Section 35D-Amortization of market research expense as preliminary expenses

Bare perusal of the provisions contained under section 35D invoked by the assessing officer to amortize expenses incurred on market research goes to prove that the expenses must be incurred before commencement of the business or after commencement of the business but where there is an extension of undertaking or setting up of a new unit. In the instant case, assessing officer has not made out any case if the assessee has incurred the expenses after the commencement of business in connection with the extension of his undertaking or in connection with its setting up a new unit. Moreover, marketing survey are conducted by the company on ad hoc basis / on day-to-day basis to achieve the target/to enhance sale and no enduring benefit in any manner used to be there.

To invoke the provisions contained under section 35D, such expenses are required to be incurred before the commencement of the business or after the commencement of the business in connection with extension of undertaking or in connection with its setting up of a new unit, both these conditions are not fulfilled. So, we are of the considered view that the expenses to the tune of Rs. 52,05,586 cannot be amortized by invoking the provisions contained under section 35D

Full Text of the ITAT Order is as follows:-

The appellant, Income Tax Officer, Ward 2(4), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 30-6-2014, passed by the Commissioner (Appeals)-V, New Delhi under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) qua the assessment year 2010-11 on the ground that :–

“On the facts and in the circumstances of the case, the learned Commissioner (Appeals) erred in holding that the expenses incurred on market research were revenue expenses and not to be amortized under section 35D(2)(a)(iii) as held by assessing officer, though the same were incurred in connection with extension of its undertaking as per the details submitted by the assessee during the assessment proceeding.”

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