Denial of foreign tax credit merely for delay in filing Form No. 67 is unjustifiable

Rohan Prakash Shah Vs ADIT (ITAT Mumbai)

ITAT Mumbai held that mere delay in filing of Form No. 67 cannot preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India.

Facts-

The assessee is an individual. For the year under consideration, the assessee filed his ROI belatedly on 31/10/2020, declaring a total income of Rs.64,42,150. The assessee in his ROI claimed foreign tax credit of Rs.14,86,291 and in this regard also filed Form no.67 on the same date. ROI filed by the assessee was processed vide intimation dated 17/03/2021, issued u/s. 143(1) of the Act whereby foreign tax credit of Rs.14,86,291, claimed by the assessee u/s. 90 / 90A of the Act was denied.

CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.

Conclusion-

Held that we are of the considered opinion that mere delay in filing Form No. 67 as per the provisions of Rule 128(9), as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India. Since in the present case, the claim of the assessee was denied on this technical aspect without going into the merits, therefore, we deem it appropriate to direct the jurisdictional Assessing Officer to decide the claim of the foreign tax credit on merits, after accepting the Form No. 67, and other related documents filed by the assessee.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal has been filed by the assessee challenging the impugned order dated 07/09/2022, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the intimation dated 17/03/2021, issued u/s 143(1) of the Act for the assessment year 2019–20.

2. In its appeal, the assessee has raised following grounds:–

“1. Considering the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / National Faceless Appeal Centre (NFAC) has erred in confirming the action of the Assessing Officer in denying Foreign Tax Credit of Rs.14,86,291/- and thereby raising demand of Rs.21,61,850/- under section 143(1) of the Income-tax Act, 1961.

2. Considering the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / Faceless Appeal Centre (NFAC) has not disputed the allowability of the Foreign Tax Credit. They have only disallowed the credit on the ground that Form 67 has not been filed on or before the due date of filing return of income as per Rule 128(9) of the Income-tax Rules, 1962.

3. Considering the facts and circumstances of the case and in law, the CIT(A)/NFAC failed to appreciate the fact that the Appellant has not been provided with an opportunity of being head as mandated by first proviso to section 143(1) of the Act and hence the impugned order / intimation under section 143(1) of the Act is void ab initio and is liable to be quashed / set aside.

4. On the facts and in the circumstances of the case and in law, rules cannot override the provisions of the Income-tax Act, 1961 which has been clarified by the amendment to Rule 128 of the Income-tax Rules, 1962 and thus the action of the Assessing Officer and CIT(A) / NFAC are erroneous.

5. On the facts and circumstances of the case and in law, the Assessing Officer erred in levying higher interest under section 234A, 234B and 234C of the Act. The Assessing Officer be directed to recompute the interest.

6. The appellant craves leave to add to, alter or amend, the above Grounds of Appeal as and when advised.”

3. The only grievance of the assessee is against denial of foreign tax credit under section 90/90A of the Act due to delay in filing Form no.67.

4. Brief facts of the case, as emanating from the record are:– The assessee is an individual. For the year under consideration, the assessee filed his return of income belatedly on 31/10/2020, declaring a total income of Rs.64,42,150. The assessee in his return of income claimed foreign tax credit of Rs.14,86,291 and in this regard also filed Form no.67 on the same date. The return of income filed by the assessee was processed vide intimation dated 17/03/2021, issued under section 143(1) of the Act whereby foreign tax credit of Rs.14,86,291, claimed by the assessee under section 90 / 90A of the Act was denied.

5. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this issue on the basis that Form no.67, was not filed by the assessee before the due date of furnishing of return of income under section 139(1) of the Act. Being aggrieved, the assessee is in appeal before us.

6. During the hearing, the learned Authorised Representative (“learned A.R.”) submitted that in the present case, the assessee filed his return of income belatedly on 31/10/2020, and also filed Form no.67, in order to claim the credit of tax paid outside India, as per the provisions of section 90/90A of the Act. The learned A.R. also submitted that the provisions of section 90/90A of the Act are substantive provisions and provisions of Rule 128 cannot override the same. In support of his submissions, reliance was placed upon the decision of the Co–ordinate Bench of the Tribunal.

7. On the other hand, the learned Departmental Representative (“learned D.R.”) vehemently relied upon the order passed by the lower authorities.

8. We have considered the rival submissions and perused the material available on record. In the present case, the assessee belatedly filed its return of income on 31/10/2020. In his return of income, the assessee claimed credit of foreign tax paid under section 90/90A of the Act. Along with his return of income, the assessee also filed Form no.67 on 31/10/2020. The Asstt. Director of Income Tax, Central Processing Centre, Bangaluru, while processing the return of income vide intimation issued under section 143(1) of the Act denied the foreign tax credit of Rs. 14,86,291, claimed by the assessee under section 90/90A of the Act. In the impugned order, it has been held that Form No. 67 was filed by the assessee after the due date of filing the return of income under section 139(1) of the Act, as per the provisions of Rule 128(9) and thus claim of the assessee was rejected.

9. We find that under Rule 128(9), as it stood during the year under consideration, provided that the statement in Form No.67, referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income. Thus, during the year under consideration, the assessee was required to furnish Form No. 67 on or before the due date of filing the return of income under section 139(1) of the Act, as per the provisions of Rule 128(9). We further find that Rule 128(9) has recently been substituted by the Income-tax (Twenty-seventh Amendment) Rules, 2022, w.r.e.f. 01/04/2022 and the same reads as under:

“(9) The statement in Form No. 67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the end of the assessment year relevant to the previous year in which the income referred to in sub-rule (1) has been offered to tax or assessed to tax in India and the return for such assessment year has been furnished within the time specified under sub-section (1) or sub-section (4) of section 139:”

10. Thus with effect from 01/04/2022, the time period for furnishing statement in Form No. 67 has been extended till the end of the assessment year in which the corresponding income has been offered/assessed to tax and the return of such assessment year has been furnished within the time specified under 139(1) or 139(4) of the Act.

