2023 (3) TMI 146 - AT - Income Tax

Non grant of Foreign Tax Credit ('FTC') - adjustment in the Intimation under Section 143(1) - Form 67 filed by the assessee - claim allowable as per Section 90 of the Act read with Article 24(4) of the India-Philippines Double Taxation Avoidance Agreement ((DTAA') and Article 23(4) of India Netherlands DTAA read with CBDT circular No. 333 dated 02 April 1982 - HELD THAT - As we find that this issue is squarely covered in favour of the assessee by the decision of ITAT, Chennai in the case of Shri. Govindarajan Roopkumar 2022 (9) TMI 557 - ITAT CHENNAI where under identical circumstances, the Tribunal by following the decision of ITAT Bangalore in the case of Ms. Brinda Ramakrishna 2022 (2) TMI 752 - ITAT BANGALORE held that when the assessee has filed Form 67 on or before due date for filing return of income u/s. 139(4) of the Act, the AO ought to have considered said Form and allow credit for tax paid in other countries. We, further noted that CBDT has issued a notification on 18.08.2022 and explained the position of law as per Rule 128(9) of I.T. Rules, 1962 and clarified that Form 67 in prescribed form is required to be filed under Rule 128(9) of IT Rules, 1962 can be filed on or before extended due date for filing return of income u/s. 139(4) of the Act and said clarification has been made applicable from assessment year 2022-23 - it is very clear that even in a case belated filing of Form 67, the AO should consider tax paid by the assessee in other countries when income pertains to said tax credit has been offered to tax in India as per domestic tax laws. Therefore, we are of the considered view that, the AO is completely erred in denying credit for foreign tax for non-filing of Form 67 within the due date specified u/s. 139(1) of the Act. CIT(A), without appreciating facts simply sustained additions made by the AO and thus, we direct the AO to allow credit for foreign tax paid in other countries as per Form 67 filed by the assessee. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Non-grant of Foreign Tax Credit (FTC) of Rs. 36,25,781.
3. Relevance of the ITAT Bangalore decision in the appellant's case.
4. Permissibility of adjustments under Section 143(1) of the Income-tax Act.
5. Validity of proceedings under Section 143(1) of the Income-tax Act.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appellant filed the appeal with a delay of 94 days. The appellant's counsel argued that the delay was due to the appellant's unawareness of the possibility of appealing the CIT(A) order before the ITAT. The delay was not intentional and was caused by the need for consultation regarding the demand raised by the Assessing Officer. The tribunal found the reasons for the delay reasonable and condoned the delay, admitting the appeal for adjudication.

2. Non-grant of Foreign Tax Credit (FTC) of Rs. 36,25,781:
The appellant, a resident individual employed with Shell India Market Private Limited and BG Exploration and Production India Limited, was on an international assignment to the Philippines. The salary earned in the Philippines was taxed there, and the appellant also received dividend income in the Netherlands, which was taxed in both the Netherlands and India. The appellant filed the return of income and Form 67 for claiming FTC, but the AO denied the credit for foreign tax due to the late submission of Form 67. The CIT(A) upheld the AO's decision, citing the requirement to file Form 67 on or before the due date.

3. Relevance of the ITAT Bangalore Decision:
The appellant argued that the case was similar to the ITAT Bangalore decision in Ms. Brinda Ramakrishna vs. ITO, where the tribunal allowed the FTC despite the late filing of Form 67, considering it a directory requirement rather than mandatory. The tribunal, in this case, found the appellant's argument valid and referenced the ITAT Chennai decision in Shri. Govindarajan Roopkumar vs. ADIT, which also supported the view that filing Form 67 by the extended due date under Section 139(4) should be acceptable.

4. Permissibility of Adjustments under Section 143(1) of the Income-tax Act:
The appellant contended that the non-grant of FTC was not a permissible adjustment under Section 143(1) as it was a debatable issue. The tribunal agreed, referencing the ITAT decision in City Manager Association vs. DCIT and the Supreme Court decision in ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd, which supported the appellant's claim that debatable issues should not be adjusted under Section 143(1).

5. Validity of Proceedings under Section 143(1) of the Income-tax Act:
The appellant argued that the proceedings under Section 143(1) were invalid as the AO did not provide an opportunity to defend the case, violating the provisos to Section 143(1)(a). The tribunal found merit in this argument, referencing the ITAT decision in Arham Pumps vs. DCIT, which emphasized the need for due process and opportunity for defense.

Conclusion:
The tribunal found in favor of the appellant on all grounds. It directed the AO to allow the credit for foreign tax paid in other countries as per Form 67 filed by the appellant, considering the filing of Form 67 by the extended due date as sufficient compliance. The appeal was allowed, and the order was pronounced on 28th February 2023 at Chennai.