The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) comprising Shri Prashant Maharishi, AM and Shri Rahul Chaudhary, JM held that depreciation of 60 % can be allowed to ‘computers including computer software’ under Rule 5 of ITAT Rules
The assessee is a company engaged in the business of manufacturing fertilizer chemicals and paints. After scrutiny and assessment under section 143(3), the total income of the assessee is finalised at Rs. 2,44,00,300/-. The assessee on appeal claimed to allow ERP SAP on software at the rate of 60%. On the other hand, the respondent disallowed depreciation on software ERP SAP of Rs. 3,84,70,669/- and allowed 25% depreciation under the head of Intangible assets.
The respondent contended that deprecation at the rate of 60% is allowable only on computers and software embedded in such computers which are inseparable and acquired only by license. CIT(A) on appeal by the assessee held that depreciation at the rate of 60% is allowable only on system software which is an integral part of the computer, software purchased by the assessee is an application software which is not an integral part of the computer and held assess to get depreciation of 25% only for the license of ERP SAP.
The Tribunal observed that the assessee is entitled to the deprecation at the rate of 60 % as covered in New Appendix I of Rule 5 of ITAT Rules, which states that computers including computer software are entitled to depreciation at 60%. Further observed that Entry 5 of Part A of New Appendix I is a specific entry read with Note 7 which defines the expression ‘computer software’ to mean any programs recorded on CD or disc, tape, perforated media or other information storage devices and confirms the depreciation.
The Tribunal while allowing the appeal direct the Assessing Officer to delete the disallowance of deprecation on computer software. Shri Ajay R Singh and Shri Vinod Bhaskaran appeared for the petitioner and the respondent respectively.
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