Judgment :- P.P.S. Janarthana Raja, J. This appeal is filed by the revenue against the order of the Income Tax Appellate Tribunal Madras B Bench, Chennai, dated 26.03.2001 in I.T.A.No.2306/Mds/92, raising the following questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing grant of investment allowance for the year 1986-87 when the plant and machinery had been installed in the year 1981-82? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that investment allowance can be allowed in any year subsequent to the date of purchase or installation and having put to use?” 2. When the above appeal came up before this Court for admission on 16.02.2004, the tax case was admitted on the following question of law. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing grant of investment allowance for the year 1986-87 when the plant and machinery had been installed in the year 1981-82? 3. The brief facts are as follows:- The assessment year is 1986-87 and corresponding accounting year ended on 31.03.1986. The assessee company filed its return of income originally on 30.07.1986 admitting an income of Rs.5,30,62,920/-. Later, a revised return was filed on 14.09.1986 disclosing Rs.5,28,96,920/-. Subsequently, another revised return was filed on 111. 1988, wherein investment allowance claim was enhanced to Rs.47,20,648/- from Rs.10,55,608/- as originally claimed. The Assessing Officer, by its order dated 10.03.1989 after deducting the investment allowance, has determined the total income at Rs.5,10,79,507/-. The Commissioner of Income Tax issued a show cause notice under Section 263 of the Income Tax Act on the ground that the assessment order passed by the Deputy Commissioner of Income Tax, Special Range-I, Coimbatore, is erroneous and prejudicial to the interest of the revenue. In response to the show cause notice, the assessee sent a written objection. The Commissioner of Income Tax had passed an order setting aside the order of assessment with a direction to the Assessing Officer to make due enquiry in accordance with law before making addition or disallowance. In consequence of the said direction, the Assessing Officer has passed the order dated 29.09.1993, withdrawing the investment allowance granted earlier. Aggrieved by that order, the assessee has filed an appeal before the Income Tax Appellate Tribunal. In consequence of the said direction, the Assessing Officer has passed the order dated 29.09.1993, withdrawing the investment allowance granted earlier. Aggrieved by that order, the assessee has filed an appeal before the Income Tax Appellate Tribunal. The Tribunal, after accepting the contention of the assessee, has set aside the order of the Commissioner of Income Tax. Aggrieved by that order, the Revenue has filed the present appeal. 4. The learned counsel appearing for the Revenue submitted that the investment allowance is allowable only on actual cost. The actual cost is determined normally during the relevant assessment year in which the plant and machinery is purchased or installed. The escalation is approved by mutual agreement much later to the date of purchase of the machinery. It is further submitted that any enhancement in cost arising on agreement, long after the approval, cannot form part of the cost of machinery. It is also further submitted that the investment allowance can be given only in the year in which the plant and machinery was installed and only the value of the plant and machinery alone should be taken into consideration for the purpose of granting the investment allowance. Therefore, the grant of investment allowance by the Assessing Officer for the year 1986-87, when the plant was installed in the year 1981-82, is erroneous and prejudicial to the interest of the Revenue. The Commissioner of Income Tax has correctly exercised his revisionary power vested with him under Section 263 of the Income Tax Act and hence, the order passed by the Tribunal is not in accordance with law and the same should be set aside. 5. The learned counsel appearing for the assessee submitted that the escalation in the cost of the assets is due to the agreement between the suppliers and the assessee and the Reserve Bank of India has also approved the agreement later. The actual cost has to be computed in each of the assessment year. He further submitted that the original figure of actual cost in the year of installation can be altered on the basis of subsequent events connected within the original cost. Therefore, the Tribunal has correctly granted investment allowance by following the judgment of the Supreme Court reported in the case of Saharanpur Electric Supply Company Ltd. Vs. He further submitted that the original figure of actual cost in the year of installation can be altered on the basis of subsequent events connected within the original cost. Therefore, the Tribunal has correctly granted investment allowance by following the judgment of the Supreme Court reported in the case of Saharanpur Electric Supply Company Ltd. Vs. CIT (194 ITR 294) and also the judgment of this Court in the case of The Commissioner of Income Tax Vs. Chengalvarayan Co-operation Sugar Mills Limited (242 ITR 440) and hence, the order passed by the Tribunal has to be confirmed. 