Case Law Details
Subramanian Muthukumaran Vs ITO (ITAT Chennai)
The Income Tax Appellate Tribunal Chennai adjudicated appeals concerning denial of Foreign Tax Credit (FTC) and levy of penalty under the Income-tax Act, 1961 for Assessment Year 2016–17. The assessee, a salaried individual without expertise in taxation, was deputed abroad during FY 2015–16 and initially filed his return on 19.07.2016 declaring only Indian income based on Form 16. Foreign income was not disclosed at that stage.
Subsequently, proceedings were initiated under Section 148, and the assessee, in response, voluntarily disclosed foreign income along with bank statements and supporting documents. He also submitted a revised computation of income and FTC. The Assessing Officer accepted the revised total income but restricted FTC to Rs. 1.03 lakhs based on the original return, ignoring the revised claim of Rs. 3,20,413 supported by documents. The CIT(A) upheld the disallowance on the ground that Form 67 was not filed along with the return.
The Tribunal considered whether delay in filing Form 67 justified denial of FTC. Relying on the judgment of the Madras High Court in Duraiswamy Kumaraswamy vs. Principal Commissioner of Income-tax, which held that filing requirements under Rule 128 are directory and FTC can be allowed if Form 67 is submitted before completion of assessment, the Tribunal allowed the assessee’s claim. It noted that the assessee had filed Form 67 on 13.05.2023, and accordingly directed the AO to grant full FTC.
In the penalty appeal, penalty under Section 271(1)(c) had been imposed for alleged concealment of income due to non-disclosure of foreign income in the original return. The Tribunal observed that the assessee had voluntarily disclosed foreign income during reassessment proceedings and furnished supporting documents, which were accepted by the AO. It held that the omission was inadvertent and bona fide, particularly considering the assessee’s lack of expertise and first-time foreign deputation.
Relying on decisions of the Supreme Court of India in Price Waterhouse Coopers Pvt. Ltd. vs CIT and CIT vs Reliance Petroproducts Pvt. Ltd., the Tribunal held that a bona fide error or omission without mala fide intent does not amount to concealment or furnishing inaccurate particulars. It further noted violation of natural justice as the CIT(A) failed to grant a hearing.
Considering the facts, the Tribunal concluded that the case involved proper computation rather than concealment and deleted the penalty. Both the quantum and penalty appeals were allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi [CIT(A)] confirming the disallowance of FTC of Rs.3,20,413/- of the Income-tax Act, 1961 for Assessment Year 2016–17.
2. Brief facts of the case are that the appellant is a salaried individual with no professional background in taxation or accounting. During FY 2015-16 (AY 2016-17), he was deputed abroad for the first time by his employer, L&T Infotech. The appellant filed his original return of income (ITR-2A) on 19.07.2016, declaring total Indian income of Rs.9.66 lakhs, based on Form 16 issued by the employer. At that stage, foreign income was not separately disclosed due to lack of awareness and reliance on employer-provided details. A notice u/s. 148 dated 30.06.2021 was issued. The notice did not specify any reasons for reopening. In compliance, the appellant filed a return on 03.08.2021, voluntarily enclosing bank statements and disclosing foreign salary receipts. Subsequently, a notice u/s. 148A(b) dated 01.06.2022 was issued, alleging foreign income from Sweden and Australia amounting to Rs.9.89 lakhs. Upon receipt, the appellant fully cooperated with the department and computed correct total income. Assessee also submitted revised Foreign Tax Credit (FTC) computation and furnished supporting documents including foreign pay slips and tax returns. The Assessing Officer (AO) accepted the revised total income of Rs.17.69 lakhs, thereby relying entirely on the revised computation and documents submitted during assessment proceedings. However, the AO restricted FTC to Rs.1.03 lakhs, based only on the original return, and failed to consider the revised FTC computation and supporting documents submitted during reassessment.
