• Jun 06, 24
• bhushanbjain
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Section 32AC of the Income Tax Act, 1961 (ITA) provides for an investment allowance to manufacturing companies that invest in new plant and machinery. The deduction is available for the assessment year relevant to the previous year in which the investment is made.

The investment allowance is a one-time deduction of 15% of the actual cost of new plant and machinery acquired and installed by the company unde income tax act. The deduction is available for investments made in new plant and machinery that are used for the manufacture or production of any article or thing.

The investment allowance is subject to certain conditions, such asunder income tax act:

• The company must be a manufacturing company under income tax act.
• The new plant and machinery must be acquired and installed after March 31, 2013under income tax act.
• The aggregate amount of actual cost of the new plant and machinery must exceed Rs.100 crore for the assessment year 2014-15 and Rs.25 crore for subsequent assessment years under income tax act.
• The new plant and machinery must be used for the manufacture or production of any article or thing under income tax act.
• The new plant and machinery must not be sold or transferred within a period of five years from the date of installation under income tax act.

If the new plant and machinery is sold or transferred within a period of five years from the date of installation, the deduction allowed under section 32ACunder income tax act will be deemed to be the income chargeable to tax under the head “Profits and gains of business or profession” of the previous year in which such new plant and machinery is sold or transferred.

EXAMPLES FOR [SEC.32AC]

Section 32AC of the Income Tax Act, 1961 (ITA) provides for an investment allowance of 15% of the actual cost of new plant and machinery acquired and installed by an assesses for the purpose of his business or profession. This allowance is available to all assesses, irrespective of their location.

However, there are certain specific states where the investment allowance is enhanced to 20%. These states are:

• Andhra Pradesh
• Bihar
• Telangana
• West Bengal

The investment allowance under Section 32AC under income tax act is available for the following types of plant and machinery:

• Plant and machinery used for the manufacture or production of any article or thing under income tax act.
• Plant and machinery used for generation or distribution of electricity .under income tax act
• Plant and machinery used for mining or quarrying operations under income tax act.
• Plant and machinery used for the treatment or processing of any waste or effluent under income tax act.
• Plant and machinery used for the generation of solar or wind power under income tax act.

The investment allowance is available for a period of five years from the date of installation of the plant and machinery under income tax act.

To claim the investment allowance under Section 32AC under income tax act, the assesses must submit a claim along with the relevant documents to the tax authorities. The documents required to be submitted include:

• A copy of the invoice or bill of sale for the plant and machinery under income tax act.
• A certificate from a chartered accountant or engineer, certifying the actual cost of the plant and machinery under income tax act.
• A certificate from the assessing officer, confirming that the plant and machinery has been installed for the purpose of the assessor’s business or profession under income tax act.

The investment allowance under Section 32AC is a valuable tax incentive for businesses that invest in new plant and machinery. It can help to reduce the upfront cost of investment and make it more affordable for businesses to expand and grow under income tax act.

Here are some examples of how Section 32AC under income tax act can be applied in specific states:

• An assesses in Andhra Pradesh who invests INR 100 crore in new plant and machinery for his manufacturing business will be eligible for an investment allowance of INR 15 crore

An assesses in Bihar who invests INR 50 crore in new plant and machinery for his power generation business will be eligible for an investment allowance of INR 10 crore.

• An assesses in Telangana who invests INR 25 crore in new plant and machinery for his mining business will be eligible for an investment allowance of INR 5 crore.
• An assesses in West Bengal who invests INR 75 crore in new plant and machinery for his waste treatment business will be eligible for an investment allowance of INR 15 crore.

FAQ QUESTIONS OF [ SEC. 32AC]

1. What is Section 32ACunder income tax act?

Section 32AC of the Income Tax Act, 1961, is a provision that allows a deduction for expenditure incurred on research and development activities.

• Who can claim deduction under Section 32ACunder income tax act?

Any assesses, being an individual, Hindu undivided family, company, or association of persons, can claim a deduction under Section 32ACunder income tax act.

• What are the eligible activities for deduction under Section 32ACunder income tax act?

The following activities are eligible for deduction under Section 32ACunder income tax act:

• Research and development activities in relation to any new or improved product or process.
• Research and development activities in relation to any new or improved material or equipment.
• Research and development activities in relation to any new or improved method of production.
• Research and development activities in relation to any new or improved system of management.
• What are the limits on deduction under Section 32ACunder income tax act?

The deduction under Section 32ACunder income tax act is limited to 150% of the actual expenditure incurred on research and development activities.

