2017 (4) TMI 460 - AT - Income Tax

Depreciation on computer software - Held that - It is brought to our notice that in AY 2004-05, Ld. CIT (A) has granted depreciation @ 60% on these items. The order of Ld. CIT (A) has been accepted by the Revenue. Therefore, as a matter of consistency we direct the AO to grant the depreciation @ 60% in AY 2005-06. With these directions these grounds are allowed. Disallowance u/s 14A - Held that - We restore this issue back to file of the AO with the same directions as have been given in AY 2009-10. The AO is directed to follow order for AY 2009-10 while adjudicating this ground. Adequate opportunity of hearing shall be granted to the assessee while deciding this ground.

Summary

Issues:
1. Disallowance of software expenses as capital expenditure.
2. Depreciation rate on computer software.
3. Disallowance made under section 14A of the Income Tax Act.

Issue 1: Disallowance of Software Expenses as Capital Expenditure:
The appeal contested the treatment of software expenses as capital expenditure. The Tribunal noted that a similar issue had been decided against the assessee previously. The AO treated the software expenses as capital in nature based on a previous decision. The CIT (A) upheld this treatment, citing the nature of expenses as identical to a prior year. The Tribunal found no fault in the CIT (A)'s decision and upheld it, resulting in the dismissal of the appeal.

Issue 2: Depreciation Rate on Computer Software:
The appeal challenged the depreciation rate granted by the AO on computer software. The CIT (A) had granted a higher depreciation rate in a previous year. The Tribunal directed the AO to grant depreciation at the higher rate for consistency with the previous year's decision. Consequently, the appeal succeeded in obtaining the higher depreciation rate.

Issue 3: Disallowance under Section 14A:
The appeal contested the disallowance made under section 14A of the Income Tax Act. The Tribunal noted that a similar issue had been restored back to the AO previously. Referring to the Tribunal's observations in a prior case, the matter was restored back to the AO with specific directions for further examination and decision-making. The AO was instructed to follow the same procedure as in the prior year for adjudicating this issue. The appeal was partly allowed based on these directions.

In conclusion, the Tribunal addressed various issues related to software expenses, depreciation rates, and disallowances under section 14A. The decisions were made based on previous rulings, consistency with prior years, and specific directions for further examination by the AO.