3. The ld.CIT(A)-NFAC dismissed the appeal on the ground that Form 67 was not filed along with the return.
4. Issue before us in this appeal is that whether the AO was justified in restricting Foreign Tax Credit (FTC) to Rs.1.03 lakhs instead of allowing full FTC of Rs.3,20,413/- despite accepting the revised income and supporting documents.
5. Heard both the parties. At the outset we find that the issue is decided by the Hon’ble jurisdictional High Court in the case of Duraiswamy Kumaraswamy vs. Principal Commissioner of Income-tax [2023] 156 com 445 (Madras)/[2024] 296 Taxman 502 (Madras)/[2024] 460 ITR 615 (Madras)[06-10-2023] which held as under:
9. In the present case, the petitioner initially worked at Kenya and subsequently, he became the resident of Indian from the assessment year 2018-2019 and 2019-2020. The petitioner admitted the fact that he has filed his return in India on 10.08.2019. The intimation under section 143(1) was issued on 26.03.2020. However, he has filed the return without Form-67 which is required to be filed under Rule 128 to claim the benefit of FTC and the same came to be filed on 02.02.2021 which was well before the completion of the assessment year. The intimation under section 143(1) was issued from the CPC only on 26.03.2021.
10.According to the learned counsel appearing for the respondent, the procedure under rule 128 is mandatory and and cannot be considered as directory in nature. The petitioner has filed his return including his Kenya income along with his Indian Income tax and claimed the benefits of FTC. However, the petitioner would submit that it is not mandatory. The Rule cannot make anything mandatory and it can be directory in nature, that too before the Assessment, the claim to avail the benefits of FTC is filed. Therefore, it would be the amounts to due compliance under the Act. The petitioner referred to the Judgment of the Hon’ble Supreme Court in the case of G.M. Knitting Industries (P.) Limited (supra), wherein it was held that Form 3AA is required to be filed along with the return of income to avail the benefit and even if it is not filed, but the same is filed during assessment proceedings but before the final order of assessment is made that would amount to sufficient compliance.
11. The law laid down by the Hon’ble Apex Court in G.M. Knitting Industries (P) Ltd. (supra), which was referred above, would be squarely applicable to the present case. In the present case, the returns were filed without FTC, however the same was filed before passing of the final assessment order. The filing of FTC in terms of the Rule 128 is only directory in nature. The rule is only for the implementation of the provisions of the Act and it will always be directory in nature. This is what the Hon’ble Supreme Court had held in the above cases when the returns were filed without furnishing Form 3AA and the same can be filed the subsequent to the passing of assessment order.
12. Further, in the present case, the intimation under section 143(1) was issued on 26.03.2021, but the FTC was filed on 02.02.2021. Thus, the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the FTC was rejected by the respondent, which is not proper and the same is not in accordance with law. Therefore the impugned order is liable to be set aside.
13. Accordingly the impugned order dated 25.01.2022 is set aside. While setting aside the impugned order, this Court remits the matter back to the respondent to make reassessment by taking into consideration of the FTC filed by the petitioner on 02.02.2021. The respondent is directed to give due credit to the Kenya income of the petitioner and pass the final assessment order. Further, it is made clear that the impugned order is set aside only to the extent of disallowing of FTC claim made by the petitioner and hence, the first respondent is directed to consider only on the aspect of rejection of FTC claim within a period of 8 weeks from the date of receipt of copy of this order.
14. With the above direction, this Writ Petition is disposed of. No costs. Consequently, connected miscellaneous petitions are also closed.
6. In the present case, the assessee has filed Form 67 on 13.05.2023 whereas the assessment order has been passed on 11.05.2023. Therefore, respectfully following the Hon’ble Supreme Court and Hon’ble Jurisdictional High Court referred supra, we set aside the impugned order and direct the AO to allow the FTC claim made by the assessee.
7. In the result, quantum appeal of the assessee is allowed.
8. ITA No.3037/Chny/2016-17 (Penalty Appeal):
9. This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] confirming the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2016–17.
