Rule 38 — Conditions for notification of agricultural extension projects under section 47(1)(a). Made under s.47, s.263, s.515 of the Income-tax Act, 2025.
Rule 38 gives effect to Section 47, Section 263 and Section 515 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) requires an assessee undertaking an agricultural extension project notified under section 47(1)(a) to maintain separate books of account for the project and to get them audited by an accountant as defined in section 515(3)(b).
Sub-rule (2) fixes what the audit report must contain: the auditor's comments on the true and fair view of the books maintained for the project, on the genuineness of the activities of the project, and on fulfilment of the conditions specified in the relevant provisions of the Act, the rules, or a notification issued under rule 37.
Sub-rule (3) bars the assessee from accepting from a beneficiary, for training, education, guidance or any material distributed for such training, education or guidance, an amount exceeding the amount approved in the notification. Sub-rule (4) bars the assessee from deriving any direct or indirect benefit from the notified project except the deduction of eligible expenditure under section 47(1)(a), rule 37 and this rule.
Sub-rule (5) computes the eligible expenditure: all expenses incurred wholly and exclusively for undertaking an eligible project, reduced by the amount received from the beneficiary, the cost of any land or building, and any expenditure on the project that is reimbursed or reimbursable to the assessee by any person, directly or indirectly.
Sub-rule (6) requires the assessee, on or before the due date for furnishing the return of income under section 263(1), to furnish to the Commissioner of Income-tax having jurisdiction over it three things: the audited statement of accounts of the project for the tax year with the audit report and the amount of deduction claimed under section 47(1)(a); a note on the project undertaken during the tax year, the programme to be undertaken during the current year and the financial allocation for that programme; and a certificate from the Ministry of Agriculture and Farmers Welfare, Government of India, on the genuineness of the project undertaken during the tax year.
Sub-rule (7) lists five findings that let the Commissioner act — no separate books or no audit under sub-rule (1), non-furnishing of the sub-rule (6) documents, cessation of the project's activities, activities not genuine, or activities not carried out in accordance with the Act, the rules or the conditions of the rule 37 notification. On any of these, he may, after making appropriate inquiries, furnish a report on those circumstances to the Board for appropriate action under rule 37(11).
Section 47(1)(a) allows a deduction for expenditure on a notified agricultural extension project but does not say how the expenditure is to be isolated, verified or policed once the notification is granted. This rule does all three: it separates the project's accounts and puts an accountant on them, it strips out receipts and capital and reimbursed costs so that only the assessee's own net outlay is deducted, and it gives the Commissioner an annual document set and a route back to the Board where the project has stopped being what it was notified as.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Last date for furnishing the accounts, note and Ministry certificate to the Commissioner | On or before the due date of furnishing the return of income under section 263(1) | The rule points to the section 263(1) due date rather than stating a date of its own | Sub-rule (6) |
| Ceiling on what may be accepted from a beneficiary | The amount approved in the notification | For training, education, guidance, or any material distributed for such training, education or guidance; the rule states a limit by reference to the notification and does not itself set a sum | Sub-rule (3) |
The deduction is net, not gross. Sub-rule (5) takes the wholly and exclusively incurred project expenses and subtracts beneficiary receipts, the cost of any land or building, and anything reimbursed or reimbursable — so the capital cost of a training centre is never eligible, and a grant that reimburses expenditure removes it from the claim even if the reimbursement is received later or indirectly. The compliance date is the section 263(1) return due date, and the document set is delivered to the Commissioner, not filed with the return. The Commissioner's power under sub-rule (7) is to report to the Board, not to withdraw the notification himself; withdrawal, if it comes, comes through rule 37(11). Note also that the ceiling on beneficiary charges in sub-rule (3) is whatever the notification approved — the rule states no figure of its own.
A company runs a notified agricultural extension project and incurs Rs. 80 lakh on it in the tax year, of which Rs. 20 lakh is the cost of a building, Rs. 5 lakh is recovered from beneficiaries as training charges within the notified limit, and Rs. 10 lakh is reimbursed by a state agency. Under sub-rule (5) the eligible expenditure is Rs. 45 lakh, being Rs. 80 lakh less the building cost, the beneficiary receipts and the reimbursement. On or before the section 263(1) due date it furnishes to its Commissioner the audited project accounts and audit report showing that figure, the note on the programme, and the Ministry of Agriculture and Farmers Welfare certificate.
An assessee meets this rule each year in the separate project audit and in the document set delivered to the jurisdictional Commissioner by the return due date, and meets it again if the Commissioner opens inquiries under sub-rule (7) before reporting to the Board.
The assessee shall not derive any direct or indirect benefit from the notified project except for the deduction of eligible expenditure in accordance with section 47(1)(a), rule 37 and this rule.
The expenses, eligible for deduction under section 47(1)(a), shall be all expenses incurred wholly and exclusively for undertaking an eligible project as reduced by