Section 32AB — Investment Deposit Account

Section 32AB of the Income-tax Act, 1961, provides for a deduction in respect of deposits made in an investment deposit account. This section allows an assessee engaged in the business or profession to claim a deduction of a specified percentage of profits derived from the business, provided the amount is deposited in an account with the Development Bank or utilized for the purchase of new machinery or plant. The deduction is available for the assessment years 1987-88 to 1990-91. The statutory test requires the assessee to deposit the amount before the due date of filing the return of income. The burden of proof lies on the assessee to demonstrate compliance with the conditions of the section. This provision is significant as it incentivizes reinvestment into the business, promoting growth and modernization.

Common Litigation Flashpoints

1. Eligibility of the assessee for deduction
2. Timeliness of the deposit in the investment account
3. Utilization of funds for specified purposes
4. Compliance with procedural requirements

Judgments on Section 32AB — Investment Deposit Account

• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Apollo Tyres Ltd vs Commissioner of Income Tax — SC,
  The Assessing Officer cannot go behind the net profit shown in the profit and loss account certified under the Companies Act for the purpose of Section 115-J.
• C.I.T., Kolkata vs SMIFS Securities Ltd. — SC,
  Goodwill is an asset under Explanation 3(b) to Section 32(1) of the Income Tax Act, 1961.