Form 67 filing for Foreign Tax Credit is procedural directory requirement not mandatory substantive right

The ITAT Delhi held that Form 67 filing for Foreign Tax Credit (FTC) is a procedural directory requirement, not mandatory. Following precedent in Vikash Daga case, the tribunal ruled that procedural violations do not extinguish substantive rights to claim FTC. The ITAT directed the AO to allow FTC, noting that DTAA provisions override domestic rules and Rule 128(9) does not provide for FTC disallowance due to delayed Form 67 filing. The matter was remanded to the assessing authority for verification and grant of foreign tax credit. The assessee's appeal was allowed for statistical purposes.

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Issues Involved:
1. Confirmation of disallowance of Foreign Tax Credit (FTC) by CIT(A).
2. Procedural requirement of filing Form 67 along with the Income Tax Return (ITR).
3. Applicability of Double Tax Avoidance Agreement (DTAA) provisions over Income Tax Act.
4. Legality of disallowance under Section 143(1) for procedural non-compliance.
5. Precedents supporting the allowance of FTC despite procedural delays.

Issue-wise Detailed Analysis:

1. Confirmation of Disallowance of Foreign Tax Credit (FTC):
The core issue in this appeal is the confirmation by the CIT(A) of the disallowance of FTC claimed by the assessee against salary income earned in Japan. The disallowance was initially made by the Centralized Processing Centre (CPC) due to the non-filing of Form 67 within the prescribed time frame. The assessee contended that the filing of Form 67, albeit belatedly, should not extinguish the substantive right to claim FTC, especially when the form was submitted during the pendency of the appeal.

2. Procedural Requirement of Filing Form 67:
The assessee argued that the requirement to file Form 67 before the due date is procedural or directory, not mandatory. The violation of this procedural norm should not result in the denial of FTC. The argument hinges on the premise that procedural lapses should not override substantive rights, especially when the DTAA between India and Japan, which governs the tax treatment, does not specify such a requirement.

3. Applicability of Double Tax Avoidance Agreement (DTAA) Provisions:
The assessee relied on the provisions of the DTAA, asserting that the specific provisions of the DTAA should prevail over the general provisions of the Income Tax Act. The DTAA between India and Japan allows for the avoidance of double taxation, and the assessee claimed FTC under this agreement. The principle that DTAA provisions override conflicting provisions of domestic law was supported by CBDT Circular No. 333, which emphasizes that specific provisions in a DTAA should prevail over general provisions in the Income Tax Act.

4. Legality of Disallowance under Section 143(1):
The assessee contended that the disallowance of FTC by CPC under Section 143(1) was unjustified, as it involved a debatable issue that required a more detailed examination. The procedural irregularity of filing Form 67 late should not be grounds for a prima facie adjustment under Section 143(1), which is intended for clear, undisputed adjustments. The assessee cited a similar case from the ITAT Kolkata Bench, which held that procedural irregularities are not sufficient grounds for disallowance under Section 143(1).

5. Precedents Supporting the Allowance of FTC:
The assessee cited several decisions from various ITAT benches, including ITAT Bangalore, ITAT Jaipur, and ITAT Delhi, which supported the view that the late filing of Form 67 should not bar the allowance of FTC. These precedents emphasized that procedural requirements should not negate the substantive right to claim FTC, especially when the DTAA provisions are more beneficial to the taxpayer.

Conclusion:
In light of the arguments and precedents, the Tribunal concluded that the filing of Form 67 is a procedural requirement and not mandatory. The substantive right to claim FTC should not be denied due to procedural lapses. The Tribunal set aside the impugned order and remanded the matter to the assessing authority for verification of the claim, directing that FTC be granted in accordance with the law. The appeal was allowed for statistical purposes, emphasizing the precedence of DTAA provisions and the non-mandatory nature of procedural compliance.

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