Can Iconsets add new named icons?

Is it possible to add new icons with new names to the default iconset, so that when making a new iconset which includes different icons with the new default names and move that iconset to the top of the list the new ones will automatically change.

You don't need to add them to the default icon set. Icon sets can define their own new icon names (as well as using the default names), and other icon sets can use the same names and override them (if higher up the list).

Just tried that and does not seem to be working as intended, here is a zip (1.2 MB)
containing 2 test iconsets, they have been produced using montage as explained in this post. Do they need descriptions?

Doesn't work in what sense?

What are you expecting and what do you see happen instead?

Solved the issue by selecting the icon from the default set
now when a different set with same icon name is placed above current set the icon will change automatically.

That's how it works. If you select a particular set explicitly, the button will always use the icon from that set. If you use the default "All Icons" view, you'll see each named icon once, coming from the set that's highest up the list that has the icon, and moving another set up the list can make it take over the icons for those buttons.