions of section 35AD has been violated at the
hands of the assessee and hence, deduction allowed to assessee. Therefore,
disallowance of deduction claimed under section 35AD as upheld by Commissioner
(Appeals) was to be deleted. [In favour of assessee] (Related Assessment year :
2015-16) – [Benares Hotels Ltd. v. DCIT (2020) 181 ITD 486 : 115 taxmann.com
39 (ITAT Varanasi)]
Certification of Hotel as three-Star Category Hotel in
subsequent year-Deduction under section 35AD cannot be denied on the ground
that Certification was in later year
Assessing
Officer rejected assessee’s claim for deduction under section 35AD(5)(aa) on
ground that assessee had obtained classification as a three star category hotel
only during next assessment year, in view of fact that revenue had not disputed
operation of new hotel from relevant financial year and, moreover, assessee had
filed application for classification of hotel in three star category in
assessment year in question itself, impugned order passed by Assessing Officer
was to be set aside
For
relevant year assessee filed its return claiming deduction under section 35AD(5)(aa).
Assessing Officer, while completing assessment under section 143(3), denied
benefit on ground that assessee had obtained classification as a three star
category hotel only during next assessment year. Tribunal noted that revenue
had not disputed operation of new hotel from relevant financial year 2010-11,
as it had accepted income which was offered to tax. It was also found that
assessee had filed application for classification of hotel in three star
category in assessment year in question itself and, thereupon, manner in which
inspection was conducted and time frame taken by Competent Authority were all
beyond control of assessee. Tribunal thus taking a view that holistic
interpretation of provisions of section 35AD was to be made, allowed assessee’s
claim. Since revenue failed to controvert aforesaid findings of fact, impugned
order passed by Tribunal did not require any interference. [In favour of
assessee] (Related Assessment year : 2011-12) – [CIT v. Ceebros Hotels (P)
Ltd. (2018) 409 ITR 423 : (2019) 261 Taxman 41 : 101 taxmann.com 173 (Mad.)]
Once
assessee, engaged in hotel business, was granted certification for
categorization of its hotel as three star hotel, entire capital expenditure
incurred by assessee in respect of its hotel was to be allowed for deduction
under section 35AD
For
availing benefit of a three star hotel under section 35AD, what is not relevant
is date of certification for classification as two or more star hotel but
existence of classification as two or more star hotel; therefore, once assessee
engaged in hotel business, was granted certification for categorization of its
hotel as three star hotel, entire capital expenditure incurred by assessee in
respect of its hotel was to be allowed for deduction under section 35AD. [In favour
of assessee] (Related Assessment year : 2012-13) – [ACIT v. River View
Hotels (2018) 171 ITD 404 : 94 taxmann.com 433 (ITAT Ahmedabad)]
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