PRPL Enterprises Private Limited Vs CIT (ITAT Mumbai)
Mumbai ITAT Allows 60% Depreciation on Computer Software and Restricts Section 14A Disallowance to Assessee’s Suo Motu Computation
The Mumbai ITAT held that computer software, including licensed application software such as SAP, AutoCAD, MS Office, Adobe Acrobat and similar software, is eligible for 60% depreciation under the entry “Computers including computer software” in Appendix I to the Income-tax Rules. The Tribunal rejected the Revenue’s view that independently purchased software constitutes an intangible asset entitled only to 25% depreciation under section 32(1)(ii). Relying on several High Court and Tribunal decisions, it held that computer software falls within the specific depreciation schedule applicable to computers and directed the Assessing Officer to allow depreciation at 60%.
On the issue of section 14A, the Tribunal found that the assessee had not earned any dividend income during the year and had earned only ₹3,952 as exempt share of profit from an LLP. It also noted that the Assessing Officer had computed an enormous disallowance of over ₹82.26 crore under Rule 8D despite the assessee having already made a suo motu disallowance of ₹9,11,435. Considering the facts, the Tribunal accepted the assessee’s voluntary disallowance and directed the Assessing Officer to restrict the disallowance under section 14A to ₹9,11,435. Further, following the Special Bench decision in Vireet Investment (P.) Ltd., it held that the section 14A disallowance cannot be added back while computing book profits under section 115JB. Consequently, the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeal is filed by the assessee, challenging the order of the Commissioner of Income Tax Appeals, National Faceless Appeal Centre (NFAC), Delhi [in short, “the Ld. CIT(A)”], dated 08.09.2025 for the Assessment Year (AY) 2015-16,arises from the assessment order under section 143(3) of the Income Tax Act, 1961 [in short, “the Act”] dated 26.12.2017, passed by Deputy Commissioner of Income Tax Circle-7(3)(2), Mumbai [in short, “the Ld.AO”]. The grounds of appeal raised by the assessee are as under:
“GROUND NO. I: DISALLOWANCE OF THE CLAIM OF DEPRECIATION ON ADDITIONS TO COMPUTER SOFTWARE OF RS 29.23,184/-:
1. On the facts and circumstances of the case and in law, the AO erred in recalculating depreciation on computer software @25% instead of @ 60% as claimed by the Appellant and thereby disallowed the excess depreciation on the alleged ground that software purchased separately and independent from computer purchases amounts to “intangible assets”.
2. He further erred in calculating the amount of depreciation ignoring the second proviso to section 32(1)(ii) of the Act and thereby making a higher addition to the total income.
3. The Appellant prays that the AO be directed to allow depreciation @60% on computer software as claimed by the Appellant and accordingly delete the disallowance made amounting to Rs. 29,23,184/-.
4. Without Prejudice to the above, the Appellant prays that the software purchased be allowed as business expenditure u/s 37(1) of the Act.
5. In any case, the amount of disallowance, if any, be restricted to Rs. 20,80,549/- as correctly computed as per the provisions of the Act.
GROUND NO. II: DISALLOWANCE AMOUNTING TO RS. 92,92,31,540/- U/S. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (“THE RULES”):
1. On the facts and circumstances of the case and in law, the AO erred in making a disallowance of Rs. 92,92,31,540/- u/s 14A of the Act r.w.r. 8D of the Rules including the suo moto disallowance made by the Appellant amounting to Rs. 9,11,435/-.
2. The AO failed to appreciate and ought to have held that:
a. No disallowance is called for where investments are made for strategic purpose;
b. The AO is duty bound to assess the correct income irrespective of the income returned by the Appellant;
c. Without prejudice to above, Application of Rule 8D of the Rules is not automatic;
d. Without prejudice to above, the investments made in debentures yielding taxable interest income should be excluded for the purpose of computing disallowance u/s 14A of the Act;
e. Without prejudice to above, only investments yielding exempt income should be considered while computing disallowance u/s 14A of the Act r.w.r. 8D of the Rules and thus current capital investment held in Limited Liability Partnership generating taxable interest income should not be considered.
f. Without prejudice to above, for computing disallowance u/s. 14A of the Act, net interest expenses after setting off against interest income is to be taken into consideration:
g. Without prejudice to above, only those investments which have yielded exempt income during the year should be considered while computing disallowance u/s 14A of the Act; and
h. Without prejudice to above, Disallowance u/s 14A of the Act should be restricted to the exempt income earned;
3. The Appellant prays that the disallowance u/s 14A of the Act r.w.r 8D of the Rules amounting to Rs. 92,92,31,540/-, including the suo moto disallowance made by the Appellant, be deleted or be appropriately reduced.
WITHOUT PREJUDICE TO GROUND NO. II.
GROUND NO. III: ADDITION OF DISALLOWANCE OF RS. 92,83,20,105/- UNDER SECTION 14A OF THE ACT R.W.R 8D OF THE RULES FOR THE PURPOSES COMPUTING BOOK PROFITS U/S 115JB OF THE ACT:
1. On the facts and in the circumstances of the case and in law, the AO erred in making the addition of the disallowances of Rs. 92,83,20,105/- made under section 14A of the Act r.w.r 8D of the Rules to the book profits computed u/s 115JB of the Act.
2. The Appellant prays that the AO be directed to delete the addition of disallowances u/s. 14A of the Act r.w.r 8D of the Rules while computation of book profits u/s 115JB of the Act.
GROUND NO. IV: RECOMPUTING THE LOSSES AND UNABSORBED DEPRECIATION TO BE CARRIED FORWARD:
1. Consequent to the above the Appellant prays that the AO be directed to re-compute the eligible losses and unabsorbed depreciation for the captioned year to be carried forward to subsequent years after set off.
2. The Appellant further prays that based on the outcome of the appeals filed in the respective years, the AO be directed to re-compute the eligible losses and unabsorbed depreciation brought forward from AY 2012-13 to AY 2014-15 to be set off in the captioned year and to be carried forward to the subsequent years.
GROUND NO. V: CHARGING INTEREST U/S, 234B AND 234C OF THE ACT:
1. On the facts and circumstances of the case and in law, the AO erred in levying interest amounting to Rs. 2,48,40,288/- and Rs. 16,46,944/- u/s 234B and 234C of the Act respectively.
2. The Appellant prays that the AO be directed to delete the levy of interest made u/s. 234B and 234C of the Act.”
2. Briefly stated, the assessee is a company, engaged in the business of real estate/real estate development year was filed on 29.09.201 5, declaring total loss of Rs.65,07,56,00 of assessee was selected f r scrutiny and accordingly, notice u/s 12.04.2016 was issued. Further notice u/s 142(1) dated 29.02.201 questionnaire was issued. During the course of assessment proceedings, certain issues were raised by the Ld. AO which were responded by the assessee. However, the Ld. AO was not convinced with the submissions/clarification of the assessee, therefore, the Ld . AO had recomputed the return of income of the assessee by making certain disallowances. Accordingly, the assess d income of assessee has been recomputed as under:
