ITAT allows interest deduction on land acquisition loan and confirms 60% software depreciation rate

The ITAT Chennai ruled on two issues against the revenue. First, regarding disallowance of interest on land acquisition loan, the tribunal held that since the land was immediately put to use for construction on the purchase date, the interest should be treated as allowable business expenditure rather than capitalized. The assessing officer was directed to delete the addition. Second, on software depreciation, the tribunal upheld the CIT(A)'s decision allowing 60% depreciation on computer software, confirming that software qualifies as plant under Income Tax Rules since April 2003, following the Amway India Enterprises precedent.

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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.

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