2.4 Query: Issues relating to section 32AB of the Income-tax Act, 1961.
1. A public limited company is a large manufacturer and marketer of chemical fertilisers namely urea, di-ammonium phosphate and complex fertilizers. All its manufacturing facilities are situated in the State of Goa. Its annual turnover around Rs. 200 crores.
2. The querist has referred the following issues arising out of section 32AB of the Income-tax Act, 1961, for the opinion of the Expert Advisory Committee:
(a) From assessment year 1991-92, through no deduction can be claimed under section 32AB, there could be withdrawals from the deposit account.
As the requirement of furnishing the audit report under section 32AB (5) is a only for claiming a deduction, would an audit report be required from assessment year 1991-92?
(b) If in any year, as mentioned in para 7.10 of the Guidance Note on Audit under section 32AB of the Income-tax Act, an amount in excess of the amount which is eligible for deduction under section 32AB is deposited, could such amount be withdrawn and used for any purpose as, ab initio, it was not a deposit covered by the provisions of section 32AB and, therefore, not subject to the provisions of the Scheme?
Opinion May 21,1991
1. The Committee notes sub-section (5) of section 32AB which states as under:
“The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which deduction is claimed have been audited by an accountant as defined in Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant:
Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section, if such assessee gets the accounts of such business or professions audited under such law and further report in the form prescribed under this sub-section.”
2. The Committee also notes the second proviso to sub-section (1) of section 32AB which states:
“Provided further that no such deduction shall be allowed in relation to the assessment year commencing on the 1st day of April, 1991, or any subsequent assessment year.”
3. The Committee also notes paragraphs 7.5 and 7.10 of the Guidance Note on Audit under Section 32AB of the Income-tax Act, issued by the Institute of Chartered Accountants of India which are reproduced below:
“7.5 Para 9 of the scheme deals with utilisation of the amount for the purposes of Section 32AB of the Act, Para 9(1) provides that the assessee can utilise the profit from eligible business or profession or the amount withdrawn from the Deposit Account for the following purposes:
(i) Purchase of new ship, aircraft, machinery or plant for the purposes of business or profession of the assessee;
(ii) Purchase of new computers to be installed in the office or at a place where the assessee carries on business or profession;
(iii) Repayment of the principal amount of term loans contracted after 31.3.1986 and taken for a period of three years or more from a public financial corporation which is engaged in providing long-term finance for industrial development in India or from a schedule bank or from such other institution as the Central Government may notify.
7.10 If the assessee has deposited amount in excess of the amount which is eligible for deduction under Section 32AB in any year, it will not be possible for him to claim that such excess be allowed to be carried forward and treated as a deposit for the year in which there is profit from eligible business or profession. It is possible that the IDBI may issue some clarification permitting withdrawal of such excess if the depositor applies for such refund.”
4.The Committee also notes that IDBI has not issued any clarification denying or permitting the withdrawal of the excess amount as referred to in para 7.10 of the above Guidance Note. The Committee also notes that neither section 32AB nor the Investment Deposit Account Scheme, 1986, has any specific provision denying or permitting for withdrawal of such excess amount deposited. However, it is understood that in a few cases such excess amounts are allowed to be withdrawn.
5. The Committee is accordingly of the following opinion in respect of queries raised in para 2 of the query:
(a) Since the deduction under Section 32AB is not allowed in respect of assessment year 1991-92 and onwards, no audit report under section 32AB(5) shall be required for assessment year 1991-92 and onwards.
(b) There is no specific provision in section 32AB and the Scheme thereunder for withdrawal of the excess amount deposited into IDBI under the Deposit Scheme. Since the excess amount is not allowed as deduction u/s 32AB, the section would not be applicable to excess amount and hence the excess amount may be allowed to be withdrawn by IDBI. ______________________________ |