Depreciation on expenditure for software development

[MALAYANUR PADMANABHARAO]

We have established a software company. The objects of the company is to develop a software product useful for banks in digital banking. The company spent considerable amount over 5 years to develop the software and till the product was ready company recognised as product development expenditure in the balance sheet. Most of the expenses incurred for salaries, etc., were treated as product development and in the fin.year brought out the product and selling in the market. Company did not claim on depreciation on this expenditure in any previous fin.years as per IT, but claimed depreciation at the rate of 25% on the capitalised product of 5 years expenditure as an intangible asset under technical know how, patents, etc. Company has applied for patent of the product which is under process. Assessing officer negates that this is not an intangible assets and should have been claimed in respective assessment years of the expenditure incurred.

Wish to know whether company's claim of depreciation on the amount under intangible asset is correct or not.

AI Summary

Software Company Challenges Depreciation Claim on Digital Banking Product; Seeks Clarification Under Section 32 of Income Tax Act. A software company developed a product for digital banking over five years, incurring expenses primarily on salaries. These were recorded as product development costs on the balance sheet. Upon launching the product, the company claimed 25% depreciation on the capitalized expenditure as an intangible asset under technical know-how. However, the assessing officer argued that the expenses should have been claimed annually. The company seeks clarification on whether their depreciation claim on the intangible asset is valid. A respondent advised referring to Section 32 of the Income Tax Act, noting that depreciation is allowed in the year the asset is used.