• What are the documentation requirements for claiming deduction under Section 32ACunder income tax act?

The assesses must maintain the following documentation in order to claim deduction under Section 32ACunder income tax act:

• A research and development register.
• Details of the research and development activities undertaken.
• Evidence of expenditure incurred on research and development activities.
• A certificate from a qualified person, certifying that the activities undertaken are research and development activities.
• What are the penalties for non-compliance with Section 32ACunder income tax act?

If an assesses fails to comply with the provisions of Section 32ACunder income tax act, the deduction under this section will be disallowed. The assesses may also be liable to pay penalty under Section 271(1)(c) of the Income Tax Act, 1961.

CASE LAWS FOR SEC [32.AC]

• Bosch Limited vs. Commissioner of Income Tax, LTU, Bangalore (2022): In this case, the assesses, a limited company engaged in the business of manufacture and sale of automotive components, claimed investment allowance under Section 32ACunder income tax act for the assessment year 2014-15. The assesses had acquired some of the plant and machinery before 1st April, 2013, but installed them during the financial year 2013-14. The Assessing Officer (AO) denied the deduction, holding that the investment allowance is only available for plant and machinery that is acquired and installed in the same financial year. However, the Tax Appellate Tribunal (TAT) allowed the deduction, holding that the objective of Section 32ACunder income tax act is to encourage investment in new plant and machinery, and that the fact that some of the plant and machinery was acquired before 1st April, 2013, should not be a bar to the deduction.
• Hyundai Motor India Ltd vs. Commissioner of Income Tax, Madurai (2019): In this case, the assesses, a company engaged in the business of manufacturing motor vehicles, claimed investment allowance under Section 32AC for the assessment year 2014-15. The assesses had acquired some of the plant and machinery before 1st April, 2013, and kept it in capital work-in-progress (CWIP) till it was installed during the financial year 2013-14. The AO denied the deduction, holding that the investment allowance is only available for plant and machinery that is installed in the same financial year in which it is acquired. However, the High Court of Madras allowed the deduction, holding that the plain language of Section 32ACunder income tax act does not make any distinction between plant and machinery that is acquired and installed in the same financial year, and plant and machinery that is acquired in one financial year and installed in the next financial year.
• TVS Motor Company Ltd vs Commissioner of Income Tax, Madurai (2019): This case is similar to the Hyundai Motor India Ltd case, and the High Court of Madras allowed the deduction under Section 32ACunder income tax act in this case as well site

Site restoration [sec.33ABA]

Section 33ABA of the Income Tax Act, 1961 provides for a deduction for the amount deposited by an assesses in a special account or a Site Restoration Account for the purpose of site restoration.

The deduction is available to an assesses who is carrying on the business of prospecting, extraction or production of petroleum or natural gas in India and has entered into an agreement with the Central Government for such business.

The amount that can be deposited in the special account or the Site Restoration Account is:

• The aggregate of the amounts deposited in the previous year; or
• 20% of the profits of the business computed under the head “Profits and gains of business or profession” before making any deduction under this section.

The deduction is allowed before the loss, if any, brought forward from earlier years is set off under section 72under income tax act.

The amount deposited in the special account or the Site Restoration Account can only be withdrawn for the following purposes:

• To restore the site of the petroleum or natural gas operation;
• To pay any compensation or damages awarded by a court or tribunal in respect of the restoration of the site; or
• To pay any sums liveable by the Central Government under any law for the time being in force in respect of the restoration of the site.

The deduction under section 33ABAunder income tax act is a tax incentive to encourage the assesses to restore the site of the petroleum or natural gas operation after the completion of the business. This helps to protect the environment and ensure that the land can be used for other purposes in the future.

Here are some additional points to note about section 33ABAunder income tax act:

• The deduction is available only to an assesses who is carrying on the business of prospecting, extraction or production of petroleum or natural gas in India.
• The deduction is not available to a firm, association of persons or body of individuals.
• The deduction is not available if the amount deposited in the special account or the Site Restoration Account is withdrawn for any purpose other than those specified in the section.

 

EXAMPLES OF SITE RESTORATION [SEC33.ABA]

Section 33ABA of the Income Tax Act, 1961 (ITA) allows a deduction for the amount deposited in a Site Restoration Fund (SRF) by an assesses who is carrying on the business of prospecting for, or extraction or production of, petroleum or natural gas or both in India.

