Section - 35AD - Disallowance of
depreciation under section 32 and capital expenditure under section 35AD on
Actual cost of asset in case of
withdrawal of deduction in terms of Sub-section (7B) of section 35AD.
The existing provisions of
Section 35AD of the Act, inter alia provides for investment linked deduction on
amount of capital expenditure incurred, wholly or exclusively, the purposes of
business, during the previous year for a specified business excluding capital
expenditure incurred for acquisition of any land or goodwill or financial
instrument. Further sub-section (7B) of Section 35AD provides that where any
asset on which benefit of section 35AD is claimed and allowed, is used for a
purpose other than specified business, the benefit of deduction already granted
under section 35AD shall be deemed to be the income of the assessee. However,
it further provides that the deemed income shall be net of normal depreciation
as would be entitled.
Clause (1) of section 43 defines
"actual cost" for the purposes of claiming depreciation under section
32 of the Act in certain situations. However, there is no clarity on
determination of actual cost for the purposes of allowance of depreciation of
such assets in respect of which the deduction which is already allowed in a
previous year under section 35AD of the Act, is withdrawn in terms of
sub-section (7B) of the said section.
It is proposed to amend the
provisions of the section 43 of the Act, to provide that where any capital
asset in respect of which deduction allowed under section 35AD is deemed to be
the income of the assessee in accordance with the provisions of sub-section
(7B) of the said section, the actual cost to the assessee shall be the actual
cost to the assessee, as reduced by an amount equal to the amount of
depreciation calculated at the rate in force that would have been allowable had
the asset been used for the purposes of business since the date of its acquisition.
The amendment will be effective
from 1st April 2018.