Section 35AD of ITA, 1961 : Section 35Ad: Deduction In Respect Of Expenditure On Specified Business

Explanation using Example

Imagine a company, GreenTech Innovations Pvt. Ltd., which specializes in creating eco-friendly technology solutions. They decide to set up and operate a cold chain facility to reduce food wastage by preserving agricultural produce. The entire project involves significant capital expenditure, including the construction of the facility and the purchase of specialized refrigeration equipment.

Under Section 35AD of the Income-tax Act, 1961, GreenTech Innovations Pvt. Ltd. can claim a deduction for the entire capital expenditure incurred in setting up this cold chain facility. This deduction is allowed in the same financial year in which the expense was incurred, provided the facility is not set up by splitting or reconstructing an existing business, the machinery used is new and not transferred from a previous business, and the facility starts its operations on or after the specified date mentioned in the Act.

After the deduction is claimed, GreenTech Innovations Pvt. Ltd. cannot claim further deductions for this expenditure under any other section of the Income-tax Act for the same year or any other year. Moreover, if they claim this deduction, they are also not eligible for certain other deductions like those under section 10AA and Chapter VIA for this business.

If GreenTech Innovations Pvt. Ltd. later decides to use any of the assets purchased for this cold chain facility for a purpose other than the specified business within eight years, they would have to treat the amount of deduction previously claimed as income in the year the asset is used for the other purpose.