Section 32AD

Section 32AD — the law in short

What the courts have decided on section 32AD, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• ACIT v Lahari Holiday Homes (P) Ltd — the s.115BAA option can be exercised in a revised return, and the MAT credit then goes ITATHelps taxpayer
  We filed the original return under MAT claiming MAT credit, then filed a revised return within the due date opting for s.115BAA. The Assessing Officer says that is a prohibited withdrawal of the option. Is it, and what happens to the MAT credit and our brought-forward losses?
  It is not a withdrawal. A revised return under s.139(5) substitutes the original return and assumes the character of a return under s.139(1), so an option exercised for the first time in a revised return filed within the due date is a valid first exercise — there was no earlier exercise capable of being withdrawn. But once the concessional regime is allowed, no MAT credit can be claimed for that year; and s.115BAA(2) bars set-off only of losses attributable to the deductions it specifies, not of ordinary brought-forward business and capital losses.
• 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.
• Statutory position — s.32AC: the fifteen per cent investment allowance for new plant and machinery — two different windows, two different thresholds, and a five-year lock-in that survives the allowance CBDT Circulars & InstructionsCuts both ways
  A company client has been told it can claim a fifteen per cent investment allowance on new plant. Which years does section 32AC actually cover, what is the investment threshold, and what happens if the plant is sold?
  Section 32AC is a spent provision and its two limbs cover different years on different thresholds. Sub-section (1), inserted by the Finance Act, 2013 with effect from 1 April 2014, applies only to a COMPANY engaged in the business of manufacture or production of any article or thing which acquires AND installs new assets after 31 March 2013 but before 1 April 2015 with an aggregate actual cost exceeding one hundred crore rupees; it gives fifteen per cent for AY 2014-15 on assets acquired and installed after 31 March 2013 but before 1 April 2014, and fifteen per cent for AY 2015-16 on assets acquired and installed after 31 March 2013 but before 1 April 2015, reduced by whatever was allowed for AY 2014-15. Sub-section (1A), inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, lowers the entry price: fifteen per cent where the actual cost of new assets acquired during a previous year exceeds twenty-five crore rupees and those assets are installed on or before 31 March 2017. Sub-section (1B), inserted by the same Act from the same date, kills sub-section (1A) for any assessment year commencing on or after 1 April 2018. So the whole section reaches AY 2014-15 to AY 2017-18 and no further. Whatever is allowed carries a five-year lock-in under sub-section (2): if the new asset is sold or otherwise transferred within five years of the date of INSTALLATION, otherwise than in an amalgamation or demerger, the deduction is deemed to be business income of the year of transfer, "in addition to taxability of gains, arising on account of transfer of such new asset".

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.