6. Heard the learned counsel on either side. The assessee has imported machinery from Italy for the Polynostic Staple Fibre Plant and installed them in the accounting year relevant to the assessment year 1981-82. There is an agreement entered into between the assessee and the foreign manufacturers. It provides for an escalation clause. In pursuance of the said escalation clause, the assessee made certain payments towards cost of escalation of machinery and escalation in the custom duty and technical consultancy fee. The total payments amounted to Rs.1,40,60,651. Therefore, the assessee has claimed investment allowance on the said cost in the relevant assessment year 1986-87. It provides for an escalation clause. In pursuance of the said escalation clause, the assessee made certain payments towards cost of escalation of machinery and escalation in the custom duty and technical consultancy fee. The total payments amounted to Rs.1,40,60,651. Therefore, the assessee has claimed investment allowance on the said cost in the relevant assessment year 1986-87. Section 32A of the Act, which deals with the investment allowance, reads as follows: "32-A INVESTMENT ALLOWANCE: (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee: Provided that no deduction shall be allowed under this section in respect of- (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances or road transport vehicles; (C) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Section 33; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "profits and gains of business or profession" of any one previous year. (2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely:- (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) any new machinery or plant installed after the 31st day of March, 1976,- (i) for the purposes of business of generation or distribution of electricity or any other form of power; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule;)..... (c) any new machinery or plant installed after the 31st day of March, 1983, but before the (1st day of April, 1988) for the purposes of business of repairs to ocean-going vessels or other powered craft if the business is carried on by an Indian company and the business so carried on is for the time being approved for the purposes of this clause by the Central Government...." (2A) The deduction under sub-section (1) shall not be denied in respect of any machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule, by reason only that such machinery or plant is also used for the purposes of business of construction, manufacture or production of any article or thing specified in the said list. (2B) where any new machinery or plant in installed after the 30th day of June, 1977, but before the 1st day of April, 1987, for the purposes of business of manufacture or production of any article or thing and such article or thing........ (2B) where any new machinery or plant in installed after the 30th day of June, 1977, but before the 1st day of April, 1987, for the purposes of business of manufacture or production of any article or thing and such article or thing........ (3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year (the total income for this purpose being computed after deduction of the allowances under Section 33 and Section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VIA) is nil or is less than the full amount of the investment allowance...... (4) The deduction under sub-section (1) shall be allowed only if the following conditions are fulfilled, namely:- (i) the particulars prescribed in this behalf have been furnished by the assessee in respect of the ship or aircraft or machinery or plant; (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 the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the "Investment Allowance Reserve Account") to be utilized- (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 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. Provided that this clause shall have effect in respect of a ship as if for the word "seventy-five", the word "fifty" had been substituted..." 7. Provided that this clause shall have effect in respect of a ship as if for the word "seventy-five", the word "fifty" had been substituted..." 7. Section 43 of the Act deals with definitions of certain terms relevant to income from profits and gains of business or profession. Section 43(1) deals with definition of "actual costs", which reads as follows:- (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees." 8. Section 32A of the Income Tax Act deals with investment allowance, which was inserted by the Finance Act, 1976, with effect from April 1, 1976. Sub-Section (1) of the said section provides that in respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purpose of the business carried on by the assessee, deduction would be allowable in the previous year of acquisition or installation, as the case may be, or in the immediately succeeding previous year, if the said asset is first put to use then in that previous year. The amount of allowance is equal to 25% of the actual cost of asset. Sub Section (2) of Section 32A of the Act specifies the asset which is eligible for investment allowance. Sub section 3 of Section 32A of the Act provides that the deduction of investment allowance shall be to the extent so as to reduce the income to "nil" and in case any sum remains unabsorbed the same shall be carried forward and the outer limit for carrying forward is eight assessment years immediately succeeding the assessment year relevant to the previous year in which the asset was first put to use. Sub-section (4) of section 32A stipulates certain conditions on fulfillment of which the deduction under subsection (1) shall be allowed and one of the important conditions pertains to creation of investment allowance reserve to the extent of 75 per cent of the investment allowance to be actually allowed being debited to the profit and loss account of any previous year in respect of which deduction is to be allowed under sub-section (3) of any other previous year. Section 43 of the Act deals with definition of certain terms relevant to income from profits and gains of business or profession. "Actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Therefore, if a portion of cost is met directly or indirectly by any person or authority, the actual cost would for the purpose of Section, be the cost minus the portion of amount paid by any other person or authority. The said definition is applicable to Sections 28 to 41 of the Act, which includes Section 32A, which deals with the "investment allowance". The actual cost of the asset has to be computed in each of the assessment year. Even though in the present case the machinery was installed in the year 1980-81, in view of the escalation clause of the agreement, the