tratment of software during tax audit

[Asked by Guest]

Purchasing a tally software worth rs. 12000 during tax audit what treatment will be done?

 1) wheteher shown in repair & maintenance ac/c

2) w2hether shown in fixed assets a/c.

[DEV KUMAR KOTHARI]

Who is purchasing software a CA or a business unit?

What do you mean during tax audit- is it for purposes of tax audit or  specifically during course of tax audit t overcome typical problems?

 

Softwar may be capitalized under head computers and software. For tax purpsoes rate of deprecaiton is 60% ( half will be allowed if used for less than 180 days) . In case of replacement, one can treat it as revenue expenditure but it may involve litigation, becasue repalcement is also enerally with further advanced softwre. In case of crash of computer, and then replacement, it may be regarded as revenue expenditure.

Do not go for litigation for small sums.

 

For examination purpose better you treat it as part of block of asset.

AI Summary

Capitalisation of software: treat business accounting software as part of fixed assets with allowable tax depreciation.
Software purchased for business use may be capitalised under computers and software and included in the block of assets; depreciation is allowable at the prescribed tax rate with a reduced allowance for short term use. Replacement after a crash can be treated as revenue expenditure, but replacement by upgraded software may be challenged; for small value items it is pragmatically advisable to capitalise and treat as part of the block of assets to minimise litigation risk.