Assessee wins appeal on foreign tax credit denial due to late Form 67 filing under Rule 128

ITAT Chennai allowed assessee's appeal for statistical purposes regarding foreign tax credit claim denial. The AO had rejected FTC claim due to late filing of Form No. 67 beyond prescribed time under Rule 128 of Income Tax Rules, 1963. ITAT set aside both CIT(A) and AO orders, directing AO to reconsider assessee's FTC claims afresh after providing reasonable opportunity of hearing. Assessee was directed to substantiate claims before AO during fresh consideration proceedings.

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Issues Involved: The denial of foreign tax credit due to delayed submission of Form No. 67 u/s 139(1) and the applicability of DTAA provisions over Income Tax Rules.

Issue 1: Denial of Foreign Tax Credit

The appellant contested the denial of foreign tax credit amounting to Rs. 28,65,292 by the CPC Bengaluru for the delayed submission of Form No. 67. The appellant argued that the foreign tax credit should not be denied solely based on the late filing of Form No. 67 u/s 139(1). It was emphasized that the foreign income in question had already been taxed in both India and Japan, warranting double taxation relief. The appellant further contended that the DTAA provisions should prevail over the Income Tax Act, especially when Form 67 filing is not mandatory but directory. The appellant also highlighted a previous ITAT Mumbai Bench decision allowing foreign tax credit in a similar case of delayed Form 67 submission. The appellant stressed that the failure to submit Form 67 along with the income tax return was due to lack of knowledge, not willful neglect, and pleaded for the foreign tax credit to be granted to avoid irreparable loss.

Issue 2: Applicability of DTAA Provisions

The contention revolved around whether the DTAA provisions supersede Income Tax Rules regarding the procedural requirements for claiming foreign tax credit. The CIT(A) upheld the disallowance of foreign tax credit due to the delayed filing of Form 67, citing Rule 128 of the Income Tax Rules, 1963 as mandatory. The CIT(A) referred to a specific ITAT Vishakhapattanam Bench decision to support the denial of foreign tax credit in cases of delayed Form 67 submission. The CIT(A) emphasized the mandatory nature of Rule 128(9) and highlighted that the filing of Form 67 within the prescribed time limit is crucial for claiming foreign tax credit. The CIT(A) rejected the appellant's argument that DTAA provisions override Income Tax Rules concerning foreign tax credit procedural requirements. Additionally, the CIT(A) pointed out that the CBDT notification extending the due date for Form 67 filing did not apply retrospectively, thereby enforcing the strict time limit for filing Form 67. The CIT(A) concluded that the delay in filing Form 67 without valid reasons warranted the disallowance of foreign tax credit, as per Rule 128.

Conclusion:

The Tribunal allowed both appeals of the assessee for statistical purposes, directing the AO to reconsider the foreign tax credit claims after the appellant submitted Form 67. The Tribunal emphasized the importance of substantiating the claims before the AO and provided a reasonable opportunity for the assessee to be heard. The decision highlighted the significance of complying with procedural requirements, such as timely filing of Form 67, to claim foreign tax credit under the Income Tax Rules.

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