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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI ABRAHAM P. GEORGE & SHRI DUVVURU RL REDDY]
आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
These are cross appeals of the assessee and Revenue respectively directed against an order dated 31.01.2018 of ld. Commissioner of Income Tax (Appeals)-1, Chennai.
Ld. Counsel for the assessee at the outset submitted that tax effect in the appeal of the Department was less than �20,00,000/- and therefore such appeal would not survive. With reference to the appeal of the assessee, ld. Counsel submitted that issue was disallowance of depreciation claimed at the rate of 60% on design software comprising of drawings and designs, engineering and development of special purpose custom built hydraulic cylinders and excavator equipments. As per the ld. Authorised Representative, this issue stood covered in favour of the assessee by the decision dated 22.03.2018 of this Tribunal in assessee’s own case for assessment year 2012-2013 in ITA No.2123/CHNY/2017.
Ld. Departmental Representative fairly admitted that the 3. question regarding depreciation stood covered in favour of the assessee by virtue of the order of the Tribunal in assessee’s own case for assessment year 2012-2013. Vis-à-vis the Department appeal, ld. Departmental Representative agreed that the tax effect was less than �20,00,000/-
ITA Nos.1025 & 1207 /2018 :- 3 -:
We have heard the contentions. In so far as Department appeal is concerned, tax effect is less than �20,00,000/- and by virtue of CBDT Circular No.3/2018, dated 11.07.2018, such appeal cannot survive. In so far as appeal of the assessee is concerned, the claim of depreciation was on software in the nature of design and assembly drawings of hydraulic cylinders, bill of materials and other components.
Depreciation was claimed by the assessee on the opening written down value of this asset. Acquisition of the said asset was in financial year 2011-12 relevant to assessment year 2012-2013. The question whether such asset was eligible for depreciation available to ‘’computer and computer softwares’’ had come up before this Tribunal in assessee’s own case for assessment year 2012-2013. What was held by this Tribunal at paras 5 to 7 is reproduced hereunder:-
‘’5. The Ld.AO arrived at such conclusion based on the invoice produced before him as under:-
S.No. Description Quantity Rate in Amount in $USD $USD 1 Design & Assembly 6 sets 11,00,000.00 Drawings of Hydraulic Cylinders, Bill of Materials, and Other Components Drawing supplied Whenever necessary 1. A VR Cylinders 2. BL 200 Wheel loader 3. BG- 605 Motor Grader 4. BG – 825 Motor Grader 5. BE-220 Excavator 6. BG-405 Motor Grader 0 11,00,000.00
ITA Nos.1025 & 1207 /2018 :- 4 -:
The Ld.AO opined from the above invoice that the purchase made by the assessee is only design and assembly drawings of hydraulic cylinders consisting of six sets. On appeal, the Ld.CIT(A) granted partial relief to the assessee by holding the purchases made by the assessee as intangible assets and thereby granted depreciation @ 25% by observing as under:-
“6. I have carefully considered the facts, order ofthe AO, submissions made by the appellant and material on record. He appellant which is in the business of manufacture of hydraulic cylinders acquired CAD drawings and capitalized the cost under the head “Computer or Computer Software”. This is a design software embedded in CD containing the design etc. So in my view it does not tantamount to use of computer software. Therefore, the alternative plea of the appellant needs to be considered. Therein it has been pleaded that s.32(1)(ii) deals with depreciation on “intangible assets” and includes patents, copyrights, trade mark, licenses or commercial rights eligible for depreciation @ 25% may be considered in lieu of the claim at 60%. This claim appears to be justified in view of the facts discussed above. The Assessing Officer is directed to allow depreciation on the capitalized assets @ 25%. This ground of appeal is partly allowed.”
6. Before us, the Ld.AR vehemently argued that the purchases made by the assessee company is computer software and therefore it are entitled for depreciation @ 60%. Whileas the Ld.DR relied on the order of the Ld.CIT(A).
We have heard the rival submissions and carefully perused the materials on record. On perusing the order of the Ld.CIT(A), we find that he himself has agreed that the purchases made by the assessee company is design software embedded in CD, containing the design etc.. Once the Ld.CIT(A) has himself held the purchase made by the assessee company is a design software, we wonder as to how it cannot be treated as a computer software. The design software embedded in CD containing the design has to be necessarily treated as computer software and the same is clarified in Note 7 of the new Appendix-1 of the Rules which states that “computer software” means any computer program recorded on any disk, tape, perforated media or other information storage device. Further as per the Rule, the rates prescribed for computer software is 60% for the relevant assessment year. Therefore we hereby direct the Ld.AO to grant the benefit of depreciation @ 60% for the purchase of design software by the assessee’’.
ITA Nos.1025 & 1207 /2018 :- 5 -:
In line with the above, we hold that assessee was eligible for claiming depreciation @60% on the concerned asset. Grounds raised by the assessee are therefore allowed.
In the result, the appeal of the assessee is allowed whereas that of Department is dismissed.
Order pronounced on Monday, the 3rd day of September, 2018, at Chennai.