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 companyunderincome 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 companyunderincome 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 yearsunderincome tax act.
• The new plant and machinery must be used for the manufacture or production of any article or thingunderincome tax act.
• The new plant and machinery must not be sold or transferred within a period of five years from the date of installationunderincome 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 assessee for the purpose of his business or profession. This allowance is available to all assessees, 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 32ACunder 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 thingunderincome tax act.
• Plant and machinery used for generation or distribution of electricity.underincome tax act
• Plant and machinery used for mining or quarrying operationsunderincome tax act.
• Plant and machinery used for the treatment or processing of any waste or effluentunderincome tax act.
• Plant and machinery used for the generation of solar or wind powerunderincome tax act.

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

To claim the investment allowance under Section 32ACunder income tax act, the assessee 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 machineryunderincome tax act.
• A certificate from a chartered accountant or engineer, certifying the actual cost of the plant and machineryunderincome 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 professionunderincome 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 growunderincome tax act.

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

• An assessee 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 assessee 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 assessee in West Bengal who invests INR 75 crore in new plant andmachinery 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.

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

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

3. 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.

4. 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.

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

The assessee 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.

6. What are the penalties for non-compliance with Section 32ACunder income tax act?

If an assessee fails to comply with the provisions of Section 32ACunder income tax act, the deduction under this section will be disallowed. The assessee 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 assessee, 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 assessee 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, Chennai (2019): In this case, the assessee, a company engaged in the business of manufacturing motor vehicles, claimed investment allowance under Section 32AC for the assessment year 2014-15. The assessee 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, Chennai (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