The Tax Publishers2013 TaxPub(DT) 1473 (Bang-Trib) : (2013) 142 ITD 0225

INCOME TAX ACT, 1961

--Business deduction under section 35D--Amortization of preliminary expenses Professional fees paid for acquisition of land to set up hospitals--Assessee had incurred certain expenses towards professional fees paid to various advocates and law firms for acquisition of land to set up hospitals and claimed same as preliminary expenses under section 35D. Assessing officer disallowed same on ground that it was not in nature of feasibility report or market surveys. These were not allowable as preliminary expenses under section 35D. Commissioner (Appeals), however, allowed assessee's appeal. Held: Rightly so. Since expenses were incurred in connection with expansion of business being one-fifth of expenditure as preliminary expenditure would be allowed.

As per the scheme of deduction laid out under section 35D, the concerned expenditure to be eligible for deduction should qualify the alternate condition stipulated in section 35D(1) and should be one of the items of expenditure specified in section 35D(2). In the present case, evidently the expenses have been incurred after the commencement of business and therefore in order to qualify for deduction under section 35D, the expenses have to be incurred in connection with the extension of the undertaking or in connection with the setting up of a new unit. As can be seen from the detailed break-up of the expenditure in question at pages 4 to 7 of the order of assessment, these expenses are, essentially towards payment of professional fees related to acquisition of land for setting up of hospitals. As the assessee is already in the business of running hospitals, the expenditure related to setting up of new hospitals are ostensibly only for expansion of the existing business of the assessee. Therefore, the condition stipulated in section 35D(1) is satisfied. Further, since the expenditure in question are mainly professional fees paid to advocates and legal firms, which are related to the expansion of the assessee's existing business of running hospitals, the condition stipulated in section 35D(2) is also satisfied. In this view of the matter, this Tribunal concurs with the finding of the Commissioner (Appeals) that the expenditure in question qualifies for deduction under section 35D and therefore directs the assessing officer that this expenditure amounting to Rs. 93,36,039 be allowed as a deduction equally over a period of five years as provided under section 35D. [Para 6M]

Income Tax Act, 1961 Section 35D

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