Tribunal allows depreciation on design software for hydraulic cylinders & excavator equipment

The Tribunal ruled in favor of the assessee, allowing the appeal related to the disallowance of depreciation claimed on design software for hydraulic cylinders and excavator equipment. The Department's appeal, with a tax effect below Rs. 20,00,000, was dismissed as unsustainable per CBDT Circular No.3/2018. The Tribunal directed the Assessing Officer to permit depreciation at 60% for the design software purchased, treating it as computer software based on previous Tribunal decisions. The judgment was delivered on September 3, 2018, in Chennai.

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Issues:
1. Tax effect in Department's appeal less than Rs. 20,00,000.
2. Disallowance of depreciation claimed on design software.

Analysis:
1. The judgment pertains to cross-appeals by the assessee and the Revenue against an order of the Commissioner of Income Tax (Appeals). The counsel for the assessee contended that the tax effect in the Department's appeal was below Rs. 20,00,000, rendering it nonviable. Regarding the assessee's appeal, the issue revolved around the disallowance of depreciation on design software, specifically related to drawings, designs, and custom-built hydraulic cylinders and excavator equipment. The Authorized Representative cited a previous Tribunal decision in favor of the assessee for the assessment year 2012-2013, supporting the claim for depreciation.

2. The Departmental Representative acknowledged that the question of depreciation favored the assessee based on the earlier Tribunal order for the same assessment year. The Tribunal noted that the tax effect in the Department's appeal was indeed below Rs. 20,00,000, making it unsustainable as per CBDT Circular No.3/2018. Concerning the assessee's appeal, the claim for depreciation was on software encompassing design and assembly drawings of hydraulic cylinders, bill of materials, and other components. The acquisition of this asset occurred in the financial year 2011-12 for the assessment year 2012-2013.

3. The Tribunal referenced the previous Tribunal decision for the assessment year 2012-2013, where it was established that the asset in question qualified for depreciation at 60%. The Tribunal deliberated on the nature of the asset, emphasizing that the design software embedded in a CD containing the design should be treated as computer software. The Tribunal directed the Assessing Officer to allow depreciation at 60% for the purchase of this design software, as per the prescribed rates for computer software in the relevant assessment year.

4. Consequently, the Tribunal ruled in favor of the assessee, allowing the appeal, while dismissing the Department's appeal. The judgment was pronounced on September 3, 2018, in Chennai.

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