Form 67 filed after original return due date but before revised return deadline validates Foreign Tax Credit claim
The ITAT Bangalore allowed the assessee's appeal regarding denial of Foreign Tax Credit. The assessee had filed Form 67 after the due date for filing return of income under section 139(1) but before the due date for revised return. The ITAT held that since Form 67 was available to CPC prior to processing and aligned with retrospective amendment in Rule 128(9) of IT Rules, denial of FTC was unjustified. The AO was directed to grant foreign tax credit after verification of Form 67 filed on 23.7.2020.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are:
- Whether Foreign Tax Credit (FTC) of Rs. 76,51,818 can be denied solely on the ground that Form 67 was filed beyond the due date prescribed under Section 139(1) of the Income-tax Act, 1961Rs.
- Whether the filing of Form 67 on 23.7.2020, prior to the filing of the revised return on 30.7.2020, satisfies the procedural requirements under Rule 128 of the Income-tax Rules for claiming FTCRs.
- Whether the appellate authority erred in directing the assessee to seek condonation of delay in filing Form 67 from the Principal Commissioner of Income Tax (PCIT), instead of deciding the claim on merits under Section 246ARs.
- Whether the proceedings under Section 143(1) of the Act, denying FTC without prior communication to the assessee as mandated by the proviso to Section 143(1)(a), are valid in lawRs.
- Whether the appellate authorities failed to follow binding judicial precedents and principles established by higher courts regarding the directory nature of the time limit for filing Form 67 and the validity of Section 143(1) proceedingsRs.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Denial of Foreign Tax Credit for delay in filing Form 67
The relevant legal framework includes Section 90 and Section 91 of the Income-tax Act, 1961, which provide for relief in respect of foreign taxes paid, and Rule 128 of the Income-tax Rules, which prescribes the procedure for claiming FTC, including the requirement to file Form 67 on or before the due date specified under Section 139(1).
The Tribunal noted that for the assessment year 2019-20, Rule 128(8) mandated filing of Form 67 on or before the due date of filing the original return under Section 139(1). The assessee filed the original return on 31.8.2019 without Form 67 but filed Form 67 on 23.7.2020, prior to filing the revised return on 30.7.2020.
The Tribunal observed that the due date requirement under Rule 128 was amended retrospectively effective 1.4.2022 to allow filing Form 67 on or before the due date of filing the original or revised return under Section 139(1) or 139(4). However, this amendment does not apply to AY 2019-20.
Despite the apparent non-compliance with the original Rule 128(8), the Tribunal extensively relied on judicial precedents, including the decision of the Hon'ble Madras High Court in Duraiswamy Kumaraswamy v. PCIT and multiple ITAT orders, which held that the time limit prescribed under Rule 128 is directory and not mandatory. The Tribunal emphasized that the filing of Form 67 prior to processing of the return by the CPC and availability of Form 67 to the authorities should suffice for granting FTC.
In applying the law to facts, the Tribunal found that since Form 67 was filed before the revised return and was available to the CPC before processing, the denial of FTC was not justified. The Tribunal thus overruled the lower authorities' strict interpretation of the time limit as mandatory.
Competing arguments centered on the Revenue's insistence on strict compliance with Rule 128(8) and the absence of condonation powers with the CIT(A). The Tribunal rejected these arguments, holding that the procedural requirement is directory and that the assessee's substantive right to FTC should not be defeated by a technical delay.
Issue 2: Filing of Form 67 prior to revised return
The Tribunal confirmed that the assessee filed Form 67 electronically and verified it on 23.7.2020, prior to filing the revised return on 30.7.2020. This sequence was critical to the assessee's claim that the procedural requirement was met in substance, if not in strict timing.
The Tribunal found the lower authorities' assertion that Form 67 was not filed to be incorrect and noted that the appellate order itself acknowledged the filing of Form 67. This supported the conclusion that the assessee had complied with Rule 128 requirements in a substantive manner.
Issue 3: Whether the CIT(A) erred in directing the assessee to seek condonation of delay
The Tribunal examined the scope of the CIT(A)'s powers under Section 246A and the provisions of Section 119(2)(b) relating to condonation of delay in filing documents.
The CIT(A) had held that the delay in filing Form 67 could only be condoned by the PCIT and advised the assessee to approach that authority. The Tribunal held that the assessee had approached the CIT(A) in appeal under Section 246A, not for condonation of delay, and that the CIT(A) should have decided the claim on merits.
The Tribunal further observed that the procedural requirement of filing Form 67 is directory and that the CIT(A) erred in not entertaining the appeal on merits and in shifting the burden of condonation to the assessee.
Issue 4: Validity of Section 143(1) proceedings denying FTC without prior communication
The proviso to Section 143(1)(a) requires the Assessing Officer to communicate any adjustment proposed in the intimation to the assessee before making the adjustment.
The Tribunal noted that the assessee contended that no formal communication was sent before denial of FTC in the intimation under Section 143(1). The CIT(A) had incorrectly stated that such communication was made.
The Tribunal referred to judicial precedents including Arham Pumps v. DCIT and Ernst & Young Merchant Banking Services LLP v. ADIT, which held that denial of FTC without prior communication violates the proviso and renders the proceedings invalid.
The Tribunal found merit in the assessee's contention and held that the denial of FTC in Section 143(1) intimation without prior communication was not valid in law.
Issue 5: Non-adherence to judicial precedents by lower authorities
The Tribunal extensively referred to judicial pronouncements relied upon by the assessee, including decisions of the Hon'ble Supreme Court and High Courts, and various ITAT orders, which consistently held that:
- The time limit for filing Form 67 is directory and not mandatory;
- The assessee's substantive right to FTC cannot be defeated by procedural delays;
- Section 143(1) adjustments require prior communication to the assessee;
- Lower authorities must follow binding precedents and not adopt a hyper-technical approach.
The Tribunal held that the CIT(A) and Assessing Officer failed to follow these precedents and principles, resulting in erroneous denial of FTC.
3. SIGNIFICANT HOLDINGS
The Tribunal held, inter alia, that:
"The time limit prescribed u/r 128 is merely directory and not mandatory. Therefore, if such Form is available at the time of processing of the return, the assessee should be granted the credit for the same."
"When the assessee has filed Form 67 before the due date of filing of revised return of income and available to the CPC prior to the processing of the return, which is also in tune with the retrospective amendment made in sub-Rule (9) of Rule 128 of the I.T. Rules, the denial of tax credit to the assessee is not justified."
"No formal communication was sent to the Appellant as required by the proviso to Section 143(1)(a) of the Act. Hence, the denial of FTC in the intimation under Section 143(1) is invalid in law."
"The CIT(A) erred in stating that condonation of delay in filing Form 67 lies with the PCIT and should have entertained the appeal on merits under Section 246A."
Core principles established include:
- The procedural requirement to file Form 67 within the due date under Rule 128 is directory, not mandatory, and delay should not defeat substantive FTC claims.
- Section 143(1) proceedings denying FTC without prior communication violate statutory provisos and are invalid.
- Appellate authorities must decide appeals on merits and not redirect taxpayers to condonation proceedings unnecessarily.
Final determinations on each issue were in favour of the assessee, directing the Assessing Officer to grant the foreign tax credit of Rs. 76,51,818 after verifying the Form 67 filed on 23.7.2020. The appeal was allowed accordingly.
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