2023 (3) TMI 1513 - AT - Income Tax

Disallowance of Foreign Tax Credit (FTC) - CPC denied the said FTC for non-filing of Form No. 67 along with the return of income - HELD THAT - On careful reading of the said Rule we note that, clause (i) of Sub-rule (8) of Rule 128 explains furnishing a statement of income from the country or specified territory outside India offered for tax for the previous year and foreign tax deducted or paid on such income in Form No. 67 duly verifying the manner in which specified therein. Admittedly, it is not clear, as discussed above the date of filing of Form No. 67 as required under clause (i) of Sub-rule (8) of Rule 128 of the Income Tax Rules, 1962 in the impugned order. Thereby, denying FTC, in our opinion, is not warranted. We hold Rules cannot override statutory provisions, as section 90 of the Act provides allowance of Foreign Tax Credit which is denied for alleged violation of procedures requirement. Therefore, we find filing of Form No. 67 under clause (i) of Sub-rule (8) of Rules 128 of the Income Tax Rules, 1962 is a procedural requirement, therefore, is a directory in nature, non-compliance thereof does not disentitled the assessee in claiming Foreign Tax Credit. Thus, we deem it proper to direct the CPC, Bangalore (AO) to allow Foreign Tax Credit as claimed by the assessee - Appeal of assessee is allowed for statistical purpose.

Summary

Issues:
Disallowance of Foreign Tax Credit (FTC) for non-filing of Form No. 67 along with the return of income.

Analysis:
The appeal was made by the assessee against the order passed by the National Faceless Appeal Centre, Delhi for the assessment year 2020-21. The assessee did not appear, leading to the appeal being heard ex-parte. The main issue raised was the disallowance of Foreign Tax Credit (FTC) by the CIT(A), NFAC, Delhi. The assessee, an individual working in the USA, claimed FTC in India for taxes paid in the USA. The CIT(A) denied the FTC as the return of income was filed under section 139(4) instead of 139(1), which was deemed untimely. The CIT(A) upheld the denial of FTC by the CPC, Bangalore, for non-compliance with the filing requirements.

Upon review, it was found that the Form No. 67 was filed before the return of income, as evidenced in the order. The assessee attempted to rectify the situation through a 154 application but faced technical issues on the online portal. It was argued that the filing of Form No. 67 is procedural and not mandatory, and the right to claim FTC should not be forfeited due to procedural lapses. The statutory provisions under section 90 allow for claiming FTC, and Rule 128 of the Income Tax Rules, 1962 outlines the procedure for filing relevant documents. The rules were found to be directory in nature, and non-compliance should not disentitle the assessee from claiming FTC. The Tribunal directed the CPC, Bangalore, to allow the Foreign Tax Credit claimed by the assessee, as the denial based on procedural grounds was deemed unwarranted.

In conclusion, the appeal by the assessee was allowed for statistical purposes, and the order was pronounced in March 2023.