Assessee wins appeal as delayed Form 67 filing cannot disallow Foreign Tax Credit under section 90

ITAT Hyderabad allowed the assessee's appeal regarding disallowance of Foreign Tax Credit under section 90 for non-filing of Form No. 67. The Tribunal held that Rule 128(9) does not provide for FTC disallowance due to delayed filing, Form No. 67 filing is directory rather than mandatory, and DTAA provisions override domestic rules. The decision followed precedent from Ashish Agarwal case, which remained unstayed by higher courts.

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Issues:
Appeal against order invoking proceedings under section 154 of the Income Tax Act, 1961 for A.Y 2020-21. Disallowance of Foreign Tax Credit under section 90. Mandatory vs. directory nature of filing Form No. 67. Interpretation of DTAA provisions.

Analysis:
The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) under section 154 of the Income Tax Act, 1961 for the assessment year 2020-21. The grounds of appeal included contentions regarding errors in the rectification order, disallowance of foreign tax credit, and the mandatory nature of filing Form No. 67. The assessee argued that the disallowance of Rs. 64,39,196 under section 90 for Foreign Tax Credit was unwarranted as they had declared the export turnover and filed Form-67 on time. The assessee also relied on the provisions of the India-US Double Taxation Avoidance Agreement (DTAA) to support their claim for foreign tax credit.

The written submissions filed by the assessee highlighted that the disallowance of the foreign tax credit was unjustified as the procedural requirements were duly fulfilled. The submissions emphasized that the claim made under section 90 of the Act should not be denied when the export turnover was declared in the income tax return. The assessee contended that the provisions of the DTAA supersede those of the Income Tax Act, and thus the claim under section 90 could not be disallowed. The assessee also argued that the requirement to file Form No. 67 before the due date was directory in nature and not mandatory.

The Tribunal, after considering the arguments presented, held that the disallowance of Foreign Tax Credit in case of delayed filing of Form No. 67 was not supported by Rule 128(9) of the Income Tax Rules. The Tribunal also noted that the DTAA provisions override the Act, and procedural requirements cannot contradict the treaty provisions. The Tribunal referred to previous decisions in favor of the assessee and allowed the appeal, citing that the case was already covered in favor of the assessee. The Tribunal's decision was in line with the ruling of a co-ordinate Bench in a similar case, and as such, the appeal of the assessee was allowed.

In conclusion, the Tribunal's decision emphasized the importance of adhering to treaty provisions, the directory nature of certain procedural requirements, and the need to ensure consistency in applying tax laws and international agreements. The judgment provided clarity on the interpretation of the Income Tax Act and DTAA provisions regarding Foreign Tax Credit, setting a precedent for similar cases in the future.

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