28/01/2019

Amortisation of preliminary expenses (Sec. 35D] ( Author - Admin )


Certain preliminary expenses (Sec. 35D(2) incurred by an Indian company or a resident non-corporate assessee before the  commencement of business  qualify for amortisation. The benefit of amortisation is also available if preliminary  expenses are incurred after the commencement of business in connection with extension of an industrial  undertakings(or any undertaking with effect from the assessment year 2009-10) or setting up a new industrial unit (or any unit  with effect from the assessment year 200910). The aggregate amount of the expenditure cannot exceed  percent of the cost of the project [as defined in clause (a) of the Explanation to section 35D(3 ). While the ceiling limit of  percent of the cost of the project applies to all assessees, an Indian company is given an option to elect an alternative limit of  percent of capital employed [as defined in clause (a) 0f the Explanation to section 35D(3)]. One-‘Fifth of the qualifying expenditure is allowable as deduction in each of the five successive years beginning with the year in which the business commences or, as the case may be the previous year in Which extension of the industrial undertaking is completed or the new industrial unit commences production or operation. 

AUDIT REPORT :- In the case of a non-corporate assessee, the amortisation is admissible, subject to the condition that the accounts of assessee for the relevant year in which the qualifying expenditure is incurred, have been audited by a chartered accountant. In such cases, the assessee is required to furnish online, along with the return of income for the first year, in which the deduction is claimed, the audit report in Form No. 3AE. 

CONSEQUENCES IN THE CASE OF AMALGAMATION OR DEMERGER :- The benefit of amortisation of preliminary expenses under section 35D are ordinarily available only to the assessee who incurred the expenditure. The benefit will not, however, be lost in a case where the undertaking of an Indian company which is entitled to the amortisation is transferred to another Indian company in a scheme of amalgamation within the 5year‘ period of amortisation. In that event, the deduction in respect of previous year in which the amalgamation takes place and the following previous year within the 5-year period, will be allowed to the amalgamated company and not to the amalgamating company .

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