2021 (8) TMI 909 - AT - Income Tax

Tribunal directs reassessment of Foreign Tax Credit & Section 80G deduction in line with DTAA provisions

M/s. Promac Engineering Industries Ltd. Versus The Assistant Commissioner of Income Tax, Circle 5 (1) (2), Bangalore.

M/s. Promac Engineering Industries Ltd. Versus The Assistant Commissioner of Income Tax, Circle 5 (1) (2), Bangalore. - TMI Issues Involved:1. Justification of the Commissioner (Appeals)'s Order.2. Assessment in defiance of CBDT instructions/scrutiny norms.3. Restriction of Foreign Tax Credit (FTC) under Section 90.4. Denial of deduction under Section 80G for donations.Issue-wise Detailed Analysis:1. Justification of the Commissioner (Appeals)'s Order:The assessee argued that the Commissioner (Appeals)'s order was not justified in law and on the facts and circumstances of the case. This ground was general in nature and not specifically pressed during the hearing, thus it was dismissed as not pressed.2. Assessment in Defiance of CBDT Instructions/Scrutiny Norms:The assessee contended that the Assessing Officer (AO) made the assessment in defiance of instructions/scrutiny norms provided by the CBDT for cases selected under CASS. This ground was also not pressed at the time of hearing and was dismissed as not pressed.3. Restriction of Foreign Tax Credit (FTC) under Section 90:The main issue revolved around the restriction of the FTC to Rs. 3,71,874/- against the claimed Rs. 1,71,80,438/-. The AO restricted the FTC based on the total revenue as per financial statements rather than the total income as per the provisions of the Act. The CIT(Appeals) upheld the AO's decision, referencing Article 23 of the DTAA, which limits the deduction to the portion of tax attributable to income taxed in Tanzania.The Tribunal analyzed the relevant DTAA provisions and previous case law, particularly the Tribunal's decision in Ittiam Systems Pvt. Ltd. v. ITO. It was concluded that the FTC should be computed by considering the global income, the average rate of tax, and comparing the tax paid in the foreign country with the tax payable in India on the doubly taxable income. The relief should be the lower of the tax paid in Tanzania or the tax payable in India on the doubly taxable income.4. Denial of Deduction under Section 80G for Donations:The assessee claimed a deduction under Section 80G for donations amounting to Rs. 3,78,000/-. The AO disallowed the deduction due to lack of evidence, and the CIT(Appeals) did not adjudicate this issue. The Tribunal remitted this issue back to the AO for fresh consideration, directing the assessee to provide necessary evidence to support the claim.Conclusion:The appeal was partly allowed. The Tribunal directed the AO to recompute the FTC as per the detailed method provided and to reconsider the deduction under Section 80G based on the evidence to be furnished by the assessee.