Foreign tax credit cannot be denied solely for delayed filing of Form 67 under Rule 128

The ITAT Bangalore held that denial of foreign tax credit solely due to delayed filing of Form No.67 beyond the due date under Rule 128 of IT Rules, 1962 was incorrect. Following precedent in Vinod Kumar Lakshmipathi case, the Tribunal ruled that Rule 128(9) does not mandate disallowance for delayed filing, Form No.67 filing is directory rather than mandatory, and DTAA provisions override domestic rules. The AO was directed to allow foreign tax credit after verification of the belatedly filed Form No.67. The assessee's appeal was partly allowed.

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Issues Involved:

1. Whether the order passed by the CIT(A) was based on surmise and conjecture and thus bad in law.
2. Non-grant of foreign tax relief due to procedural non-compliance with Rule 128 of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Order Based on Surmise and Conjecture:
The appellant contended that the CIT(A) erred by passing an order dated 23 February 2024, which was allegedly based on surmise and conjecture without properly appreciating the facts of the case. The appellant argued that such an order is bad in law and should be quashed. However, the judgment does not provide a detailed analysis or resolution of this issue, focusing instead on the procedural aspects related to the foreign tax relief.

2. Non-Grant of Foreign Tax Relief:
The core issue in this appeal was the non-grant of foreign tax relief amounting to Rs. 3,64,686, which was claimed by the appellant in the revised return of income. The appellant, a resident of India, had income that was doubly taxed in India and Sri Lanka. The appellant argued that under Article 23(2) of the India-Sri Lanka tax treaty and Section 90 of the Income Tax Act, 1961, they were entitled to foreign tax relief. The appellant had filed Form 67 on 31 March 2021, which was after the due date for filing the return of income. The CIT(A) and CPC denied the foreign tax credit due to this delay, citing Rule 128(9) of the Income Tax Rules, 1962, which mandates the filing of Form 67 on or before the due date of filing the return of income.

The Tribunal considered previous decisions, notably in the cases of Vinod Kumar Lakshmipathi and Brinda Rama Krishna, where it was held that Rule 128(9) does not provide for disallowance of foreign tax credit due to a delay in filing Form 67. The Tribunal emphasized that filing of Form 67 is a directory requirement and not mandatory. Furthermore, it was noted that the provisions of the Double Taxation Avoidance Agreement (DTAA) override the provisions of the Act, and the Rules cannot contravene the Act. The Tribunal reiterated that procedural non-compliance should not result in the denial of substantive rights, such as the foreign tax credit.

The Tribunal directed the Assessing Officer (AO) to consider the Form 67 filed by the appellant and to allow the foreign tax credit after due verification. The appeal was partly allowed for statistical purposes, and the matter was remitted to the AO for reconsideration in light of the Tribunal's findings.

In conclusion, the Tribunal's judgment focused on the procedural aspect of filing Form 67 and clarified that procedural delays should not negate the substantive right to foreign tax relief. The appeal was partly allowed, directing the AO to reassess the foreign tax credit claim after considering the belatedly filed Form 67.

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