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7. Sec. 35D : Amortisatin Of Certain Preliminary Expenses

Section 35D provides that for the amortisation of certain preliminary expenses incurred after 31-3-1998 by an Indian company or a resident assessee other than a company before the commencement of his business or after the commencement of the business, in connection with the extension of his industrial undertaking or the setting up of a new industrial unit, 1/5th (one-fifth) of such expenditure will be allowed as deduction in each of the 5 successive years beginning from the year of commencement of business or in the case of an existing industrial undertaking from the year in which extension of such undertaking is completed or the year in which the new industrial unit, set-up by such undertaking, commences production or operation [Section 35D(1)].

Where the aggregate amount of the expenditure, incurred after 31 .3.1998 exceeds 5% of the cost of the project or where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess will be ignored for the purpose of computing the deduction allowable. [Section 35D(3)J.

For expenditure incurred upto 31.3.1998, the amortisation shall be made @10% in each of the ten successive years. Similarly the expenditure in excess of the 2.5% of the cost of project or the capital employed as the case may be, shall be ignored the compution of deduction.

Where the assessee is a non-corporate assessee, no deduction will be admissible u/s 35D(1), unless the accounts of the assessee for the relevant year in which the expenditure is incurred, have been audited by a chartered accountant. The assessee is also required to furnish, alongwith the return of income for the first year, in which the deduction is claimed, the audit report in Form No. 3B.

Where a deduction under this section is allowed for any assessment year in respect of any expenditure, no deduction shall be allowed in respect of such expenditure under any other provisions of this Act for thesame or any other assessment year. The Finance Act, 1999 had laid down the provisions for a case of demerger applicable w.e.f. A.Y. 2000-2001. Henceforth, where the undertaking of an Indian company which is entitled to the deduction under section 35D(1) is transferred, before the expiry of the period specified in sub-section (1), to another company in a scheme of demerger,

(i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the demerger takes place; and

(ii) the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger had not taken place.

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