2024 (9) TMI 1656 - AT - Income Tax

Denial of credit for foreign taxes - Form No. 67 was not filed with the return but was filed with the rectification application - HELD THAT - Since the provisions of DTAA override the provision of Section 90 of the Act as they are more beneficial to the assessee in view of judicial pronouncements since Rule 128(9) does not preclude the assessee from the claiming credit for FTC in case of delay in filing the return of income as the credit for FTC is a vested right of the assessee and since Form No. 67 was filed along with the rectification application as contended by the assessee therefore there was no justification for not allowing the credit for FTC. Hence claim of foreign tax credit has to be allowed since it is a vested right of the assessee and provision of DTAA will override the normal provision of the Income-tax Act if the same are more beneficial to the assessee and there is no justification for not allowing the credit. AO is directed to allow the FTC in accordance with Article 24 of the DTAA between India Sri Lanka and as per law. Hence Ground No. 7 is allowed. Carry forward losses claimed by the assessee in the return of income - The assessee had claimed loss in the return of income. No discussion has been made by the Ld. CIT(A) in this regard. Assessee is also directed to file necessary evidence for such claim before the Ld. AO who shall allow the loss claimed in accordance with law after verification of the details. Hence Ground No. 8 is allowed for statistical purposes.

Summary

Issues Involved:

1. Validity of the order under Section 250 of the Income Tax Act, 1961.
2. Violation of principles of natural justice due to lack of opportunity for a hearing.
3. Refusal to condone the delay in filing the appeal.
4. Denial of tax credit for foreign taxes under Section 90 of the Act and Article 23 of the India-Sri Lanka DTAA.
5. Non-allowance of carry forward of losses claimed by the assessee.
6. Levy of interest under Sections 234B and 234C of the Act.

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 250:
The assessee challenged the validity of the order passed under Section 250 of the Income Tax Act, 1961, arguing it was bad in law and should be quashed. The tribunal examined the procedural aspects and found that the order lacked a detailed examination of the merits, leading to a decision to set aside the order and restore the appeal for a fresh hearing.

2. Violation of Natural Justice:
The assessee contended that the appeal was dismissed without providing an opportunity for a hearing, violating the principles of natural justice. The tribunal recognized this procedural lapse and allowed the grounds related to the denial of a fair hearing, emphasizing the need for adherence to natural justice principles in tax proceedings.

3. Refusal to Condonation of Delay:
The tribunal considered the reasons for the delay in filing the appeal, which included the assessee's reliance on a tax consultant and a bona fide belief that the necessary actions were being taken. The tribunal found justification for the delay, noting that the delay was neither deliberate nor intentional, and allowed the condonation of the delay in the interest of justice.

4. Denial of Foreign Tax Credit:
The tribunal addressed the issue of non-allowance of foreign tax credit due to the late filing of Form No. 67. It referred to judicial precedents and the provisions of the DTAA, which override the Income Tax Act when more beneficial to the assessee. The tribunal concluded that the foreign tax credit is a vested right and cannot be denied for procedural lapses, thereby directing the AO to allow the credit in accordance with Article 24 of the India-Sri Lanka DTAA.

5. Non-Allowance of Carry Forward of Losses:
The tribunal noted the lack of discussion by the CIT(A) regarding the carry forward of losses claimed by the assessee. It directed the AO to verify the necessary evidence and allow the losses claimed in accordance with the law, thus allowing this ground for statistical purposes.

6. Levy of Interest under Sections 234B and 234C:
The tribunal regarded the issue of interest levied under Sections 234B and 234C as consequential and general in nature, thus not requiring separate adjudication. The tribunal's decision to allow the appeal effectively addressed the underlying issues leading to the interest levy.

Conclusion:

The tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the AO to reassess the claims, particularly regarding foreign tax credit and carry forward of losses, in accordance with the law and judicial precedents. The decision underscores the importance of procedural fairness and the substantive rights of taxpayers under international tax treaties.