2025 (6) TMI 1376 - AT - Income Tax

Non grant of Foreign Tax Credit ( FTC ) - Form 67 in support of claim of FTC was filed beyond the due date of filing of the Return of Income u/s 139(1) - HELD THAT - An identical issue has been considered in case of Shri Suresh Kumar Vobbilisetty 2025 (4) TMI 390 - ITAT HYDERABAD wherein held Foreign Tax Credit cannot be denied merely because there is a delay in filing Form-67. Appeal of the assessee is allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the Foreign Tax Credit (FTC) of Rs. 8,15,869/- can be denied on the ground that Form 67 was filed beyond the due date prescribed under Section 139(1) of the Income-tax Act, 1961 ("the Act") and Rule 128(9) of the Income-tax Rules ("the Rules").

2. Whether the decisions of various High Courts and ITAT benches, relied upon by the assessee, were correctly disregarded by the learned Additional/Joint Commissioner of Income-tax (Appeals) ("Ld. ADDL/JCIT(A)").

3. Whether filing of Form 67 before the due date of filing the Revised Return under Section 139(5) of the Act satisfies the procedural requirement for claiming FTC.

4. Whether non-grant of FTC is a permissible adjustment in the Intimation under Section 143(1) of the Act, given that it involves a debatable issue.

5. Whether the proceedings under Section 143(1) of the Act are invalid due to failure to provide the assessee an opportunity to defend the claim before passing the Intimation.

Issue-wise Detailed Analysis:

1. Denial of FTC on the ground of delay in filing Form 67 beyond due date under Section 139(1) and Rule 128(9)

The relevant legal framework includes Section 91 of the Act, which provides relief in respect of income on which foreign tax has been paid, and Rule 128(9) of the Rules, which mandates filing of Form 67 on or before the due date of filing the return of income under Section 139(1). The Assessing Officer (AO) and the Ld. ADDL/JCIT(A) denied FTC on the ground that Form 67 was filed on 15.03.2019, after the due date of the original return (31.08.2018), and no condonation of delay was granted under Section 119(2)(b) of the Act.

The Tribunal noted that the CPC (Centralized Processing Centre) disallowed the FTC in the Intimation under Section 143(1) dated 20.03.2020, despite Form 67 being available before the CPC at the time of processing. The Tribunal referred to several judicial precedents including decisions of coordinate benches of the Tribunal and various High Courts, which held that the requirement under Rule 128(9) is directory and not mandatory. In particular, the Tribunal relied on the decision in 42 Hertz Software India (P) Ltd., where it was held that Rule 128(9) does not mandate denial of FTC for delay in filing Form 67 and that the provisions of the Double Taxation Avoidance Agreement (DTAA) override the Act and Rules.

The Tribunal emphasized that DTAA provisions, as per Section 90 of the Act, prevail over the domestic law and procedural requirements cannot be grounds for denial of substantive relief such as FTC. The Tribunal also cited decisions where delay in filing Form 67 was condoned, and FTC was allowed, underscoring that the denial of FTC solely on procedural grounds is impermissible.

The Tribunal applied this legal framework to the facts and held that the assessee filed Form 67 before filing the Revised Return under Section 139(5) and before the CPC passed the Intimation under Section 143(1). Therefore, the delay in filing Form 67 did not disentitle the assessee from claiming FTC.

Competing arguments by the Revenue, emphasizing the mandatory nature of Rule 128(9) and the procedural lapse, were rejected based on the overriding effect of DTAA and judicial precedents holding the filing requirement directory.

Conclusion: The Tribunal held that FTC cannot be denied merely because Form 67 was filed after the original due date but before the Revised Return and before the CPC Intimation. The denial of FTC on this ground was set aside.

2. Non-adherence to judicial precedents by Ld. ADDL/JCIT(A)

The assessee contended that the Ld. ADDL/JCIT(A) erred in not following binding judicial precedents, including decisions of the Hon'ble Supreme Court and various High Courts and ITAT benches, which held that procedural non-compliance should not lead to denial of substantive relief under DTAA and the Act.

The Tribunal analyzed the precedents cited, including the Supreme Court decision in Assistant Collector of Central Excise vs. Dunlop India Ltd., which emphasizes the principle of following binding precedents, and multiple decisions of coordinate benches of the Tribunal which consistently held that filing of Form 67 is a directory requirement.

