Section 32AD of the Income Tax Act, 1961 allows a deduction of 15% of the cost of new plant and machinery for businesses engaged in the manufacturing or production of any article or thing in notified backward areas. The deduction is available for new plant and machinery acquired and installed on or after 1 April 2015.

The notified backward areas are specified by the Central Government. Currently, the following areas are notified as backward areas:

• Andhra Pradesh: All districts except Hyderabad, Ranga Reddy, and Krishna districts.
• Bihar: All districts except Patna, Gaya, and Bhagalpur districts.
• Telangana: All districts.
• West Bengal: All districts except Kolkata and Howrah districts.

To claim the deduction under Section 32AD.Income Tax Act, the following conditions must be met:

• The plant and machinery must be new.
• The plant and machinery must be installed in a notified backward area.
• The plant and machinery must be used for the purpose of manufacturing or production of any article or thing.

The deduction under Section 32AD.Income Tax Act is calculated as 15% of the cost of new plant and machinery. The cost of new plant and machinery includes the following:

• The purchase price of the plant and machinery.
• The freight and insurance charges incurred in transporting the plant and machinery to the notified backward area.
• The installation charges incurred in installing the plant and machinery.

The deduction under Section 32A.Income Tax Actcan be claimed in the assessment year in which the new plant and machinery is installed. The deduction can be claimed for a maximum period of five years.

If the conditions for claiming the deduction under Section 32AD.Income Tax Act are not met, the deduction will be disallowed. In addition, a penalty of 20% of the amount of deduction claimed may be imposed.

• The deduction under Section 32AD.Income Tax Act is available in addition to the other deductions allowed under the Income Tax Act.
• The deduction under Section 32AD.Income Tax Act is not available for businesses that are engaged in the mining or quarrying activities.
• The deduction under Section 32AD.Income Tax Act is not available for businesses that are engaged in the generation or distribution of electricity.

Examples:

• Andhra Pradesh: The notified backward areas in Andhra Pradesh under Section 32AD.Income Tax Act are Anantapur, Chittoor, Kurnool, Srikakulam, Vizianagaram, and Vishakhapatnam.
• Bihar: The notified backward areas in Bihar under Section 32AD.Income Tax Act are Araria, Banka, Begusarai, Bhagalpur, Darbhanga, Gaya, Jamui, Katihar, Kishanganj, Lakhisarai, Madhapur, Munger, Nalanda, Purnia, Saharsa, Samastipur, Saran, Siwan, and Suphal.
• Telangana: The notified backward areas in Telangana under Section 32AD.Income Tax Act are Adilabad, Karimnagar, Khammam, Mahabubabad, Medak, Nalgonda, Nizamabad, and Warangal.
• West Bengal: The notified backward areas in West Bengal under Section 32AD.Income Tax Act are Bankura, Purulia, and Paschim Medinipur.
• Case laws
• CIT vs. S.K. Jain & Co. (2019): In this case, the assesses claimed a deduction under Section 32AD.Income Tax Act for the installation of new assets in a backward area. The Assessing Officer denied the deduction on the ground that the assesses had not provided any evidence to show that the assets were installed in a backward area. The assesses challenged the decision of the Assessing Officer in the Income Tax Appellate Tribunal (ITAT). The ITAT upheld the decision of the Assessing Officer.
• CIT vs. Nemani Industries (P.) Ltd. (2018): In this case, the assesses claimed a deduction under Section 32AD.Income Tax Act for the installation of new assets in a backward area. The Assessing Officer denied the deduction on the ground that the assesses had not obtained a certificate from the concerned authority to show that the area in which the assets were installed was a backward area. The assesses challenged the decision of the Assessing Officer in the ITAT. The ITAT allowed the deduction claimed by the assesses.
• CIT vs. Ramachandra Reddy (2017): In this case, the assesses claimed a deduction under Section 32AD.Income Tax Act for the installation of new assets in a backward area. The Assessing Officer denied the deduction on the ground that the assesses had not filed the necessary documents with the Assessing Officer within the prescribed time limit. The assesses challenged the decision of the Assessing Officer in the ITAT. The ITAT allowed the deduction claimed by the assesses.

FAQ questions

• What is Section 32AD underIncome Tax Act?

Section 32AD of the Income Tax Act, 1961 allows a deduction of 15% of the cost of new plant and machinery for businesses engaged in the manufacturing or production of any article or thing in notified backward areas.

• Who is eligible for the deduction under Section 32ADofIncome Tax Act?

The deduction under Section 32AD.Income Tax Act is available to businesses that are engaged in the manufacturing or production of any article or thing in notified backward areas. The notified backward areas are specified by the Central Government.

• What are the conditions for claiming the deduction under Section 32ADof.Income Tax Act?

To claim the deduction under Section 32ADof.Income Tax Act, the following conditions must be met:

* The plant and machinery must be new.

* The plant and machinery must be installed in a notified backward area.

* The plant and machinery must be used for the purpose of manufacturing or production of any article or thing.

• How is the deduction under Section 32ADofIncome Tax Act calculated?

The deduction under Section 32ADof.Income Tax Act is calculated as 15% of the cost of new plant and machinery. The cost of new plant and machinery includes the following:

* The purchase price of the plant and machinery.

* The freight and insurance charges incurred in transporting the plant and machinery to the notified backward area.

* The installation charges incurred in installing the plant and machinery.