2026 (3) TMI 389 - AT - Income Tax

Foreign Tax Credit must not be denied solely for delayed Form-67; claim to be considered on merits after verification.

Foreign tax credit (FTC) denial based solely on delayed filing of Form-67 was rejected; the controlling legal principle is that DTAA provisions and ... Allowability of Foreign Tax Credit - CPC did not allow the FTC while processing the return/sec.143(1) on the ground that the assessee has not uploaded the proof of taxes paid in USA along with Form-67 on time - directory nature of Rule 128(9) Whether the claim for Foreign Tax Credit can be denied solely because Form-67 was filed after the due date prescribed by Rule 128(9) when the assessee has declared the foreign income and filed supporting documents before completion of assessment? - HELD THAT:- The Tribunal examined the consistent decisions of coordinate Benches and higher courts holding that Rule 128(9) is directory and that the relief under the relevant DTAA and sections 90/91 cannot be defeated by mere procedural delay in filing Form-67. Tribunal noted precedents where DTAA provisions were held to override conflicting or procedural requirements of the Act and Rules, and observed that where substantial compliance is made and the claim and supporting evidence are available before completion of assessment, denial of FTC on the sole ground of delay is not justified. In view of these authorities and to maintain consistency, the Tribunal directed that the AO verify the foreign tax payment evidence already filed by the assessee and decide the FTC claim in accordance with law. Claim for Foreign Tax Credit cannot be denied merely for delay in filing Form-67; matter remitted to the AO to verify the supporting documents and allow the FTC if found due. Final Conclusion: The appeal is allowed - impugned order refusing Foreign Tax Credit for delayed filing of Form-67 is set aside and the AO is directed to consider and allow the FTC after verification of the documents filed by the assessee. Issues: Whether the claim for foreign tax credit (FTC) can be denied solely on the ground of delay in filing Form-67 and whether the FTC must be allowed in view of the DTAA and related statutory provisions.Analysis: The Tribunal examined the facts where the assessee declared foreign salary and filed Form-67 after the due date but before completion of assessment and challenged denial of FTC by CPC under intimation u/s 143(1) and rejection of rectification u/s 154. The legal framework considered includes Article 25(2)(a) of the India-US DTAA, Section 90 and Section 91 of the Income-tax Act, 1961, and Rule 128(9) of the Income-tax Rules, 1962. The Tribunal surveyed coordinate bench decisions holding that DTAA provisions override conflicting domestic rules and that Rule 128(9) is a directory requirement; it also noted contrary decisions but applied the rule of consistency in favour of decisions allowing FTC where substantial compliance was shown. Having regard to the precedents and the requirement to verify supporting evidence, the Tribunal remanded the matter to the Assessing Officer to consider the FTC claim on merits and verify supporting documents already filed by the assessee.Conclusion: The claim for foreign tax credit cannot be denied solely for delay in filing Form-67; the Assessing Officer is directed to allow the FTC after verification of the supporting documents filed by the assessee.