2025 (8) TMI 674 - AT - Income Tax

Delay in Filing Form 67 Due to COVID-19 Is Reasonable Cause Under Section 154 for Foreign Tax Credit Claim

Praveen Saxena Versus Income Tax Officer 6 (1) Lucknow - New

Praveen Saxena Versus Income Tax Officer 6 (1) Lucknow - New - TMI ISSUES PRESENTED and CONSIDERED1. Whether Foreign Tax Credit (FTC) claimed in the original return can be allowed despite belated filing of Form 67 (filed after the due date for filing return), and whether the filing of Form 67 is a mandatory condition for grant of FTC or a directory requirement.2. Whether a rectification application under section 154 of the Income Tax Act can be availed to secure the grant of FTC where Form 67 is filed belatedly, or whether the only remedy was to appeal the intimation issued under section 143(1) of the Act.3. Whether the order rejecting a rectification under section 154 is an appealable order that must be adjudicated on merits when the substantive claim (FTC) was made in the original return, and whether principles of natural justice or 'mistake apparent from the record' limitations on section 154 bar such rectification.ISSUE-WISE DETAILED ANALYSISIssue 1 - Allowance of Foreign Tax Credit despite belated filing of Form 67- Relevant legal framework and precedents: The grant of FTC is governed by the Act (including relief under the DTAA) and the procedural Rule(s) requiring filing of Form 67 by the due date for filing the return. Prior Tribunal bench orders have considered whether the requirement to file Form 67 is mandatory or directory and whether Rules can deny DTAA benefits.- Court's interpretation and reasoning: The Tribunal treated the substance of entitlement to FTC (as per DTAA/Act) as distinct from the procedural requirement of filing Form 67. It held that the Rule prescribing the timeline for Form 67 is directory rather than a condition that automatically negates substantive entitlement to FTC. The Tribunal relied on prior bench reasoning that Rules should not operate contrary to the overriding treaty/Act entitlement.- Key evidence and findings: The FTC amount was claimed in the original return filed on 09.01.2021 and reflected in the return processed by CPC. Form 67 was filed belatedly (18.08.2022). The taxpayer cited pandemic-related travel and lockdown constraints preventing timely collection of documents. CPC denied FTC solely due to non-filing of Form 67 by the due date; rectification was later rejected.- Application of law to facts: Given that FTC was claimed in the original return and the delay in filing Form 67 was due to pandemic-related circumstances beyond the taxpayer's control, the Tribunal applied the directory interpretation of the Rule and concluded that substantive entitlement under DTAA/Act should not be defeated on procedural grounds. The Tribunal followed the reasoning of earlier benches which found no automatic disallowance in case of delayed Form 67.- Treatment of competing arguments: Revenue's position that late filing of Form 67 disentitles the taxpayer to FTC was rejected. The Tribunal found the delay to be reasonable cause (global pandemic and travel restrictions) and not a fault warranting denial of substantive relief. The Tribunal noted that the Rule does not expressly provide for disallowance of FTC for procedural non-compliance and that DTAA/Act should prevail.- Conclusion: FTC claim should be allowed notwithstanding belated filing of Form 67; the AO was directed to allow the claimed Foreign Tax Credit.Issue 2 - Use of section 154 rectification to obtain FTC versus appealing the section 143(1) intimation- Relevant legal framework and precedents: Section 154 permits rectification of mistakes apparent from the record. The scope of section 154 vis-à-vis remedy by appeal against an intimation under section 143(1) has been analyzed in prior Tribunal decisions with respect to corrective relief where procedural non-compliance prevented substantive entitlement.- Court's interpretation and reasoning: The Tribunal observed that where the substantive question admits only one correct answer (i.e., whether FTC is allowable notwithstanding late Form 67 under the statutory scheme and treaty), rectification under section 154 is an appropriate remedy even if full adjudication requires reasoning. The Tribunal relied on bench authorities which permitted recourse to section 154 in analogous situations and rejected the view that rectification is unavailable simply because an appeal against the intimation could have been filed.- Key evidence and findings: The taxpayer had claimed FTC in the original return; rectification was filed after filing Form 67; the CPC rejected the rectification and NFAC dismissed the appeal mainly on the ground that the proper course was to have appealed the original intimation. The Tribunal found no dispute on entitlement facts and treated the issue as one of law and interpretation of procedural requirements.- Application of law to facts: Applying the principle that section 154 can be invoked where the mistake is apparent or where only one view is possible on the legal issue, the Tribunal concluded that rectification could be used to correct the denial of FTC. The Tribunal accepted that the original substantive claim existed in the return and that rectification would merely correct denial caused by procedural timing, not reopen substantive assessments.- Treatment of competing arguments: Revenue argued that the assessee was attempting a backdoor route by using section 154 instead of appealing the section 143(1) intimation and that no mistake apparent existed. The Tribunal rejected this, noting prior bench findings that the Rule's procedural requirement did not mandate disallowance and that rectification was permissible. The Tribunal treated the NFAC's dismissal on procedural appeal-route grounds as incorrect in light of those precedents and the facts showing the claim was in the original return.- Conclusion: Rectification under section 154 was an appropriate remedy in the circumstances; the appellate rejection for incorrect choice of remedy was set aside and the matter remitted for grant of FTC.Issue 3 - Appealability and natural justice contentions relating to section 154 order and intimation under section 143(1)- Relevant legal framework and precedents: Principles concerning when section 154 relief is available, the requirement of a 'mistake apparent from the record,' and the appellate forum's jurisdiction to entertain appeals from rectification orders versus intimation orders inform this issue.- Court's interpretation and reasoning: The Tribunal held that the order denying rectification under section 154 could not be treated as a bar to substantive relief where the original return had claimed FTC and the denial was on procedural timing. The Tribunal considered that section 154 proceedings could be invoked to give effect to the substantive right and that an insistence on strict appeal route against intimation would defeat substantive justice in such cases.- Key evidence and findings: Grounds of appeal included contention that the rectification order was appealable and should have been decided on merits; allegation of violation of natural justice in assessment; the Tribunal found facts surrounding the claim and delay not in dispute and that denial arose from procedural non-compliance rather than contested substantive facts.- Application of law to facts: The Tribunal applied prior bench reasoning to conclude that the rectification remedy is not foreclosed merely because a technical procedural route exists; where the substantive entitlement is clear and the procedural lapse is excusable, rectification should be entertained. The Tribunal did not accept the revenue submission that absence of a 'mistake apparent' precludes section 154 relief in such circumstances.- Treatment of competing arguments: The Tribunal addressed the revenue's contention that the appeal should have been against the intimation by emphasizing the availability of section 154 in correcting denials that flow from procedural timing and by highlighting prior bench conclusions that Rules do not override substantive entitlements. The natural justice ground was not separately sustained because the Tribunal found the process and facts not to show prejudice or denial beyond the procedural denial of FTC.- Conclusion: The order rejecting rectification could not be sustained on procedural grounds; the Tribunal set aside the appellate authority's order and directed grant of FTC, implicitly resolving appealability and natural justice contentions in favor of allowing rectification in these circumstances.Final Disposition (cross-reference): Following application of the above analyses, the Tribunal allowed the appeal, set aside the impugned appellate order, and directed the assessing authority to grant the Foreign Tax Credit claimed in the return; prior bench decisions and pandemic-related facts were material to this outcome.