2024 (7) TMI 334 - AT - Income Tax

Taxpayer wins Foreign Tax Credit appeal despite late Form 67 filing under sections 90/90A and Rule 128

The ITAT Bangalore allowed the taxpayer's appeal regarding denial of Foreign Tax Credit (FTC) under sections 90/90A due to late filing of Form 67. The ... Denial of Foreign Tax Credit (FTC) u/s 90/90A due to late filing of Form 67 - as per DR Form 67 should be filed along with the original return of income filed under section 139(1) - mandatory v/s directory provision - HELD THAT:- As similar issue decided in Duraiswamy Kumaraswamy [2023 (11) TMI 1000 - MADRAS HIGH COURT] returns were filed without FTC, however the same was filed before passing of the final assessment order. The filing of FTC in terms of Rule 128 is only directory in nature. The rule is only for implementation of the provisions of the Act and it will always be directory in nature. This is what the Hon’ble Supreme Court in G.M. Knitting Industries (P) Ltd [2015 (11) TMI 397 - SC ORDER] had held in the above case when the returns were filed without furnishing Form 3AA and the same can be filed the subsequent to the passing of the assessment order. As FTC was filed before intimation under section 143 (1) the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the FTC was rejected by the Respondent, which is not proper and the same is not in accordance with law. Decided in favour of assessee. Issues Involved:1. Validity of the appellate order and intimation under sections 250 and 143(1) of the Income Tax Act, 1961.2. Principles of natural justice concerning section 143(1) of the Act.3. Denial of Foreign Tax Credit (FTC) under sections 90/90A of the Act.Issue-wise Detailed Analysis:1. Validity of the Appellate Order and Intimation under Sections 250 and 143(1) of the Income Tax Act, 1961:The assessee challenged the appellate order under section 250 and the intimation under section 143(1), contending that both were 'bad in law and liable to be quashed.' The appeal was directed against the order passed by the NFAC, which had denied the FTC claimed by the assessee due to the late filing of Form 67. The assessee argued that the revised return, including Form 67, was filed before the completion of assessment proceedings, thus complying with the procedural requirements.2. Principles of Natural Justice - Section 143(1):The assessee argued that the CPC erred by disallowing the FTC without issuing a communication as required under the proviso to section 143(1) and without providing an opportunity to respond. It was contended that the adjustments made by the CPC were not contemplated under section 143(1), rendering the intimation 'bad in law and liable to be deleted.'3. Denial of Foreign Tax Credit under Sections 90/90A:The primary issue was the denial of FTC amounting to Rs. 50,11,531 due to the late filing of Form 67. The assessee contended that the time limit prescribed under Rule 128 of the Income Tax Rules, 1962, is directory and not mandatory. It was argued that Rule 128 does not stipulate disallowance of FTC for non-filing or late filing of Form 67. The assessee cited the judgment of the Madras High Court in Duraiswamy Kumaraswamy and other ITAT Bangalore decisions supporting the view that procedural non-compliance should not result in substantive disallowance of FTC.Tribunal's Analysis and Decision:The Tribunal considered the arguments, case laws, and materials presented by both sides. It noted that the revised return, including Form 67, was filed before the intimation under section 143(1). The Tribunal referred to the Co-ordinate Bench's decision in Sanjiv Gopal Vs. ADIT, which held that the filing of Form 67 is a procedural requirement and not mandatory. It emphasized that neither the Act nor the Rules explicitly provide for disallowance of FTC for late filing of Form 67. The Tribunal also cited the Supreme Court's stance that procedural requirements should not override substantive rights.The Tribunal found that the assessee is entitled to FTC and directed the AO to allow the claim. It distinguished the case from the Vishakapatnam Bench decision, noting that in the present case, Form 67 was filed along with the return and not after a significant delay.Judgment:The Tribunal allowed the appeal, setting aside the orders of the lower authorities. It held that the assessee is entitled to FTC, and the AO was directed to allow the claim. The judgment was pronounced in the open court.Conclusion:The Tribunal's decision underscores the principle that procedural lapses should not negate substantive entitlements, aligning with higher judicial precedents and reinforcing the directory nature of procedural requirements under Rule 128.