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3. Brief facts of the case are that the assessee-company is engaged in the business of manufacturing drugs and pharmaceuticals. It has filed return of income on 19.11.2011 declaring total income at Rs.80,99,180. The return was processed under section 143(1), and thereafter selected for scrutiny assessment by issuance of notice under section 143(2) upon the assessee. During the assessment proceedings, it was noticed by the AO that the assessee has claimed depreciation of Rs.54,14,319/- at the rate of 60% on block of assets viz. computer and software. The ld.AO doubted the claim of the assessee and issued a show cause notice asking as to why depreciation on software be not restricted to 25% instead of 60% claimed by the assessee. Assessee filed a reply dated 27.2.2015 which was been reproduced by the AO in the assessment order. Assessee submitted that the claim of the assessee was as per Appendix-I of the Income Tax Rule 5 wherein depreciation is allowable at 60% on computer including computer software. Reply of the assessee was not found convincing to the AO. The ld.AO in the assessment order discussed about the technicality of software and tried to dichotomize "software" into "system software" and "application software" so as to treat these two items as separate and mutually exclusive from the claim of depreciation at 60%. He was of the view that SAP being an application software and being an intangible asset merely a licence to use, did not qualify for 60% depreciation, and therefore, ld.AO restricted the claim of depreciation at 25%.

4. Aggrieved assessee carried the matter in appeal before the ld.CIT(A). The ld.First Appellate Authority after a detailed discussion allowed the claim of the assessee by observing that neither the Income Tax Act nor judicial pronouncements differentiate between the computer and computer software and licence to use the same. The ld.CIT(A) held that as per table of rate of depreciation at serial no.5 name of the asset is "computer including computer software". According to the note appended to the table, computer software means any computer program recorded on any disk, tap, perforated media or other information storage device. The ld.CIT(A) allowed the claim of the assessee.