Section 35AD

Section 35AD — the law in short

What the courts have decided on section 35AD, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Gstaad Hotels Pvt Ltd v Assistant Commissioner of Income Tax High CourtHelps taxpayerValidity unconfirmed
  My section 35AD deduction was examined and allowed in scrutiny. Four years later the department wants to reopen and treat part of it as revenue expenditure so the loss runs under section 72 for eight years instead of indefinitely under section 73A. Can it?
  Not on these facts. The Bombay High Court quashed the s.148 notice, the two orders disposing of objections and all consequential proceedings, holding that where the original assessment was completed under s.143(3) and the reopening is beyond four years, the first proviso to s.147 requires a failure to disclose fully and truly all material facts, and a bald assertion of such failure without identifying which fact was not disclosed will not do. The Court expressly did not decide whether the expenditure was capital or revenue.
• International Fresh Farm Products (India) Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  CPC has refused to let me carry forward my s.35AD specified-business loss because the return went in late. Can the officer of the loss year decide that at all?
  On this Tribunal's view, no. Carry forward and set off are two separate stages: the officer of the loss year determines and notifies the loss, and it is the officer of the later year, when set-off is actually claimed, who decides whether s.80 read with s.139(3) bars it. The Bench set aside the CIT(A)'s order and directed the AO/CPC to remove the direction denying carry forward, expressly leaving the due-date objection alive for the year of set-off.
• Sarovar Hotels P Ltd v DCIT ITATHelps taxpayerValidity unconfirmed
  We run hotels out of leased buildings and one unit is loss-making. The AO says only a newly constructed hotel is a specified business, so there is nothing to set off under s.73A. Is he right?
  No, on this Tribunal's reading. 'Building and operating' a hotel in s.35AD(8)(c) means creating a facility and operating it, and creating the facility includes occupying an existing building on lease and making suitable modifications to run the hotel - so a leased-building hotel is a specified business and its loss can be set off under s.73A against the profits of another specified business. But a unit where the assessee only manages hospitality services for someone else's institution, without control of the facility, is not a specified business.
• M/s Divya Creation v Pr. CIT — AMT under s.115JC is not attracted where the deduction claimed is under s.10A ITATHelps taxpayerValidity unconfirmed
  The Commissioner has revised my assessment under s.263 saying the Assessing Officer never examined AMT. My only deduction is under s.10A. Does s.115JC even apply to me?
  It does not. Section 115JC(2) is a closed list: adjusted total income is the total income increased only by deductions under Chapter VI-A heading C other than s.80P, by a deduction under s.10AA, and by a deduction under s.35AD net of the notional depreciation. A deduction under s.10A is not in that list, so where that is the only claim the provisions of s.115JC are clearly not applicable and the Assessing Officer was under no duty to enquire into them.
• ACIT v River View Hotels — s.35AD is not lost because the star classification came after the year of commencement ITATHelps taxpayerValidity unconfirmed
  My hotel started operating in the year and I claimed the s.35AD deduction, but the three-star certificate was issued two years later. The Assessing Officer has withdrawn the deduction. Can he?
  No, on this decision. The Ahmedabad Bench held that clause (iv)(c) of s.35AD(8) requires the building and operating of a hotel of two-star or above category as classified by the Central Government, and prescribes no time limit for obtaining the star classification certificate. Where the assessee applied in due time, the department inspected and the certificate was issued, the deduction on the capital expenditure could not be withdrawn and the Revenue's appeal was dismissed.
• Statutory position — section 80AC and section 115JC: a late return destroys the section 80LA claim, and AMT still bites at nine per cent CBDT Circulars & InstructionsCuts both ways
  We missed the section 139(1) due date by a week and the IFSC unit's whole income is covered by section 80LA. Is the deduction still available, and does alternate minimum tax apply on top?
  On the first question, no. Section 80AC provides that for an assessment year commencing on or after 1 April 2018, where any deduction is admissible under any provision of Chapter VI-A under the heading 'C.—Deductions in respect of certain incomes', no such deduction shall be allowed unless the assessee furnishes a return of his income for that assessment year on or before the due date specified under section 139(1). Section 80LA sits in that Part of Chapter VI-A, so a return filed even a day late costs the whole deduction. On the second, alternate minimum tax under section 115JC does apply to a person other than a company, and section 115JC(2)(i) adds back deductions claimed under any section in that same Part C — but section 115JC(4)(i) substitutes nine per cent for eighteen and one-half per cent where the person is a unit located in an International Financial Services Centre deriving its income solely in convertible foreign exchange.

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.