Mekala Rakesh Reddy Vs DCIT (ITAT Hyderabad)
DTAA Overrides Rule 128: FTC Allowed Despite Late Form 67 Filing-Delay in Form 67 Is Only Procedural- CPC Has No Power to Deny FTC for Technical Lapse
The Hyderabad ‘A’ Bench of the ITAT, in Mekala Rakesh Reddy vs DCIT (ITA Nos. 1429 & 1430/Hyd/2025, AYs 2021-22 & 2023-24), held that mere delay in filing Form 67 cannot be a ground to deny Foreign Tax Credit (FTC) where the foreign income has been duly offered to tax in India and tax has already been paid abroad.
The Assessee had earned salary income from the UK, disclosed the same in the return, and claimed FTC u/s 90/90A. While processing returns u/s 143(1), the CPC denied FTC solely on the ground that Form 67 was filed beyond the prescribed time under Rule 128(9), resulting in substantial demands. The CIT(A) affirmed the CPC’s action.
The Tribunal held that Rule 128 is procedural and directory, and cannot override the substantive right to FTC flowing from the DTAA, which prevails over domestic law. Relying on the Madras High Court ruling in Duraiswamy Kumaraswamy, and several ITAT decisions, the Bench held that FTC is a vested right and cannot be denied for technical or procedural lapses. The CPC, while processing u/s 143(1), exceeded its jurisdiction in summarily rejecting the claim.
Accordingly, the ITAT directed the AO to allow FTC of ₹58.79 lakh for AY 2021-22 and ₹51.28 lakh for AY 2023-24, and allowed both appeals in full
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The captioned appeals filed by the assessee are directed against the respective orders passed by the Additional/Joint Commissioner of Income Tax (Appeals)-2, Ludhiana dated 21/08/2025, which in turn arises from the respective orders issued by the CPC, Bengaluru vide Intimations issued under section 143(1) of the Act, dated 22/03/2022 and 04/03/2024 for Assessment Year 2021-22 and 2023-24, respectively. As a common issue is involved in the captioned appeals, therefore, the same are being taken up and disposed of vide a consolidated order. We shall first take up the appeal in ITA No.1429/Hyd/2025, wherein the impugned order has been assailed on the following grounds of appeal:
“1. The order passed by the Ld. CIT(A) is totally invalid as against the principles of natural justice and the provisions vested in IT Act.
2. The Ld. Add/CIT(A) out to have allowed Foreign Tax credit to the appellant for which the appellant is eligible to claim.
3. The Ld. Addl/JCIT(A) ignored the Form 67 filed by the appellant, without considering of it, upheld the order of CPC.
4. The Ld. Addl/)CIT(A) should have considered the fact that the appellant has shown the foreign income and claimed the foreign tax credit, mere delay in filing for form, cannot be penalized the appellant.
5. The Ld. Addl/JCIT(A) out to have considered the delay in filing of Form 67 and out to have allowed the Foreign Tax Credit.
6. The Ld. Addl/JCIT(A) should have considered that the CPC has no jurisdiction to deny the tax credit.
7. The Ld. CIT(A) has ignored the fact that the CPC has raised a demand of Rs. 71,44,030/- arbitrarily without considering the FTC claim u/s. 90 of the Income Tax which is devoid of the provisions vested under the law.
8. Any other ground will be raised at the time of hearing.”
2. Succinctly stated, the assessee who is, inter alia, deriving income from M/s. Acuvate Software Inc, United Kingdom, had filed the return of income for the subject year on 31/12/2021, declaring an income of Rs. 2,18,77,530/-. The assessee had disclosed the income derived from abroad in his return of income for the subject year. Also, the assessee in his return of income had claimed Foreign Tax Credit (FTC) of Rs. 58,79,711/- under section(s) 90/90A of the Act w.r.t the income that was derived from abroad and already taxed in the source country, i.e., United Kingdom (UK). However, as the assessee had not filed Form-67 within the due date as per the mandate of law, therefore, the AO/CPC, while processing his return of income under section 143(1) of the Act, declined his claim for tax credit raised by him under section(s) 90/90A of the Act. Accordingly, the AO/CPC processed the return of income filed by the assessee and vide intimation issued under section 143(1) of the Act raised a demand of Rs. 71,44,030/-.
