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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI G.S. PANNU & SHRI SAKTIJIT DEY
ORDER PER SAKTIJIT DEY: JUDICIAL MEMBER: Captioned appeal has been filed by the assessee challenging validity of order dated 29.03.2022 passed under Section 263 of the Income-Tax Act, 1961 by learned Principal Commissioner of Income- Tax, Ghaziabad pertaining to assessment year 2017-18.
Briefly, the facts are, the assessee is a resident corporate entity engaged in the business of software development.
For the assessment year under dispute, assessee filed its return of income on 26.10.2017 declaring income of Rs.63,17,170. Assessee’s case was selected for scrutiny through CASS.
In course of assessment proceedings, the Assessing Officer issued notices under Section 142(1) and 143(2) of the Act along with detailed questionnaire calling for various information and details. One of the queries raised was with regard to claim of foreign tax credit of Rs.21,46,329 under Section 90 of the Act. After considering the submissions of the assessee on various issues and examining the details, the Assessing Officer completed the assessment under Section 143(3) of the Act vide order dated 17.12.2009 accepting the income declared by the assessee and allowing foreign tax credit as claimed.
Subsequently, learned Pr. CIT, in exercise of powers under Section 263 of the Act, called for and examined the assessment record.
While examining the assessment record, he found that assessee’s case was selected for scrutiny primarily for the reason of large relief claimed under Section 90/91 of the Act.
On examining the assessment record, he was of the view that the Assessing Officer has not specified whether foreign tax credit relief is being allowed under Sections 90 and 91 of the Act. He observed, sections 90 and 91 operate in different situations. Therefore, it was incumbent upon the Assessing Officer to examine under which provision foreign tax credit is allowable. Further, he observed, as per Rule 128 of the Income-Tax Rules, 1962 introduced w.e.f. 27.06.2016, a person claiming foreign tax credit has to furnish details in Form no.67 prior to the due date of filing of return of income under Section 139(1) of the Act. Whereas, the assessee had not filed Form no. 67 within the due date. He observed, despite non-filing of Form no. 67 by the assessee, the Assessing Officer had allowed foreign tax credit.
Further, he alleged that Assessing Officer has not examined the difference in receipts from Kenya, which as per FIRCs, comes to Rs.1,85,78,962 and as per assessee comes to Rs.2,46,72,382. Further, he observed, no inquiry has been made with regard to travelling and conveyance expenses amounting to Rs.4,74,552. He further observed, though, foreign exchange fluctuation loss was set off against interest income, however, no details was called for or examined by the Assessing Officer. He observed, from invoices relating to purchase of fixed assets, it was found that a laptop and mobile phone was purchased in the name of persons who were not connected with assessee’s business. Thus, pointing out various deficiencies in the assessment order, learned PCIT was of the view that the assessment order is erroneous and prejudicial to the interest of the Revenue.
Accordingly, he issued a show-cause-notice to the assessee to explain as to why the assessment order should not be revised. In response to the show-cause-notice, the assessee furnished a detailed reply explaining each of the issues raised by learned PCIT. However, learned PCIT was not fully convinced with the submissions of the assessee. Thus, ultimately, he concluded that while completing the assessment, the Assessing Officer has not made proper inquiry and verification, which made the assessment order both erroneous and prejudicial to the interest of the Revenue. Thereafter, referring to various judicial precedents, learned PCIT set aside the assessment order with a direction to make a fresh assessment in accordance with the observations made in the revision order, after making proper verification and inquiry.
Before us, learned counsel appearing for the assessee submitted that in course of the assessment proceedings, the Assessing Officer has made detailed inquiry not only with regard to the claim of foreign tax credit but various other issues. In this context, he drew our attention to the notice dated 17.08.2018 issued under Section 143(2) of the Act and notice dated 21.08.2019 issued under Section 142(1) of the Act with questionnaire. He also drew our attention to the replies furnished in response to the aforesaid notices along with the necessary details. The learned counsel submitted, the Assessing Officer has made specific inquiry with regard to the claim of foreign tax credit and being satisfied with the evidences furnished has allowed the tax credit. As regards the allegation of learned PCIT regarding the difference in receipts from Kenya as shown by the assessee and FIRCs, the learned counsel submitted, since, the assessee followed mercantile system of accounting, it recognizes income on the basis of invoices raised.
Whereas, the FIRC is actual receipts. He submitted, in course of assessment proceedings, the assessee has reconciled the difference. As regards, various other discrepancies/issues raised by the revisionary authority, learned counsel for the assessee submitted that the issues were examined in detail by the Assessing Officer. He submitted, even before the revisionary authority, the assessee has submitted parawise/pointwise reply with supporting evidence. As regards non- furnishing of Form no.67 under Rule 128, learned counsel for the assessee submitted, the form was introduced for the first time in the current assessment year and due to technical glitch in the portal, the form could not be up-loaded. Further, he submitted, Rule 128 does not say that due to non-submission of Form no.67, foreign tax credit has to be disallowed. Therefore, he submitted, submission of Form no.67 is directory and not mandatory. In support, he relied upon a decision of the ITAT, Bangalore Bench in case of Ms. Birnda RamaKrishna Vs. ITO – dated 21.11.2021. He submitted, considered in the light of the decision of the Tribunal, the assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue for allowing foreign tax credit in absence of Form no.67 filed before due date of return of income under Section 139(1) of the Act. Thus, he submitted, the Assessing Officer having completed the assessment after conducting necessary inquiry and verification and with due application of mind to the facts and material brought on record, the assessment order cannot be considered to be erroneous and prejudicial to the interest of the Revenue. In support, he relied upon number of decisions, as submitted in case law compilation.
