Investment allowance : S. 32A of I. T. Act, 1961 : A. Y. 1991 – 92 : Purchase of plant and machinery in earlier years : Reserve account not created in earlier years in view of loss : Reserve account created and investment allowance claimed in the A. Y. 19

39. Investment allowance : S. 32A of I. T. Act, 1961 : A. Y.
1991 – 92 : Purchase of plant and machinery in earlier years : Reserve account
not created in earlier years in view of loss : Reserve account created and
investment allowance claimed in the A. Y. 1991 – 92 : Assessee entitled to
investment allowance.

[Velan Textiles Pvt. Ltd., 312 ITR 56 (Karn.)]

For the A. Ys. 1985 – 86 to 1987 – 88 the assessee could
not claim investment allowance on account of the loss incurred in those years.
Accordingly, the assessee did not create reserve account in those years. For
the A. Y. 1991 – 92 the assessee filed the return of income disclosing income
of Rs. 39,78,083. In this year the assessee created the reserve account and
claimed investment allowance of Rs. 11,02,807 relating to A. Ys. 1985 – 86 to
1987 – 88. The Assessing Officer disallowed the claim. The Tribunal upheld the
disallowance and held that the claim for investment allowance had to be made
during the relevant assessment year and not when the assessee had adequate
funds for creation of the reserve.

On appeal by the assessee, the Karnataka High Court
reversed the decision of the Tribunal and held as under :

“i) The purpose of the amendment to clause (ii) of
sub-Section (4) of Section 32A of the Income-tax Act, 1961, as brought about
by the Finance Act, 1990, retrospectively from 01/04/1976, is to enable the
assessee to create a reserve in any of the years between the year of
installation of plant and machinery and the year of actual deduction.
Consequently, the assessee need not create a reserve in the year of
installation. If there is no sufficient profit, the assessee can create it
in the year of actual deduction.

ii) It remained undisputed by the Department that the
assessee incurred losses in the A.Ys. 1985-86 to 1987-88. The question of
creating reserve account did not arise since it incurred loss during the A.
Ys. 1985 – 86 to 1987 – 88. Therefore, the Tribunal’s order was to be
quashed.”