Filing of Form 67 is procedural or directory requirement not a mandatory one

The Income Tax Appellate Tribunal (ITAT) of Delhi adjudicated on three appeals filed by Eastman Industries Ltd. for the assessment years 2018-19, 2019-20, and 2020-21. These appeals challenged separate orders issued by the National Faceless Assessment Centre (NFAC) on 25th October 2022. The appeals addressed two primary grievances: disallowance due to the late deposit of employees’ provident fund contributions and the denial of foreign tax credit (FTC) for late submission of Form 67. Additionally, in one of the appeals, the denial of TDS credit due to an incorrect TAN entry was also contested.

Common Grievances

i. Late Deposit of Employees’ Provident Fund Contributions:

• The first common grievance involved the disallowance of expenses due to the late deposit of employees’ contributions to the provident fund. Although the amounts varied across the assessment years, the underlying issue remained consistent.
• The ITAT noted that this issue was addressed by the Supreme Court in Checkmate Services Private Limited 448 ITR 518. The appellant’s counsel argued that the delay should be calculated from the date of salary payment, not the due date under the Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) Acts.
• To ensure justice and fairness, the ITAT remanded the issue to the Assessing Officer (AO) to reconsider the delay calculation based on the salary payment dates and resolve the matter in accordance with the law.

ii. Denial of Foreign Tax Credit (FTC):

• The second grievance involved the denial of FTC claims due to the late submission of Form 67. Rule 128 of the Income Tax Rules requires the submission of Form 67 before filing the return to claim FTC.
• The ITAT highlighted that while the assessee failed to file Form 67 on time, Rule 128(9) does not specify disallowance of FTC for delays in submitting the form. Therefore, this requirement was considered procedural rather than mandatory.
• The ITAT remanded this issue to the AO, instructing them to accept Form 67 and decide on the FTC claim based on the merits of the case and the provisions of the law.

Specific Grievance in ITA No. 2990/Del/2022

In addition to the common grievances, the assessee in ITA No. 2990/Del/2022 also contested the denial of TDS credit due to an incorrect TAN entry in the return of income.

i. Denial of TDS Credit:

• The ITAT reviewed the orders and found that the TDS credit should not have been denied solely due to a technical error when the credit was accurately reflected in Form 26AS.
• The tribunal directed the AO to allow the TDS credit as shown in Form 26AS, provided it complied with the law.

Conclusion

The ITAT’s judgment in the case of Eastman Industries Ltd. Vs ACIT addressed critical procedural issues related to the late deposit of employees’ provident fund contributions and the submission of Form 67 for claiming FTC. By emphasizing the procedural rather than mandatory nature of these requirements, the tribunal ensured that technical delays did not unduly penalize the assessee. The ITAT’s directive to the AO to reconsider these issues in light of the correct procedural interpretations underscores the importance of fairness and adherence to the law in tax assessments.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

ITA No.2990/Del/2022, 2991/Del/2022 and 2992/Del/2022 are three appeals by the assessee preferred against three separate orders of NFAC dated 25.10.2022 pertaining to A.Y. 2018-19, 2019-20 and 2020-21.

2. Since common grievance is involved in the captioned appeals they were heard together and are disposed of by this common order for the sake of convenience and brevity.

3. The first common grievance in the captioned appeals relates to the disallowance on account of late deposit of employees contribution of provident fund though the quantum may differ in the impugned appeals.

4. We have carefully perused the orders of the authorities below. The impugned issue is fully covered by the decision of the Hon’ble Supreme Court in the case of Checkmate Services Private Limited 448 ITR 518. But the contention of the Counsel is that the date of payment of the salary should be considered for calculating the delay in the deposit of EPF/ESI under the respective acts, therefore, in the interest of justice and fair play we deem it fit to restore this quarrel to the files of the AO. The AO is directed to consider the date of payment of salaries and decide the issues afresh as per the provisions of the law. This common grievance is allowed for statistical purpose.

5. The second common grievance relates to the denial of foreign tax credit on the ground that the assessee has filed Form -67 beyond the due date in respect of the claim of foreign tax credit.

6. There is no dispute that the assessee has not filed Form -67 in time to claim foreign tax credit. It is also not in dispute that one of the requirements of rule 128 for claiming FTC is that form – 67 is to be submitted by assessee before filing of the return. In our humble opinion this requirement cannot be treated as mandatory and it is directory in nature for the simple reason that under rule 128 (9) there is no provision for disallowance of FTC in case if there is a delay in filing Form-67. In our considered opinion this is only a procedure delay and there is no negative or adverse consequence provided for non adherence to such procedure.

7. Since in the present case the claim of the assessee was denied on this technical aspect without going into the merits of the FTC, therefore, we deem it fit to restore the issue to the files of the AO. The AO is directed to decide the claim of foreign tax credit as per the provisions of the law after admitting / accepting form -67. This common grievance is also allowed for statistical purpose.

8. In ITA No.2990/Del/2022 in addition to the aforementioned common grievance the assessee is also aggrieved by denial of TDS credit for punching incorrect TAN by the assessee in its return of income.

9. We have gone through the orders of the authorities below. We are of the considered view that the TDS credit should not have been denied for such technical reason when the TDS credit is duly reflected in form 26 AS, therefore, we direct the AO to allow the credit of TDS reflected in Form 26AS as per the provision of the law.

10. In the result, the captioned appeals filed by the assessee are allowed for statistical purpose.

Order pronounced in the open court on 18.08.2023.