BAC & Co. is a partnership firm, which sets up a new industrial unit in Noida. It incurs following expenditure in connection with the new unit: S. No. Particulars Amount (₹) (i) Preparation of project report 3,00,000

Qualifying Amount for Deduction u/s 35D: In case of firm, preliminary expenditure is restricted to 5% of cost of project. Further, no deduction shall be admissible unless the accounts of the assessee for the year or years in which the expenditure specified is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, before the specified date referred to in section 44AB and the assessee furnishes for the first year in which the deduction under this section is claimed, the report of such audit by that date in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. Hence, eligible preliminary expenditure is ₹2,00,000 (being 5% of ₹40,00,000) or actual Expenditure incurred i.e. ₹9,00,000 whichever is lower. Hence, eligible preliminary expenditure is ₹2,00,000 Quantum of Deduction u/s 35D: Further, eligible preliminary expenditure is deducted in five equal instalments, beginning with the previous year of commencement of business or the previous year in which the extension of undertaking is completed or the new unit commences production or operation. Therefore, deduction u/s 35D in respect of preliminary expenditure for the A.Y.2023-24 is ₹40,000 (being 1/5th of ₹2,00,000)