Budget 2020-21 + FINANCE BILL, 2020

Providing an option to the assessee for not availing deduction under section 35AD.

Section 35AD of the Act, relating to deduction in respect of expenditure on specified business, provides for 100 per cent. deduction on capital expenditure (other than expenditure on land, goodwill and financial assets) incurred by the assessee on certain specified businesses. Under sub-section (1) of section 35AD, the said deduction of 100 per cent. of the capital expenditure is allowable during the previous year in which such expenditure has been incurred. Further, sub-section (4) provides that no deduction is allowable under any other section in respect to the expenditure referred to in sub-section (1). At present, an assessee does not have any option of not availing the incentive under said section.

Due to this, a legal interpretation can be made that a domestic company opting for concessional tax rate under section 115BAA or section 115BAB of the Act, which does not claim deduction under section 35AD, would also be denied normal depreciation under section 32 due to operation of sub-section (4) of section 35AD. This has not been the intention of the statute.

Therefore, it is proposed to amend sub-section (1) of section 35AD to make the deduction thereunder optional. It is further proposed to amend sub-section (4) of section 35AD to provide that no deduction will be allowed in respect of expenditure incurred under sub-section (1) in any other section in any previous year or under this section in any other previous year, if the deduction has been claimed by the assessee and allowed to him under this section.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

[Clause 18]

 

 

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Budget 2020-21 + FINANCE BILL, 2020

Optional 35AD deduction safeguards right to claim depreciation where assessee forgoes the investment allowance under amended rules. The amendment makes the 100% capital expenditure deduction under section 35AD optional and restricts the sub section (4) non allowance rule so that other deductions, including normal depreciation, are disallowed only if the section 35AD deduction has been claimed and allowed; the change applies prospectively to the assessment year beginning 1 April 2020.