2016 (2) TMI 737 - AT - Income Tax

Disallowance of interest paid on the loan - loan applied for acquisition of the land until the date of construction of the building was completed by holding that the same has to be capitalized - Held that - We find force in the contention of the learned AR. Since the land was handed over for construction on the very same day it was purchased, it is obvious that the land was put to use for the purpose of business of the assessee. Hence the interest attributable for purchase of the land should be treated as allowable business expenditure and need not be capitalized. Therefore we hereby direct the learned Assessing Officer to delete the addition made by him on this count. - Decided against revenue Restriction of excess depreciation claimed on software - Held that - CIT relying on the decision in the case of Amway India Enterprises Vs. DCIT 2008 (2) TMI 454 - ITAT DELHI-C correctly held that the assessee would be entitled for depreciation @ 60% since computer software falls in the category of plant . On perusing the facts of the case, we find the decision of learned CIT(A) to be justified because the Special Bench of the Tribunal (supra) has categorically held that with effect from 01.04.2003 computer software has to be classified as tangible asset under the heading plant as mentioned in Appendix I to Income Tax Rules, 1962. Therefore we do not find it necessary to interfere with the order of the CIT (A) on this issue.- Decided against revenue

Summary

Issues involved:
1. Disallowance of interest paid on the loan for acquisition of land
2. Disallowance of excess depreciation claimed on software

Issue 1 - Disallowance of interest paid on the loan for acquisition of land:
The Assessee and the Revenue filed appeals against the order of the Commissioner of Income Tax(A)-11, Chennai for the assessment year 2010-11. The Assessee contended that the interest paid on the loan for the acquisition of land should not be capitalized. The Assessing Officer disallowed interest expenditure of &8377; 40,31,149/- as capital in nature. The CIT(A) upheld this decision, stating that the land was not put to use until the building constructed on it was occupied. However, the Tribunal disagreed, noting that since the land was handed over for construction on the same day it was purchased, it was deemed put to use for business purposes. Consequently, the interest attributable to the land purchase was allowed as a business expenditure and not required to be capitalized.

Issue 2 - Disallowance of excess depreciation claimed on software:
The Assessing Officer restricted the depreciation claimed on software at 25% instead of 60%. The CIT(A) allowed depreciation at 60% based on the classification of "computer software" as a tangible asset falling under the category of "plant." The Tribunal upheld the decision of the CIT(A) citing a Special Bench ruling that classified computer software as a tangible asset under the heading of plant. Therefore, the Tribunal found no reason to interfere with the CIT(A)'s decision on this issue.

In conclusion, the Tribunal allowed the appeal of the Assessee and dismissed the appeal of the Revenue, pronouncing the order on 20th January 2016 at Chennai.