ORDER
M. A. Bakshi, J.M.
1. The appeal of the assessee, for asst. yr. 1986-87, is directed against the order dated 14th February, 1992, of CIT(A)-VII, Mumbai. Rival contentions have been heard and records perused.
2. The only dispute involved in this appeal is relating to the deduction on account of investment allowance. The assessee had filed the return declaring loss of Rs. 62,53,490. The AO computed the loss at Rs. 17,00,436. The assessee-company had claimed by way of note that the investment allowance should be allowed to be carried forward. The AO has denied the carry forward of investment allowance on the ground that the assessee had not created the reserve and, therefore, no deduction is permissible. In this connection reliance has been placed on the decision of the Supreme Court in the case of Subhalaxmi Mills Ltd. vs. Addl. CIT (1989) 177 ITR 193 (SC). The CIT(A) has confirmed the action of the AO.
3. The learned counsel for the assessee contended that after the decision of the Supreme Court in the case of Subhalaxmi Mills Ltd. (supra) the law has been amended and the requirement of creating the reserve is necessary in the year in respect of which the deduction is to be allowed under sub-s. (3) of s. 32A.
4. The learned Departmental Representative on the other hand relied upon the orders of the Revenue authorities.
5. We have given our careful consideration to the rival contentions. Sec. 32A(3) provides that where the total income of the assessee assessable for the assessment year relevant to the previous year in which the machinery or plant was installed is nil or is less than the full amount of the investment allowance, then the amount allowable by way of investment allowance for that assessment year shall be only such amount as is sufficient to reduce the said total income to nil and the amount of investment allowance to the extent to which it has not been allowed as aforesaid is allowed to be carried forward to the following assessment year and the investment allowance to be allowed for the following assessment year is such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year, etc. ……. In view of clear provisions of s. 32A, the requirement of creation of reserve is to be satisfied in the year in which the assessee actually gets the deduction as provided under sub-s. (3) of s. 32A. In this view of the matter the decision of the CIT(A) is not in order. We, therefore, set aside the order of the CIT(A) as also that of the AO on this issue and direct the AO to allow the carry forward of investment allowance. The claim of the assessee shall be determined in accordance with law in the year in which there are profits against which deduction is allowable under s. 32A.
6. The appeal of the assessee is accordingly allowed.