2022 (12) TMI 426 - AT - Income Tax

Disallowance of foreign tax credits - assessee had not furnished all the requisite documents as specified under Rule 128(8) - assessee is a resident individual stated to be deriving income by way of pension and annuity received from United States of America wherein assessee received pension and annuity - HED THAT - There is no dispute that assessee has furnished its return of income for the impugned assessment year on 15.03.2020. Whereas, Form No.67 claiming foreign tax credits was furnished on 11.03.2020. Learned Commissioner (Appeals) has disallowed foreign tax credits, primarily, for non-fulfillment of conditions prescribed under sub-Rule (8) and(9) of Rule 128. Non-furnishing of Form No. 67 within the due date of furnishing of return of income as specified under Section 139(1) of the Act, we have noted in case of M/s. 42 Hertz Software India (P) Ltd. 2022 (3) TMI 834 - ITAT BANGALORE has held that the rule prescribed under Rule 128(9) of the Act cannot be treated as mandatory but is directory in nature as the said Rule does not provide for disallowance of foreign tax credits in case of delay in filing Form No.67. That being the legal position, we hold that assessee s claim of foreign tax credits cannot be disallowed merely on the reasoning that Form No. 67 was filed beyond the due date of furnishing of return under Section 139(1) of the Act. This view also get fortified by the subsequent amendment brought to Rule 128(9) of the Act by providing that Form No. 67 can be furnished within the time specified under sub-Section (1) and sub-Section (4) of section 139 of the Act. Allegations of the Commissioner (Appeals) that assessee has not furnished the other requisite documents as provided under Rule 128(8) though, learned counsel appearing for the assessee has submitted before us that all those documents were filed before the assessing officer, however, on the face of the allegations made by Commissioner (Appeals) we cannot give a clean chit to the assessee at this stage. Considering the fact that the assessee is stated to be in possession of documentary evidence, as required under rule 128(8) and (9), we direct the assessee to furnish them before AO for examination. AO is directed to verify the documentary evidences filed or to be filed by the assessee and allow foreign tax credit in accordance with the extant rules read with section 90 of the Act. Grounds are allowed for statistical purposes.

Summary

Issues: Disallowance of foreign tax credits under Section 90 of the Act.

Detailed Analysis:
1. Issue of Disallowance of Foreign Tax Credits: The appeal by the assessee was against the disallowance of foreign tax credits amounting to Rs.6,42,677. The assessee, a resident individual deriving income from pension and annuity from the United States, claimed the foreign tax credits in the return of income for the assessment year in question. However, the Centralized Processing Centre disallowed the foreign tax credits claimed by the assessee under Section 90 of the Act.

2. Compliance with Provisions: The first appellate authority upheld the disallowance, citing non-compliance with Rule 128(9) of the Income-Tax Rules, which required the submission of Form No.67 before the due date specified for filing the return of income under Section 139(1) of the Act. Additionally, the authority highlighted the necessity of submitting a residency certificate of a country outside India as per Section 90(4) of the Act and other documents specified under Rule 128(8).

3. Assessee's Arguments: The counsel for the assessee argued that although Form No.67 was not submitted before the due date, it was furnished before the actual filing date of the return of income. Referring to a Tribunal decision and an amendment to Rule 128(9), the counsel contended that the rule should be considered directory rather than mandatory. The counsel also asserted that all required documents were submitted along with Form No.67 and the return of income, inviting verification by the assessing officer.

4. Tribunal's Decision: The Tribunal observed that the rule under Rule 128(9) could not be deemed mandatory, as it did not provide for disallowance of foreign tax credits due to a delay in filing Form No.67. Considering the legal position established by a prior case and the subsequent amendment to Rule 128(9), the Tribunal held that the disallowance based on the late filing of Form No.67 was not justified. However, concerning the alleged non-furnishing of other requisite documents as per Rule 128(8), the Tribunal directed the assessee to provide the documents to the Assessing Officer for verification and instructed the officer to allow foreign tax credit in accordance with the rules and Section 90 of the Act.

5. Conclusion: The Tribunal allowed the appeal for statistical purposes, emphasizing the importance of complying with procedural requirements while granting relief to the assessee regarding the disallowance of foreign tax credits under Section 90 of the Act.