Section 35AD(4) — the law in short
What the courts have decided on section 35AD(4), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Statutory position — s.35AD(3) and (4): claim s.35AD and you lose s.10AA and every Chapter VI-A 'C' deduction for that business, for that year and every other year
CBDT Circulars & InstructionsCuts both ways
We claimed section 35AD on a hotel and also want a Chapter VI-A deduction on the profits of the same hotel in a later year. The Assessing Officer says we cannot have both. Is that right, and does it affect only the year of the section 35AD claim?
The Assessing Officer is right, and the bar is wider than most people expect. Section 35AD(3) provides that where a deduction under section 35AD is claimed AND ALLOWED in respect of a specified business for any assessment year, no deduction shall be allowed under section 10AA or under Chapter VI-A under the heading "C.—Deductions in respect of certain incomes" in relation to that specified business "for the same or any other assessment year". So one year's section 35AD claim closes off the profit-linked deductions for that business permanently, not merely for that year. Section 35AD(4) is the companion rule and works on the expenditure rather than the profits: no deduction of the expenditure referred to in sub-section (1) is allowed under any other section in any previous year, or under section 35AD itself in any other previous year, if the deduction has been claimed or opted by the assessee and allowed under section 35AD. Section 35AD(3) did not always include section 10AA — those words were added by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, so for AY 2014-15 and earlier the bar reached only Chapter VI-A heading C; and the words "or opted" in sub-section (4) came in with the Finance Act, 2020 (Act 12 of 2020) with effect from 1 April 2020, when the deduction itself became optional.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
