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11. The EDP Department comprised inter alia:-

(i) Owned Computer Hardware, System Software, furniture, fixtures, fittings as listed in Annexure -1 to the Agreement of sale.

(ii) Leased Computer Hardware including system Software as listed in Annxure - 2 to the Agreement of sale.

(iii) Computer Hardware under Hire Purchase scheme including System Software as listed in Anneuxre-3 to the Agreement of sale.

(iv) Technology and Application Software as listed in Annexure - 4 to the Agreement of sale.

1. Owned Computer Hardware, System Software, furniture, fixtures and fittings.

2. Leased Computer Hardware including system Software. 2.50

3. Computer hardware under hire purchase scheme including system software

4. Technology and Application software 5.00

5. Skills for operation and maintenance of Computer hardware and software i.e. 5.20 Intellectual Property Rights Total 12.70 Shri V.L. Mehta also gave an itemized valuation in respect of each equipment on the basis of which the said assets were acquired and recorded in the books of account. However, the said item-wise valuation were not submitted before the Assessing Officer but filed before the CIT(A). Accordingly, in the return of income filed the assessee bifurcated the assets acquired from Mukund Ltd. into relevant 'block of assets", and claimed depreciation in respect thereof.

        S.No.     Assets                               Value at    which     Book    value   in
                                                       acquired.             Mukund Ltd.
        1         Computer including    application        23,688,300             11,967,502
                  software
        2.        Plant and machinery                         542,700                5,565,792
        3.        Furniture                                   769,000                  360605
                  Total                                     25,00,000               17,893,899

ITA NO.1081/MUM/06(A.Y. 2002-03) ) ITA NO.1810/MUM/05(A.Y. 2001-02) ITA NO.1215/MUM/06(A.Y. 2002-03) (4) With regard to disallowance of depreciation on Application Software System, the assessee submitted that the Assessing Officer made the disallowance of depreciation on the ground that almost all software are not freely tradeable in the open market and normally are patented. Software also comes with a condition that it would only be exclusively used on a particular system where installed. Even simple packages like Microsoft Office and Windows are not tradeable in the open market and can be only exclusively used in the computer in which they are installed. In fact what is purchased by paying for the software is the right to use. The assessee invited attention to Appendix I to the Income-tax Rules, 1962 which g gives the rates at which depreciation is allowable where in item III(5) refers to computers including computer software. Note No.7 to the said Appendix clarifies that "Computer Software" means any computer programme recorded on any disc, tape, perforated media or other information storage device. when the entire EDP Department was purchased, the said purchase would be meaningless if the associated software is not purchased together. As regard the allegation that the transaction is only a paper transaction the assessee submitted that they were planning to go in a very big way into infotech business to take advantage of the software boom at that time. In fact, they had already associated themselves with IBM, one of the leading brands in computer, and had set up an IBM Authorised Training Centre at ITA NO.1081/MUM/06(A.Y. 2002-03) ) ITA NO.1810/MUM/05(A.Y. 2001-02) ITA NO.1215/MUM/06(A.Y. 2002-03) Kurla for high end computer training and also for ERP Training. It was felt that if the company concentrates on the computer and software segment it would be able to establish itself as one of the leading companies in the sector. Accordingly, the entire EDP division of Mukund Ltd. was acquired including its trained manpower which would give the assessee a head start into this activity. Both the companies involved are public limited companies and though they may be belonging to the same group, the transaction has been carried out at arms length and the consideration has been determined on the basis of the valuation report of M/s. Dalal & Shah and M/s. N.M. Raiji & Co., two very reputed firms of Chartered Accountants. The assessee further submitted that they are receiving an amount of Rs. 30 lacs a month from Mukund Ltd. towards EDP services and accordingly an amount of Rs. 3.60 crores is received annually.