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<h1>Tribunal Directs Reconsideration of Foreign Tax Credit Claim, Emphasizes Substantive Rights</h1> <h3>Mr. Kazuya Watanabe Versus The Assistant Director of Income Tax, Bengaluru.</h3> Mr. Kazuya Watanabe Versus The Assistant Director of Income Tax, Bengaluru. - TMI Issues Involved:1. Denial of Foreign Tax Credit (FTC) due to delayed filing of return.2. FTC availability only for income taxable in India and received outside India.Summary:Issue 1: Denial of Foreign Tax Credit (FTC) due to delayed filing of returnThe assessee, a Japanese national deputed to India, filed a return of income for the Assessment Year 2021-22 on 10.01.2022, claiming FTC of Rs. 9,47,077/-. The return was processed, and FTC was denied by the AO due to the return being filed beyond the due date prescribed under section 139(1) of the Income Tax Act, 1961. The CIT(A) upheld this denial, emphasizing that the return was not filed within the stipulated time and that FTC is available only for income taxable in India and received outside India.The Tribunal, referencing previous decisions, held that Rule 128 is procedural and not mandatory, thus, the delay in filing Form No.67 and the return should not result in the denial of FTC. The Tribunal cited the Bangalore Bench decision in Sanjiv Gopal vs. ACIT, which stated that procedural requirements should not override substantive rights provided under the Act and DTAA. Consequently, the Tribunal directed the AO to allow the FTC claim.Issue 2: FTC availability only for income taxable in India and received outside IndiaThe CIT(A) also contended that FTC is only available for income taxable in India and received outside India for taxes paid outside India. The Tribunal noted that it was unclear whether the entire salary was earned in India or outside India. Therefore, the Tribunal restored the matter to the AO for a de novo consideration to verify if the FTC claimed pertains to income earned abroad and taxed in India. The assessee was directed to provide necessary evidence to substantiate the FTC claim.Conclusion:The appeal was allowed for statistical purposes, with directions to the AO to reconsider the FTC claim based on the provided evidence and in light of the Tribunal's findings that procedural delays should not negate substantive entitlements under the Act and DTAA.