assessee has to pay further amount in the accounting year relevant to the assessment year 1986-1987. The said payment is also actual cost to the assessee. The actual cost is not only what the cost determined at the time of the installation of plant and machinery, but also any further payment made subsequently in connection or relation with plant and machinery. Both the Sections 32A and 43(1) need to be interpreted liberally. The cost has to be found out in each year. There is no dispute as to the agreement between the assessee and the foreign seller. There is an escalation clause in the agreement and the further amount is paid as per the clause. Therefore, the further amount paid subsequent to the installation is also actual cost to the assessee. It is seen that there is no prohibition under the Statute. There is no dispute as to the agreement between the assessee and the foreign seller. There is an escalation clause in the agreement and the further amount is paid as per the clause. Therefore, the further amount paid subsequent to the installation is also actual cost to the assessee. It is seen that there is no prohibition under the Statute. Hence, the assessee is entitled to investment allowance on the said amount paid in the accounting year relevant to the assessment year 1986-1987. The word "actual cost" is the subject matter of interpretation by the Supreme Court in the case of Saharanpur Electric Supply Company Ltd. Vs. (CIT (194 ITR 294), while granting the depreciation allowance and held at page 309 as follows: "These apart, there are clearly situations in which the actual cost does get altered prospectively and not retrospectively. One such instance is where the cost of an asset increases or decreases on account of a fluctuation in the value of the currency. Suppose an asset was purchased in 1965 for $10,000 (equivalent to say, Rs.1,00,000) and the price or the moneys borrowed by the assessee in foreign currency for its payment, remained outstanding. The devaluation of the rupee in June, 1966, would result in the increase of the price to say, Rs.1,20,000. It may be arguable whether this is a retrospective enhancement in the price or not. But it would be only reasonable to say that the actual cost has increased to Rs.1,20,000 in June, 1966, and that the assessee should be entitled to the grant of depreciation and other allowances atleast thereafter, on the basis of the altered cost. This is what section 43A provides. Another situation would be where, subsequent to the acquisition of the asset, substantial capital expenditure has been incurred thereon(not amounting to the addition of a separate asset on which depreciation, etc., could be independently allowed). Such expenditure is added, under the rules, in practice to the actual cost and allowance given thereon subsequently: vide the third column in the Table set out at p.878 in Habib Husseins case (1963) 48 ITR 859 (Bombay). This is quite correct and fully accords with the Departments interpretation of the provision. Such expenditure is added, under the rules, in practice to the actual cost and allowance given thereon subsequently: vide the third column in the Table set out at p.878 in Habib Husseins case (1963) 48 ITR 859 (Bombay). This is quite correct and fully accords with the Departments interpretation of the provision. On the assessees interpretation, no such increased allowances can at all be granted as there is no other provision permitting the additional cost being taken into account as part of the "actual cost" even for years subsequent to the addition or alteration. In principle, therefore, we are unable to accept the contention that the actual cost cannot be determined year after year on the factual or legal position applicable for the relevant previous year and that the actual cost once determined cannot be altered except in the three situations outlined by counsel where the original figure itself requires a modification." 9. This Court also in the case of Commissioner of Income Tax Vs. Funskool (India) Limited (294 ITR 642(Mad) has observed that the investment allowance and depreciation are allowable on the additional customs duty paid during the year in respect of machinery imported and installed in an earlier year and has held as follows: In the instant case, the assessee paid the additional customs duty in the subsequent period of acquisition and claimed the investment and depreciation allowance during the period when the machinery was imported. The ratio laid down in the decision cited supra, on principle, is applicable to the duty impugned in the instant case also. Hence, we are of the considered opinion that the Tribunal had rightly allowed the claim of the assessee for investment and depreciation allowance." 10. So the Tribunal has followed the principle enunciated in the judgments of the Supreme Court as well as this Court stated supra and allowed the investment allowance. Therefore, the Tribunal has rightly come to the conclusion that the assessee is entitled to the investment allowance on the additional amount subsequent to the installation. The finding given by the Tribunal is based on valid materials and evidence. The learned counsel appearing for the Revenue has not produced any material or any other evidence or any case law to take a view contrary to the one taken by the Tribunal and we do not find any error or illegality in the order of the Tribunal. The finding given by the Tribunal is based on valid materials and evidence. The learned counsel appearing for the Revenue has not produced any material or any other evidence or any case law to take a view contrary to the one taken by the Tribunal and we do not find any error or illegality in the order of the Tribunal. Hence, we are of the view that the order passed by the Tribunal is in accordance with law and the same is confirmed. In these circumstances, the question of law is answered in favour of the assessee and as against the Revenue. Accordingly, the Tax Case appeal fails and the same is dismissed. No costs.