Assessee wins appeal for foreign tax credit denial under Section 90 after rectification application rejected

ITAT Hyderabad allowed the assessee's appeal regarding denial of foreign tax credit under Section 90. The AO had rejected the rectification application for not filing Form 67 before the due date under Rule 128(9), and CIT(A) NFAC upheld this action citing non-filing of US income tax return as a prerequisite. Following precedent from coordinate bench decisions, the Tribunal restored the matter to AO with directions to allow FTC after due verification and provide adequate hearing opportunity to the assessee.

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Issues:
Disallowance of Foreign Tax Credit claimed by the assessee under section 90 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of Foreign Tax Credit
- The appeal was against the order of the CIT (A)-NFAC upholding the disallowance of Foreign Tax Credit (FTC) claimed by the assessee under section 90 of the Income Tax Act, 1961.
- The assessee, an individual, filed a return of income declaring total income and claimed FTC of Rs. 4,40,939.
- The claim for FTC was not allowed by the CPC initially, leading to multiple filings of Form No.67 and rectification petitions.
- The learned CIT (A) NFAC dismissed the appeal, relying on various decisions, including one by the Vizag Bench of the Tribunal.
- The Assessing Officer rejected the rectification application based on the non-furnishing of Form 67 before the due date as prescribed under Rule 128(9).
- The CIT (A) NFAC upheld the action, emphasizing that the filing of Income Tax Return in the USA is essential for subjecting income to tax in the USA, a primary requirement for allowing foreign tax credit under the Double Taxation Avoidance Agreement (DTAA).
- The Tribunal referred to similar cases and observed that the filing of Form 67 for FTC is directory, not mandatory, and cannot be a reason for disallowance.
- The Tribunal directed the Assessing Officer to allow the FTC after due verification, considering the delay in filing Form 67 was due to reasons beyond the assessee's control.
- The Tribunal held that when two views are possible, the one favorable to the assessee should be followed, as per established legal principles.
- The Tribunal restored the issue to the Assessing Officer with directions to allow the FTC after due verification, granting the assessee an opportunity to present their case.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to allow the Foreign Tax Credit claimed by the assessee after verifying the necessary documents. The decision was based on the principle that the filing of Form 67 for FTC is directory, not mandatory, and any delay in filing should be considered in light of the circumstances. The Tribunal emphasized the importance of following the view favorable to the assessee when interpreting tax laws and directed a fair hearing for the assessee in the matter.

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