Statutory position — s.32AD: the fifteen per cent backward-area investment allowance — four States only, a window that closed on 31 March 2020, and a lock-in that is not the same as s.32AC's
CBDT Circulars & InstructionsCuts both ways
My client set up a manufacturing unit in a notified backward area in Bihar and installed machinery in 2019. Is the section 32AD allowance available, does it have to be a company, and what happens if the machinery is transferred?
Section 32AD was inserted by the Finance Act, 2015 with effect from 1 April 2016 and gives a deduction of fifteen per cent of the actual cost of new assets to an assessee who sets up an undertaking or enterprise for the manufacture or production of any article or thing ON OR AFTER 1 April 2015 in a backward area notified by the Central Government in the State of Andhra Pradesh, Bihar, Telangana or West Bengal, and who acquires and installs new assets for that undertaking in that backward area during the period beginning 1 April 2015 and ending before 1 April 2020. The deduction is given for the assessment year relevant to the previous year in which the new asset is INSTALLED. Two things distinguish it from section 32AC. It is not confined to companies — the words are "an assessee" — and there is no minimum investment threshold at all, so a modest installation qualifies where section 32AC would have required twenty-five or a hundred crore rupees. The window is hard: assets installed on or after 1 April 2020 are outside the section, which means the last assessment year the deduction can arise in is AY 2020-21. Sub-section (2) imposes a five-year lock-in from the date of installation, and its carve-out is wider than section 32AC's: transfers in connection with an amalgamation, a demerger, or a re-organisation of business referred to in clause (xiii), clause (xiiib) or clause (xiv) of section 47 are excluded, and sub-section (3) then passes the clawback to the amalgamated company, the resulting company or the successor.
