Where an assessee, being an Indian company or a person (other than a company) who is resident in India, is engaged in any operation relating to prospecting for, extraction or production of any mineral and incurs, after 31st. day of March 1970, any expenditure specified below, the assessee shall, in accordance with and subject to the provisions of this section, be allowed for each of the relevant previous years a deduction of an amount equal to one-tenth (1/10) of the amount of such expenditure.
This expenditure refers to the expenditure incurred on the prospecting for any mineral (specified in schedule VII of the LT. Act) or on the development of mines or other natural deposits of any such mineral; but does not include;
(i) Expenses incurred on the acquisition of the site of the source of any mineral or group of associated minerals in question;
(ii) Expenses incurred on the acquisition of the deposits of the minerals referred to above;
(iii) Expenses of capital nature incurred in respect of any building, machinery, plant or furniture (such assets on which depreciation is allowed under section 32).
The expenditure on which deduction is to be allowed should have been incurred after 31st March 1970 and at any time during the year commercial production is started and any one or more of the four years immediately preceding that year.
If, in any year, the profits are insufficient to absorb the full amount of the instalment, the amount of the instalment up to available profits will be allowed and the balance will be carried forward and added in next previous year’s instalment and so on for succeeding previous year, but no part of any instalment can be carried forward beyond the tenth previous year.
In arriving at the amount of expenditure, the amount met by any third party, and any sale, salvage compensation of insurance moneys received by the assessee, are to be deducted from the expenditure.
In case of non-corporate assessees deduction under section 35D and 35E will be allowed only if the accounts of the concern are duly audited by a Chartered Accountant or a person eligible under Companies Act.