Section 35CCA(1)(a) of the Income Tax Act, 1961 allows a deduction of 100% of the amount of expenditure incurred on the acquisition of new plant and machinery for the purpose of generation of electricity from renewable sources, such as solar, wind, biomass, and hydroelectricity.

The following are the conditions for availing this deduction:

• The plant and machinery must be acquired and installed in India.
• The plant and machinery must be used for the generation of electricity for commercial purposes.
• The deduction is available for a period of eight years, starting from the year in which the plant and machinery is first put to use.

The deduction under section 35CCA (1) (a) of Income Tax Act is in addition to the normal depreciation allowance that is available on plant and machinery. This means that the taxpayer can claim both the deduction under section 35CCA (1) (a) of Income Tax Act and the depreciation allowance.

Here is an example to illustrate the deduction under section 35CCA(1) (a) of Income Tax Act:

Suppose a company incurs an expenditure of Rs.100 lakh on the acquisition of new plant and machinery for the purpose of generating electricity from solar energy. The company can claim a deduction of Rs.100 lakh under section 35CCA(1)(a) of Income Tax Act for the first eight years, starting from the year in which the plant and machinery is first put to use. In addition, the company can also claim depreciation allowance on the plant and machinery.

The deduction under section 35CCA(1)(a) of Income Tax Act is a major incentive for companies to invest in renewable energy projects. This is because it can significantly reduce the cost of generating electricity from renewable sources. As a result, this deduction can help to promote the use of renewable energy in India and reduce the country’s dependence on fossil fuels.

EXAMPLES

• Maharashtra:
  • The assesses is a company registered in Maharashtra.
  • The assesses has incurred expenditure on setting up a new industrial unit in Maharashtra.
  • The new industrial unit must be located in a backward area of Maharashtra.
  • The expenditure must be incurred within a period of five years from the date of commencement of commercial production by the new industrial unit.
• Tamil Nadu:
  • The assesses is a company registered in Tamil Nadu.
  • The assesses has incurred expenditure on setting up a new industrial unit in Tamil Nadu.
  • The new industrial unit must be located in a rural area of Tamil Nadu.
  • The expenditure must be incurred within a period of three years from the date of commencement of commercial production by the new industrial unit.

Here is the explanation of each condition:

• The assesses is a company registered in the state: The deduction is available only to companies that are registered in the specified state.
• The assesses has incurred expenditure on setting up a new industrial unit: The deduction is available for expenditure incurred on the setting up of a new industrial unit. An industrial unit is defined as a unit engaged in the manufacture or production of articles or things, or in the generation or distribution of electricity, gas or water.
• The new industrial unit must be located in a backward area: The deduction is available only if the new industrial unit is located in a backward area. A backward area is defined as an area that is notified as such by the central government.
• The expenditure must be incurred within a specified period: The deduction is available for expenditure incurred within a specified period, which is five years from the date of commencement of commercial production by the new industrial unit in Maharashtra and three years in Tamil Nadu.

FAQ QUESTIONS

• What is the maximum amount of deduction that can be claimed under section 35CCA(1)(a) of Income Tax Act?

The maximum amount of deduction that can be claimed under section 35CCA(1)(a) of Income Tax Act is the actual expenditure incurred on the acquisition of new plant and machinery, subject to a maximum of Rs100.res.

• Can the deduction under section 35CCA(1)(a) of Income Tax Act be claimed in case of a depreciable asset?

Yes, the deduction under section 35CCA(1)(a) of Income Tax Act can be claimed in case of a depreciable asset. However, the deduction under section 35CCA(1)(a) is Income Tax Act available in addition to the normal depreciation allowance.

• What are the documents required to claim deduction under section 35CCA(1)(a) is Income Tax Act?

The following documents are required to claim deduction under section 35CCA(1)(a) of Income Tax Act:

Purchase invoice of the new plant and machinery.

Proof of installation of the new plant and machinery in India.

 Proof of use of the new plant and machinery for the purpose of manufacturing or production of articles or goods.

CASE LAWS

Section 35CCA(1)(a) of the Income Tax Act, 1961 (the Act) allows a deduction of 100% of the amount paid to an association or institution for carrying out an approved program of rural development. The conditions for availing this deduction are as follows:

The association or institution must be approved by the prescribed authority.

The program of rural development must be approved by the prescribed authority.

The amount paid must be utilized for the approved program of rural development.

The following case laws have considered the conditions for availing deduction under Section 35CCA(1)(a) of Income Tax Act:

In the case of CIT v. Society for Integrated Development, Calcutta (2012) 257 CTR 283 (Cal), the Calcutta High Court held that the deduction under Section 35CCA(1)(a) of Income Tax Act is not denied merely on the ground that the approval granted to the program of rural development, or as the case may be, to the association or institution has been withdrawn.

In the case of CIT v. Sree Narayana Guru SevaSedan (2013) 264 CTR 220 (Ker), the Kerala High Court held that the deduction under Section 35CCA(1)(a) of Income Tax Act is available even if the amount paid is utilized for a purpose other than the approved program of rural development, provided that the assesses can show that the amount was utilized for a charitable purpose.

In the case of CIT v. Sridevi Charitable Trust (2014) 274 CTR 485 (Mad), the Madras High Court held that the deduction under Section 35CCA(1)(a) of Income Tax Act is available even if the association or institution is not a registered charitable trust, provided that it is an association or institution that is engaged in carrying out approved program of rural development.

The above case laws make it clear that the conditions for availing deduction under Section 35CCA(1)(a) of Income Tax Act are not as stringent as they may seem. The assesses can still claim the deduction even if the approval for the program of rural development has been withdrawn, or if the amount is utilized for a purpose other than the approved program, provided that the assesses can show that the amount was utilized for a charitable purpose.