Tribunal dismisses Revenue's appeal, remands depreciation issue, deletes disallowance of foreign payments. Assessee's appeal treated as allowed.

The Tribunal dismissed the Revenue's appeal due to the low tax effect and remanded the issues of disallowance of depreciation and write-off of miscellaneous expenses for fresh examination. The disallowance of payments made outside India was deleted following the Tribunal's earlier decision. The assessee's appeal was treated as allowed for statistical purposes.

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Issues Involved:
1. Tax effect and applicability of CBDT Circular No.17/2019.
2. Disallowance of depreciation on imported software.
3. Disallowance of payments made outside India under Section 40a(i).
4. Disallowance of write-off of miscellaneous expenses.

Issue-wise Detailed Analysis:

1. Tax Effect and Applicability of CBDT Circular No.17/2019:
The appeal filed by the Revenue was dismissed due to the tax effect being less than Rs. 50.00 lakhs, as per CBDT Circular No.17/2019. The Tribunal noted that the tax effect involved in the appeal was less than Rs. 50.00 lakhs, precluding the Revenue from pursuing the appeal. However, the Tribunal granted liberty to the Revenue to move an appropriate application within the limitation period if it was found that the tax effect was more than Rs. 50.00 lakhs or if the issues fell under the exceptions provided in the Circular.

2. Disallowance of Depreciation on Imported Software:
The assessee claimed depreciation of Rs. 30.99 lakhs on "imported software." The AO disallowed this claim under Section 40(a)(ia) of the Act, as the assessee did not deduct tax at source on the payment made for the software. The CIT(A) treated the payment for Intellectual Property (IP) rights as "royalty" under Explanation-2 of Section 9(1)(vi) of the Act, following the Karnataka High Court decision in Samsung Electronics Co. Ltd., and directed the AO to treat the depreciation claim as a deduction for royalty payment. The Tribunal found contradictions in the facts presented and noted that the CIT(A) did not consider the ITAT's earlier decision, which held that the payment of Rs. 5.00 crores to Shri Mohan Raju was not royalty. The Tribunal set aside the CIT(A)'s order and remanded the issue for fresh examination.

3. Disallowance of Payments Made Outside India Under Section 40a(i):
The CIT(A) confirmed the disallowance of payments made outside India to two persons. The assessee did not press the ground relating to the disallowance of Rs. 5,17,951/-. Regarding the disallowance of Rs. 7,62,090/- paid to Saabwe Paul Kisitu, the CIT(A) treated the payment as "fee for technical services" under Article 12 of the India-Uganda DTAA. However, the Tribunal noted that an identical issue in the assessee's case for AY 2011-12 was decided in favor of the assessee, treating the payment under Article 14 (independent personal services) of the DTAA, which is not taxable in India in the absence of a permanent establishment. The Tribunal followed the earlier decision and directed the AO to delete the disallowance.

4. Disallowance of Write-off of Miscellaneous Expenses:
The assessee claimed a deduction of Rs. 3.67 lakhs for rental/telephone deposits written off. The AO and CIT(A) disallowed the claim, considering it capital in nature. The Tribunal noted that the payments were made in the normal course of business and referenced the Karnataka High Court decision in Pr. CIT Vs. IDS Software Solutions India Pvt. Ltd., which allowed a similar claim. However, the Tribunal found that the AO did not examine the nature of the payments and remanded the issue for fresh examination by the AO.

Conclusion:
The Tribunal dismissed the Revenue's appeal due to the low tax effect and remanded the issues of disallowance of depreciation and write-off of miscellaneous expenses for fresh examination. The disallowance of payments made outside India was deleted following the Tribunal's earlier decision. The assessee's appeal was treated as allowed for statistical purposes.

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