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[2010] 188 Taxman 63 (Karnataka)/[2009] 312 ITR 56 (Karnataka) [2010] 188 TAXMAN 63 (KAR.) HIGH COURT OF KARNATAKA Velan Textiles (P.) Ltd.* v. Deputy Commissioner of Income-tax DEEPAK VERMA AND K.L. MANJUNATH, JJ. IT APPEAL NO. 101 OF 2003â-  JANUARY 4, 2008 Section 32A of the Income-tax Act, 1961 - Investment Allowance - Assessment year 1991-92 - Whether for purpose of claiming investment allowance under section 32A, assessee need not create a reserve in year of installation; if there is no sufficient profit, assessee can create it in year of actual deduction - Held, yes - Whether, therefore, it is not necessary for an assessee to claim investment allowance during relevant assessment year; claim can be made when assessee has adequate funds for creation of reserve for purpose of investment allowance - Held, yes FACTS In the return of income for the assessment year 1991-92, the assessee claimed investment allowance related to the assessment years 1985-86 to 1987-88. According to the assessee, it had purchased plants and machineries in the aforesaid three financial assessment years, but the same could not be shown in the returns as the returns filed for the said period were loss returns. The Assessing Officer did not accept the claim on the ground that it was not claimed in the original return. On appeal, the Commissioner (Appeals) allowed the appeal and remanded the matter. However, the Tribunal allowed the revenue's appeal and set aside the order passed by the Commissioner (Appeals). On appeal to the High Court : HELD The Finance Act, 1990 had amended section 32A(4)(ii ) retrospectively with effect from 1-4-1976. The purpose of amendment was to enable the assessee to create a reserve in any of the years between the year of installation of the plant and machinery and the year of actual deduction. As a result, an assessee need not create a reserve in year of installation; if there is no sufficient profit, assessee can create it in the year of actual deduction. [Paras 8 and 10] In the instant case, it had not been disputed by the revenue that the assessee had sustained losses in the years 1985-86, 1986-87 and 1987-88. Obviously, when it had suffered losses…

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