The Tribunal observed that the Ld. ADDL/JCIT(A)'s order was contrary to these precedents and that the principle of consistency and binding nature of judicial decisions mandates following the precedents favorable to the assessee.

Conclusion: The Tribunal held that the Ld. ADDL/JCIT(A) erred in disregarding binding precedents and directed adherence to the established legal position allowing FTC despite delay in filing Form 67.

3. Filing of Form 67 before due date of Revised Return under Section 139(5)

The assessee argued that Form 67 was filed on 15.03.2019, prior to filing the Revised Return on 20.03.2019, and the due date for filing the Revised Return was 31.03.2019, thus complying with the procedural requirement.

The Tribunal examined the facts and found that the Form 67 was indeed filed before the Revised Return and before the CPC Intimation under Section 143(1). The Tribunal referred to judicial pronouncements holding that filing Form 67 before the Revised Return satisfies the procedural requirement, and the delay beyond the original due date of the return under Section 139(1) is not fatal.

Conclusion: The Tribunal held that filing of Form 67 before the Revised Return and before the CPC Intimation is sufficient compliance and the claim for FTC cannot be denied on this ground.

4. Permissibility of adjustment of FTC denial in Intimation under Section 143(1)

The assessee contended that denial of FTC, which is a debatable issue, cannot be made by way of adjustment in the Intimation under Section 143(1), which is meant for mechanical or arithmetical corrections and not for adjudication of substantive issues.

The Tribunal considered judicial precedents including the Supreme Court decision in ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd., and ITAT decisions in City Manager Association vs. DCIT and Paris Elysees India Pvt. Ltd. vs. DCIT, which held that no debatable issues can be decided in the Intimation under Section 143(1).

The Tribunal noted that denial of FTC involves substantive legal interpretation and is a debatable issue, hence not permissible to be decided in the Intimation stage.

Conclusion: The Tribunal held that the adjustment disallowing FTC in the Intimation under Section 143(1) was not permissible and that the claim should be adjudicated after due process.

5. Validity of proceedings under Section 143(1) given failure to provide opportunity to the assessee

The assessee argued that the proceedings under Section 143(1) are invalid as the AO did not comply with the provisos to Section 143(1)(a) requiring opportunity to the assessee before making adjustments.

The Tribunal referred to ITAT decisions in Arham Pumps vs. DCIT and Ernst & Young Merchant Banking Services LLP vs. ADIT, which held that failure to provide opportunity under the proviso renders the proceedings invalid.

The Tribunal observed that the CPC processed the return and disallowed FTC without giving the assessee an opportunity to defend the claim.

Conclusion: The Tribunal held that the Section 143(1) proceedings were invalid for non-compliance with the proviso and directed that the claim for FTC be considered after giving the assessee proper opportunity.

Significant Holdings:

"The word 'shall' has been used in the rule 128(9) therefore the provisions of rule 128 are mandatory in nature and not directory" - was rejected by the Tribunal relying on judicial precedents holding the requirement directory.

"DTAA overrides the provisions of the Act and the Rules" - The Tribunal emphasized this principle, citing the Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT and various coordinate bench decisions, establishing that procedural non-compliance under domestic law cannot override substantive rights under DTAA.

"FTC cannot be denied merely because there is a delay in filing Form-67" - The Tribunal held that delay in filing Form 67 beyond the due date of original return but before Revised Return and CPC Intimation is not a ground for denial of FTC.

"No debatable issue can be adjudicated in Intimation under Section 143(1)" - The Tribunal held that denial of FTC is a debatable issue and cannot be decided at the CPC processing stage.

"Section 143(1) proceedings are invalid if opportunity is not given as per proviso" - The Tribunal held that failure to provide opportunity to the assessee renders the proceedings invalid.

Final determinations:

• The claim for Foreign Tax Credit of Rs. 8,15,869/- is allowed.
• The denial of FTC on the ground of delay in filing Form 67 is set aside.
• The adjustment disallowing FTC in the Intimation under Section 143(1) is held impermissible.
• The proceedings under Section 143(1) are invalid for non-compliance with proviso and require reconsideration after providing opportunity.
• The Assessing Officer is directed to verify the foreign tax paid and grant FTC in accordance with the law and judicial precedents.