According to officials, taking advantage of the section, various multi-locational and multi-product companies are claiming expenditure incurred in setting new factories as revenue expenditure even before the manufacturing is started.
By this, the huge expense incurred in setting up plant and machinery gets deducted under revenue expenditure of other group activities and to that extent profit from other operations gets subdued, thereby resulting in a lower profit or accounted income.
According to officials, these expenses would ideally have been treated as capital expenditure and apportioned over a period of time to claim deduction. This is one of the sections which is frequently taken advantage of through various judicial interpretations.
According to the said section, interest paid on capital borrowed for the purpose of business or profession is allowable as deduction. To this effect, the section does not make any distinction between interest paid on capital utilised in acquiring a capital asset or a revenue asset.
An amendment has also been proposed to Section 35 (AB), whereby a lump sum consideration paid by the tax payer for acquiring knowhow for business purpose is allowed as deduction by spreading it equally over six years namely, the year in which the lump sum consideration is paid and the five immediately succeeding years.
Officials are of the view that this has been a safe haven for various corporates to park their funds with any institute supposed to be engaged in scientific research or industrial information or technique. According to these officials, along with discontinuing with the deduction of any amount, the scheme of offering certificates for such institutions also should be made more stringent.
Besides, in order to make tax regulations more transparent, the department has also sought amendment to Section 80-IA, whereby deduction is admissible if an industrial undertaking which is beginning manufacturing, is brought into use on or after April 1, 1991. In such cases, in order to avoid double deduction, it is also required that such undertakings do not avail deduction under sections, 80 HH, 80 HHA and 80-I is not available.