JUDGMENT Deepak Verma, J.— Heard Sri Parthasarathi for the appellant and Sri M.V. Seshachala for the respondent. 2. This is an appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") against the order dated October 31, 2002, passed by the Income Tax Appellate Tribunal in I. T. A. No. 561/Bang/ 1995. 3. The appeal has been admitted on as many as four questions of law. But during the course of the arguments, the learned Counsel for the appellant submitted that only question No. (b) may be answered. Question No. (b) reads as hereunder: (b) Whether the Tribunal was right in law in holding that the claim for investment allowance has to be made during the relevant assessment year and not when the appellant has adequate funds for the creation of the reserve for the purpose of investment allowance ? 4. The brief facts material to decide the said appeal are mentioned herein-below: 5. The appellant-assesses (hereinafter referred to as "the assessee") had filed a return for the assessment year 1991-92 showing return of income at Rs. 48,27,365. On March 30, 1993, the assessee filed a revised return showing a total income of Rs. 39,78,083. It claimed investment allowance relating to the assessment years 1985-85, 1986-87 and 1987-88 amounting to Rs. 11,02,807. 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 return as the return filed for the said period were loss income. The assessing authority declined to accept the claims on the ground that it was not claimed in the original return. 6. Feeling aggrieved by the said order, the assessee filed an appeal. The Commissioner of Income Tax (Appeals), allowed the appeal and remanded the matter. Against this order of the Commissioner of Income Tax (Appeals), the Revenue feeling aggrieved preferred an appeal before the Income Tax Appellate Tribunal. The Tribunal has allowed the appeal of the Revenue and the order passed by the Commissioner of Income Tax (Appeals) has been set aside. Hence, this appeal under Section 260A of the Income Tax Act, at the instance of the assessee on the aforesaid substantial question of law. 7. We have accordingly heard the learned Counsel for the parties and perused the record. 8. Hence, this appeal under Section 260A of the Income Tax Act, at the instance of the assessee on the aforesaid substantial question of law. 7. We have accordingly heard the learned Counsel for the parties and perused the record. 8. The Finance Act, 1990, had amended Section 32A(4)(ii) of the Act retrospectively from April 1, 1976. It provides that the investment allowance reserve account for an amount equal to 75 per cent. of the investment allowance to be actually allowed is to be created by debiting such amount to the profit and loss account of any previous year in respect of which the deduction is to be allowed under Section 32A(3) of the Act or any earlier previous year not being a previous year earlier than the year in which the plants and machineries were first put to use. The relevant provision of Section 32A(4)(ii)(a) and (b) of the Act reads as hereunder: 32A.(4) The deduction under Sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :... (ii) an amount equal to seventy-five per cent. The relevant provision of Section 32A(4)(ii)(a) and (b) of the Act reads as hereunder: 32A.(4) The deduction under Sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :... (ii) an amount equal to seventy-five per cent. of the investment allowance to be actually allowed is debited to the profit and loss account of any previous year in respect of which the deduction is to be allowed under Sub-section (3) or any earlier previous year (being a previous year not earlier than the year in which the ship or aircraft was acquired or the machinery or plant was installed or the ship, aircraft machinery or plant was first put to use) and credited to a reserve account (to be called the 'Investment Allowance Reserve Account') to be utilised: (a) for the purposes of acquiring, before the expiry of a period of ten years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, a new ship or a new aircraft or new machinery or plant (other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the second proviso to Sub-section (1) for the purposes of the business of the undertaking; and (b) until the acquisition of a new ship or a new aircraft or new machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India: 9. It has not been disputed before us that for the assessment years 1985-86, 1986-87 and 1987-88 the return filed by appellant-assesses reflected losses. The learned Counsel for the appellant contended that when the appellant had incurred losses for the aforesaid assessment years, the question of making any reserve account to the extent of 75 per cent. of the cost of the plants and machineries installed during the said assessment years did not arise. It was submitted that the assessee had filed return of profit income for the assessment year 1991-92. The assessee had profit for the first time in that year. After filing the initial return, a revised return was filed in which investment allowance to the extent of 75 per cent. was kept. 10. It was submitted that the assessee had filed return of profit income for the assessment year 1991-92. The assessee had profit for the first time in that year. After filing the initial return, a revised return was filed in which investment allowance to the extent of 75 per cent. was kept. 10. The purpose of amendment as brought by the Finance Act, 1990, retrospectively from April 1, 1976, was 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. As a result the assessee need not create a reserve in the year of installation. If there is no sufficient profit, it can create it in the year of actual deduction. 11. Almost identical question came up for consideration before the Calcutta High Court reported in Commissioner of Income Tax Vs. Century Enka Ltd., (1992) 196 ITR 447 Cal . The Calcutta High Court held as hereunder (page 454): In this case, the assessee could not make the reserve as required in view of the fact that additional liability arises subsequently. But in view of the provisions contained in Section 32A(4)(ii), where the amount transferred by the assessee to the Investment Allowance Reserve Account is not less than the amount required to be so transferred on the basis of the amount of investment claimed in the return of income and the Assessing Officer proposes to make some additions, (other than as a result of invoking of the first proviso to Section 145(1), or Section 145(2) or any concealment of income) entitling the assessee to a larger amount of investment allowance than claimed. The Explanation to Section 32A(4) of the Act enjoins upon the Assessing Officer to afford an opportunity to the assessee by a notice in writing to make good the deficiency in the reserve. 12. As mentioned herein above it has 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 for the aforesaid assessment years, the question of keeping reserve account did not arise. In our considered opinion that appears to be the purpose and object of the amendment incorporated by the Finance Act, 1990. Otherwise the very purpose of such an amendment is likely to be defeated. 13. Obviously, when it had suffered losses for the aforesaid assessment years, the question of keeping reserve account did not arise. In our considered opinion that appears to be the purpose and object of the amendment incorporated by the Finance Act, 1990. Otherwise the very purpose of such an amendment is likely to be defeated. 13. For the aforesaid reasons, we are of the opinion that the impugned order passed by the Tribunal cannot be sustained in law. It is accordingly hereby set aside and quashed. The question is answered in favour of the assessee and against the Revenue. 14. The appeal is allowed to the extent mentioned above.