11. We find that the coordinate bench of the Tribunal in Sonakshi Sinha vs CIT, in ITA No. 1704/Mum./2022, vide order dated 08/09/2022, while dealing with a similar issue wherein the taxpayer filed Form No.67, after the due date for filing the return of income under section 139(1), observed as under:

“012. We have carefully considered the rival contention and perused the orders of the lower authorities. Short question In this appeal is whether assessee is entitled to foreign tax credit even when form number 67 required to be filed according to the provisions of rule 128 (9) of the Income Tax Rules on or before the due date of filing of the return of income, not complied by the assessee, but same was filed before the completion of the assessment proceedings. Precisely, the fact shows that assessee filed return of income u/s 139 (1) of the income tax act. In such a return of income, she claimed the foreign tax credit. However, form number 67 was filed during the course of assessment proceedings and not before the due date of filing return. Rule 128 (9) of the Income Tax Rules 1962 provides that the statement in Form No. 67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income. We find that coordinate bench in 42 Hertz Software India (P.) Ltd v. ACIT [2022] 139 taxmann.com 448 (Bangalore – Trib.) wherein following its earlier order in the case of Ms. Brinda Rama Krishna v.ITO [2022] 135 taxmann.com 358 (Bang Trib) it was held that “one of the requirements of Rule128 for claiming FTC is that Form 67 is to be submitted by assessee before filing of the returns and that this requirement cannot be treated as mandatory, rather it is directory in nature. This is because, Rule 128(9) does not provide for disallowance of FTC in case of delay in filing Form No. 67. Same view is also taken by a coordinate division bench in Vinodkumar Lakshmipathi V CIT(A) NFAC ITA No.680/Bang./2022 06.09.2022. It is well settled that while laying down a particular procedure, if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Admittedly, Rule 128 does not prescribe denial of credit of FTC. Further the Act i.e. section 90 or 91 also do not prescribe timeline for filing of such declaration on or before due date of filing of ROI. Further rule 128 (4) clearly provides the condition where the foreign tax credit would not be allowed. Rule 128 (9) does not say that if prescribed form would not be filed on or before the due date of filing of the return no such credit would be allowed. Further by the amendment to the rule with effect from 1 April 2022, the assessee can file such form number 67 on or before the end of the assessment year. Therefore, legislature in its own wisdom has extended such date which is beyond the due date of filing of the return of income. Further, the fact in the present case is quite distinct then the issue involved in the decision of the honourable Supreme Court in case of Wipro Ltd (supra). Here it is not the case of violation of any of the provisions of the act but of the rule, which does not provide for any consequence, if not complied with. Therefore, respectfully following the decisions of the coordinate bench on this issue, we hold the assessee is eligible for foreign tax credit, as she has filed form number 67 before completion of the assessment, though not in accordance with rule 128 (9) of The Income Tax Rules, which provided that such form shall be filed on or before the due date of filing of the return of income. Accordingly, ground number 2 of the appeal of the assessee is allowed.”

12. We find that in another decision in Anuj Bhagwati vs DCIT, in ITAs No.1844 and 1845/Mum./2022, the coordinate bench of the Tribunal vide order dated 20/09/2022, while deciding a similar issue held that section 90/91 of the Act has not been amended insofar as grant of foreign tax credit is concerned and Rules cannot override the Act and therefore filing of Form No. 67 is not mandatory but it is directory. The relevant findings of the coordinate bench of the Tribunal in the aforesaid decision are as under:

“8. We considering the facts, circumstances provisions of the Act and judicial decisions are of the opinion that there is no amendment on these aspects in the Section 90 of the Act and the Rules cannot override the Act and therefore the filing of Form No 67 is not mandatory but it is directory. Accordingly, We restore the disputed issue to the file of the CIT(A) to adjudicate afresh on merits considering the observations in above paragraphs and the ratio of judicial decisions. Further the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information for early disposal of appeal and allow the grounds of appeal of the assessee for statistical purposes.”

13. Thus, respectfully following the aforesaid decisions of the coordinate bench of the Tribunal, we are of the considered opinion that mere delay in filing Form No. 67 as per the provisions of Rule 128(9), as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India. Since in the present case, the claim of the assessee was denied on this technical aspect without going into the merits, therefore, we deem it appropriate to direct the jurisdictional Assessing Officer to decide the claim of the foreign tax credit on merits, after accepting the Form No. 67, and other related documents filed by the assessee. Accordingly, grounds no.1, 2 and 4, raised by the assessee are allowed for statistical purposes.

14. During the course of hearing, the learned A.R. submitted before us that if relief is granted in terms of grounds no.1, 2 and 4, then ground no.3, is prayed to be treated as not pressed. In view of the aforesaid findings and the above submission of the learned A.R., ground no.3, is hereby dismissed as not pressed.

15. Insofar as levy of interest under section 234A of the Act is concerned, we deem it appropriate to remand the issue to the file of the Assessing Officer for de novo adjudication after the necessary examination of facts as to whether or not the return of income filed by the assessee is within the prescribed time limit under the Act. With regard to the levy of interest under sections 234B and 234C of the Act, the same are consequential in nature. Accordingly, ground no.5, raised in assessee’s appeal is allowed for statistical purposes.

16. In the result, the appeal by the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 06/01/2023