Mumbai ITAT: 60% Depreciation on Computer Software Upheld; Section 14A Disallowance Restricted to Suo Motu Amount

Case Overview

PRPL Enterprises Private Limited Vs CIT (ITAT Mumbai)
Assessment Year: 2015-16
Order Date: 24.06.2026
Forum: Income Tax Appellate Tribunal, Mumbai Bench

The Mumbai Income Tax Appellate Tribunal recently delivered a significant ruling in the case of PRPL Enterprises Private Limited, a company engaged in real estate development, settling two long-contested issues — the applicable rate of depreciation on computer software and the quantum of disallowance permissible under Section 14A of the Income Tax Act, 1961. The Tribunal ruled decisively in favour of the assessee on both fronts, directing the Assessing Officer to allow 60% depreciation on software and to restrict the Section 14A disallowance to the voluntary suo motu computation already made by the assessee.

Background and Procedural History

PRPL Enterprises Private Limited filed its return of income for AY 2015-16 on 29.09.2015, declaring a total loss. The case was selected for scrutiny and the Assessing Officer issued notice under Section 143(2) followed by a questionnaire under Section 142(1). The assessee responded to the queries raised during assessment proceedings, but the Assessing Officer remained unconvinced and proceeded to recompute the total income by introducing certain disallowances.

The assessee challenged these additions before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The CIT(A), by order dated 08.09.2025, dismissed the assessee's grounds of appeal across all the disputed issues. Aggrieved by this outcome, the assessee filed an appeal before the Mumbai ITAT, which took up the matter and pronounced its order on 24.06.2026.

Issue No. 1 — Rate of Depreciation on Computer Software

Facts and Dispute

During the year under consideration, the assessee had capitalized expenditure on various software purchases amounting to Rs. 83,51,955/- under the head intangible assets — computer software. The software items included Autodesk AutoCAD, Salesforce, Adobe Acrobat, Windows 7 Professional, MS Office 2013, MS Project 2013, SAP License, among others. The assessee claimed depreciation on these additions at the rate of 60%, consistent with the treatment applicable to computers and computer software under Appendix I to the Income-tax Rules, 1962.

The Assessing Officer, however, took the position that software purchased independently and separately from hardware constitutes an intangible asset and, therefore, attracts depreciation at only 25% under Section 32(1)(ii) of the Income Tax Act, 1961. On this basis, the AO reduced the depreciation claim from Rs. 50,11,173/- to Rs. 20,87,989/-, adding back an excess amount of Rs. 29,23,184/-.

The CIT(A) agreed with the AO's reasoning, observing that such software could not be treated as an integral component of the computer system and that it was appropriately classified as a business or commercial right attracting only 25% depreciation. Notably, after a rectification order under Section 154 dated 20.02.2018, the disallowance was reduced to Rs. 20,80,548/-. The assessee appealed this determination to the Tribunal.

Assessee's Contentions

The Authorised Representative of the assessee placed reliance on an extensive array of judicial precedents to support the claim for 60% depreciation: