ERP SAP Computer Software eligible for Depreciation rate of 60%

The issue in this appeal of the assessee is whether depreciation on ERP software is allowable to the assessee @ 60% considering the software as a computer or @ 25% considering the software as an intangible asset. The Income Tax Appellate Tribunal (ITAT) Mumbai bench, in the case of M/s Arkema Chemicals India P. Ltd. V/s ACIT held that computer-related software be depreciated @ 60%.

In this matter, during the year the assessee had installed ERP Software amounting to Rs.10,99,16,199/- and claimed depreciation @ 60% u/s 32 of The Income Tax Act, 1961 (The Act) in its return of income. The return of income was selected for scrutiny and assessment order u’s 143(3) was passed disallowing depreciation on ERP SAP of Rs.3,84,70,669/-. According to AO, deprecation at the rate of 60% is allowable only on computers and software embedded in such computers which are part and parcel and are inseparable. Therefore, according to the Assessing Officer assessee has acquired only the license and hence, it is eligible for depreciation at the rate of 25% applicable to intangible assets. The Assessing Officer relied on the decision of the co-ordinate bench in case of M/s Harland Clarke Holding Software India Pvt. Ltd. Vs. DCIT in ITA no. 113/Chny/2017 dated 30.10.2018.

The assessee preferred the appeal before the learned CIT(A). CIT(A) upheld the order passed by the assessing officer stating that depreciation @ 60% is allowable in system software whereas software ERP SAP is application software and the assessee holds the license to use the same. Further, he stated that software is not an integral part of the computer and therefore is an intangible asset. Accordingly, the disallowance of Rs. 3,84,70,669/- was confirmed.

Aggrieved by the above order, the assessee filed an appeal before the tribunal. ITAT relied on various judgments and stated that the software ERP SAP is eligible for depreciation @60% and directed the assessing officer to delete the disallowance of depreciation on computer software.

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