Section 35D of the Income Tax Act
Income-tax Act, 2025: s.44
Section 35D of the Income-tax Act, 1961 corresponds to section 44 (Amortisation of certain preliminary expenses) of the Income-tax Act, 2025.
Read section 44 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 35D is CIT v. Dalmia Cement (Bharat) Ltd. (254 ITR 377), cited in 417 of the 595 judgments on BharatTax that turn on this section.
Leading authorities on Section 35D
When there is a nexus between an expenditure and the purpose of business, incurred on grounds of commercial expediency, the Revenue cannot question its reasonableness or assume the role of the businessman to compel profit maximization. This principle applies even if the business is not that of the assessee itself.
The mere lawful reorganization of a business transaction does not automatically imply an intent to evade tax, and genuine business adjustments should not be considered suppressive actions without clear evidence of such intent.
Expenditure is deductible in the year it is determined and crystallised as a liability, even if it relates to a transaction of an earlier year, provided accounts are maintained on a mercantile basis.
Expenditure that provides a commercial advantage of an enduring nature may still be classified as revenue expenditure if its purpose is to facilitate existing trading operations, improve business efficiency, or upgrade existing products, depending on the specific context and objective.
Expenditure incurred for increasing a company's share capital or expanding its capital base, such as expenses related to the issue of shares, constitutes capital expenditure. Such expenses are not deductible as revenue expenditure under Section 37(1) of the Income-tax Act, 1961, even if they incidentally benefit the business.
If unabsorbed depreciation or losses from years prior to the initial assessment year for Section 80-IA claim have already been set off against other income, they cannot be notionally carried forward again to reduce the profits of the eligible unit for computing deduction under Section 80-IA. The notional carry forward provision under Section 80-IA(5) applies only to unabsorbed depreciation or losses that have not yet been absorbed.
Excise duty collected by the assessee as an agent on behalf of the government is not includible in the total turnover for the purpose of computing deduction under section 80HHC.
Expenditure incurred for increasing a company's share capital, such as expenses related to issuing shares or an initial public offering (IPO), is capital expenditure. Such expenses are not allowable as a revenue deduction under Section 37, even if they incidentally benefit the business, because they result in an increase in capital.
The Income Tax Appellate Tribunal is not required to repeat its reasons when it fully agrees with the conclusions of the lower appellate authority and has no further grounds to add, even as the final fact-finding body.
Interest expenditure cannot be disallowed under Section 36(1)(iii) for interest-free advances made to subsidiaries or group companies if the advances are from owned funds or are justified by commercial expediency.
