2023 (4) TMI 368 - AT - Income Tax

Depreciation on computer software - Intangible Asset v/s Computer Software - @25% or @60% - HELD THAT - As relying on M/s Arkema Chemicals India P Ltd case 2022 (4) TMI 1182 - ITAT MUMBAI CIT(A) has erred in denying the claim of depreciation made by the assessee on computer software @60% because assessee is entitled for depreciation on computer software, which is part of the computer @60%. Also software licence acquired by the assessee was in the nature of application software and is eligible for depreciation @60%. Assessing Officer is directed to provide depreciation as claimed by the assessee on computer software @60% - Appeal filed by the assessee is allowed.

Summary

Issues:
Claim of depreciation on computer software @60% instead of 25%.

Analysis:
1. The appellant, a non-deposit accepting NBFC, challenged the assessment order for AY 2016-17, disputing the depreciation rate on computer software set by the Assessing Officer at 25% instead of the claimed 60%. The AO disallowed the excess claim of depreciation, leading to an addition to the total income of the assessee under section 143(3) of the Act.

2. The matter was taken to the Ld.CIT(A), who partially allowed the appeal. Unsatisfied, the assessee approached the Tribunal with the present appeal, contesting the depreciation rate on computer software.

3. The key issue for determination was whether the assessee is entitled to depreciation on computer software @60% by categorizing it under "computers and computer software, falling within the block of plant and machinery."

4. The appellant's representative argued that similar issues had been decided in favor of the assessee by the Hon'ble Madras High Court and a co-ordinate bench of the Tribunal in previous cases.

5. The Tribunal referred to a previous case where it was held that computer software, including licenses, falls under the category of tangible assets for depreciation at 60%, not under intangible assets for 25% depreciation. The Tribunal found that the software license acquired by the assessee was in the nature of application software and thus eligible for depreciation at 60%.

6. Considering the precedents and the nature of the software license, the Tribunal concluded that the Ld.CIT(A) erred in denying the claim of depreciation at 60%. Therefore, the Assessing Officer was directed to allow depreciation on computer software @60%, as claimed by the assessee.

7. Consequently, the appeal filed by the assessee was allowed, and the order was pronounced in open court on 23/02/2023.