10. Brief Facts of the case are that the assessee is an individual deriving income from salary and has no background in accounting or taxation. During the relevant assessment year, the assessee was deputed abroad for the first time by his employer, L&T Infotech. The original return of income was filed on 19.07.2016 declaring salary income earned in India based on Form 16 issued by the employer. Subsequently, a notice under section 148 dated 30.06.2021 was issued. In response thereto, the assessee filed a return of income and voluntarily disclosed foreign income along with bank statements and computation of total income. The assessee also revised the computation with professional assistance and furnished all supporting evidences. The Assessing Officer accepted the revised income but restricted the Foreign Tax Credit (FTC) to Rs. 1.03 lakhs, based on the claim in the return filed in response to section 148, ignoring the revised claim supported by documents. Penalty proceedings under section 271(1)(c) were initiated on the ground that the assessee had concealed income. The penalty was levied and subsequently confirmed by the CIT(A).
11. The learned counsel for the assessee submitted that the omission to disclose foreign income in the original return was inadvertent and bona fide. The assessee had relied upon Form 16 and lacked expertise in tax matters. Upon receipt of notice u/s.148 of the Act, the assessee voluntarily disclosed the foreign income along with supporting documents. There was no intention to conceal income or furnish inaccurate particulars. The revised computation was filed in good faith and accepted by the Assessing Officer. Penalty cannot be levied merely because revised income was accepted. Reliance was placed on the judgments of the Hon’ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd. vs CIT (348 ITR 306) and CIT vs Reliance Petroproducts Pvt. Ltd. (322 ITR 158). Further, no opportunity of hearing was granted by the CIT(A) despite a specific request for video conferencing, violating principles of natural justice. The quantum addition itself is under challenge before this Tribunal.
11.The learned Departmental Representative (DR) relied on the orders of the lower authorities and submitted that the assessee failed to disclose foreign income in the original return, which amounted to concealment.
12. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee did not disclose foreign income in the original return. However, it is equally undisputed that the assessee, upon receipt of notice under section 148, voluntarily disclosed the foreign income. The disclosure was accompanied by bank statements and supporting documents. The revised computation was filed with professional assistance and accepted by the Assessing Officer. The core issue is whether such conduct amounts to “concealment of income” or “furnishing inaccurate particulars”.
13. In our considered view, the answer is in the negative. The Hon’ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd. (348 ITR 306) has held that a bona fide and inadvertent error does not attract penalty u/s. 271(1)(c). Similarly, in Reliance Petroproducts Pvt. Ltd. (322 ITR 158), it has been held that mere making of a claim or omission, without mala fide intent, does not amount to furnishing inaccurate particulars. In the present case, the assessee is a salaried individual with no expertise in tax matters and had relied on Form 16 issued by the employer. The omission occurred in the context of first-time foreign deputation and complex tax implications relating to foreign income and FTC. More importantly, the assessee proactively disclosed the foreign income during reassessment proceedings without any detection by the Assessing Officer. There is nothing on record to suggest that the disclosure was made after detection or that the documents furnished were false. Thus, the conduct of the assessee demonstrates bona fides rather than concealment. Further, the Assessing Officer (AO) himself has accepted the revised income, which reinforces that the issue pertains to proper computation rather than concealment.
14. We also find merit in the contention of the assessee that the CIT(A) failed to grant an opportunity of hearing despite a specific request, which is in violation of principles of natural justice. Additionally, the quantum addition forming the basis of penalty is under challenge before us and we have allowed the appeal of the assessee referred supra.
15. Considering the totality of facts and circumstances, and in light of the judicial precedents cited above, we hold that this is not a fit case for levy of penalty under section 271(1)(c).Accordingly, the penalty levied by the Assessing Officer and confirmed by the CIT(A) is hereby deleted. Hence, penalty appeal of the assessee is allowed.
16. In the result, both the captioned appeals filed by the assessee are allowed.
Order pronounced on the 06th day of April 2026, in Chennai.
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