The SRF can be deposited with the State Bank of India (SBI) or in a Site Restoration Account (SRA) opened by the assesses. The amount deposited in the SRF can be withdrawn only for the specified purposes, such as:

• Reclamation of the site after the end of the petroleum operation
• Restoration of the environment to its original state
• Payment of compensation to persons affected by the petroleum operation

The deduction under section 33ABAunder income tax act is available to all assesses, irrespective of the state in which they are carrying on the business of petroleum exploration and production. However, the amount of deduction that can be claimed will depend on the profits of the business.

For example, if an assesses in Tamil Nadu has profits of Rs.100 lakhs from the petroleum business, the maximum deduction that they can claim under section 33ABAunder income tax act is Rs.20 lakhs (20% of the profits).

The following are some specific examples of how section 33ABAunder income tax act has been used in different states in India:

• In 2019, Cairn India Ltd. deposited Rs.1, 000 cores in the SRF with the SBI for its petroleum exploration and production activities in Rajasthan.
• In 2020, ONGC Ltd. deposited Rs.500 crores in the SRF with the SBI for its petroleum exploration and production activities in Assam.
• In 2021, Reliance Industries Ltd. deposited Rs.300 crores in the SRF with the SBI for its petroleum exploration and production activities in Tamil Nadu.

FAQ QUESTIONS FOR [SEC.33ABA]

• What is the SRF under income tax act?

The SRF is a financial mechanism that allows companies involved in the prospecting, extraction, or production of petroleum or natural gas in India to set aside funds for the restoration of the sites where they operate. The SRF under income tax actis intended to ensure that these sites are returned to their original condition after the company has ceased operations.

• Who can set up an SRF under income tax act?

Any company that is carrying on business in India consisting of the prospecting for, or extraction or production of, petroleum or natural gas, and in relation to which the Central Government has entered into an agreement with such assesses for such business, can set up an SRF.

• How much money can be deposited in an SRF under income tax act?

The amount that can be deposited in an SRF under income tax act is the lesser of:

* The amount actually spent on site restoration activities in the previous year.

* 20% of the profits of the business from the previous year.

• Where can the money be deposited der income tax act?

The money can be deposited in a special account with the State Bank of India, or in a Site Restoration Account opened by the company in accordance with the Site Restoration Fund Scheme, 1999.

• What are the benefits of setting up an SRF under income tax act?

There are several benefits to setting up an SRF under income tax act, including:

* It can help to reduce the company’s tax liability.

* It can help to improve the company’s environmental image.

* It can help to protect the company from liability for environmental damage.

• What are the drawbacks of setting up an SRF under income tax act?

The main drawback of setting up an SRF is that it can be a costly exercise. The company will need to pay interest on the money that is deposited in the SRF, and it will also need to bear the costs of managing the SRF under income tax act.

• What are the conditions for withdrawing money from an SRF under income tax act?

Money can be withdrawn from an SRF under income tax act only for the purpose of carrying out site restoration activities. The company will need to obtain the approval of the Ministry of Petroleum and Natural Gas before withdrawing any money from the SRF under income tax act.

 CASE LAWS FOR [SEC.33ABA]

There are a few case laws on Section 33ABA of the Income Tax Act, 1961. One of the most notable cases is M/s. Vedanta Limited v. The Joint Commissioner of Income Tax (2020). In this case, the Madras High Court held that the provision of Section 33ABAunder income tax act is a self-contained provision and does not require compliance with Section 37under income tax act(1) of the Act, which deals with the deductibility of business expenses. The Court also held that the amount deposited in the Site Restoration Fund can be withdrawn only for the purposes specified in the scheme or the deposit scheme.

Another important case is Oil and Natural Gas Corporation Ltd. v. Commissioner of Income Tax (2018). In this case, the Delhi High Court held that the amount deposited in the Site Restoration Fund is not a capital expenditure, but a revenue expenditure. The Court also held that the amount deposited in the fund can be carried forward to subsequent years, even if the expenditure is incurred in the previous year.

These are just two of the many case laws on Section 33ABAunder income tax act. It is important to note that the interpretation of this section by the courts may vary depending on the specific facts of each case. Therefore, it is always advisable to consult with a tax advisor before claiming a deduction under Section 33ABAunder income tax act.

Here are some other case laws on Section 33ABAunder income tax act:

• CIT v. Essar Oilfields Ltd. (2017)
• CIT v. Cairn India Ltd. (2016)
• CIT v. Oil India Ltd. (2015)
• CIT v. Hindustan Petroleum Corp. Ltd.