The learned Departmental Representative submitted, as per Rule 28 for claiming foreign tax credit, the assessee has to furnish the details in Form no.67. He submitted, in the facts of the present appeal, admittedly, the assessee has not furnished Form no. 67 within the due date. He submitted, while allowing foreign tax credit to the assessee in the assessment proceedings, the Assessing Officer has completely ignored this glaring fact. Thus, he submitted, for this very reason, the assessment order is erroneous and prejudicial to the interest of the Revenue.
Further, strongly relying upon the observations made by learned PCIT, he submitted that while completing the assessment, the Assessing Officer has not examined various claims made by the assessee, which made the assessment order erroneous and prejudicial to the interest of the Revenue. He submitted, as per explanation 2(a) to section 263 of the Act, the revisionary authority can exercise powers under Section 263 of the Act, if in his opinion, the Assessing Officer has not made inquiry which he should have made while completing the assessment. Thus, he submitted, the order passed under Section 263 of the Act deserves to be upheld.
We have considered rival submissions and perused material on record.
The primary factor for which learned PCIT has invoked his powers under Section 263 of the Act is on the issue of grant of foreign tax credit to the assessee. As observed by learned PCIT, assessee’s case was selected for scrutiny primarily for the purpose of examining “large relief claimed under Section 90/90A”. In this regard, the allegation of learned PCIT is two fold. Firstly, the Assessing Officer has not specified whether foreign tax credit is allowed under Sections 90 or 91 of the Act and secondly assessee has not furnished Form no. 67 containing the details of foreign tax credit within the due date of filing of return of income under Section 139(1) of the Act. As regards, the first allegation that the Assessing Officer has not specified whether foreign tax credit was allowed under Section 90 or 91 of the Act, it is very much evident from the discussion made by the Assessing Officer in the body of the assessment order that he has allowed the foreign tax credit under Section 90 of the Act. This is so because, in letter dated 11.11.2019 the assessee has very clearly stated that the foreign tax credit has been claimed under Section 90 of the Act. In fact, the Assessing Officer has fully reproduced the aforesaid letter submitted by the assessee in the assessment order. Only because the Assessing Officer has inadvertently allowed the foreign tax credit by mentioning section 91 in the computation sheet, it will not make the assessment order erroneous and prejudicial to the interest of Revenue, so long as, the facts are not disputed. It is a fact on record that the assessee has paid tax in foreign country and claimed credits in India in terms of section 90(2) read with the concerned DTAA. Therefore, there cannot be any doubt that assessee is entitled to claim foreign tax credit.
Merely because in the computation sheet the Assessing Officer has inadvertently mentioned section 91 in place of section 90, it will not invalidate assessee’s claim.
As regards, non furnishing of Form no.67 in compliance to Rule 128, undoubtedly, the rule was introduced for the first time in the impugned assessment year. It is the say of the assessee that since it is a newly introduced provision, due to technical glitch, the assessee could not upload the form. There is no reason to disbelieve assessee’s claim.
Even, otherwise also, on a careful reading of Rule 128, it is observed that nowhere the provision steals of allowance of foreign tax credit only upon furnishing Form no.
67. The Tribunal in case of Ms. Brinda RamaKrishna (supra) has held that filing of Form no. 67 is not mandatory but directory requirement. Further, the Bench has held that Rule 128(9)(i) does not provide for disallowance of foreign tax credit in case of delay in filing Form no.
The Bench has further held that when the DTAA overrides the provisions of the Act, Rule cannot be contrary to the Act. Thus, the grant of foreign tax credit has to be governed by the relevant provisions of the DTAA as per Rule 90(2) of the Act. Hence, could not be subject to Rule 128. Thus, if we consider the issue in the light of ratio laid down in the aforesaid decision, the decision of the Assessing Officer allowing foreign tax credit cannot be held to be erroneous.
As regards various other issues raised by the learned PCIT for revising the assessment order, it is observed, in reply to show cause notice issued under Section 263 of the Act, the assessee had submitted a detailed parawise reply supported by evidence to rebut each of the allegations made by learned PCIT. In fact, in some instances, learned PCIT has accepted the submissions of the assessee. As regards, the difference in receipts from Kenya, the assessee has given a valid reply to the effect that while it maintains accounts on mercantile basis, the FIRCs are on actual receipt basis. In our view, nothing wrong can be found in the explanation of the assessee. The same is the case with assessee’s explanation in respect of other issues raised by learned PCIT. In any case of the matter, on perusal of material available on record, we are convinced that in course of assessment proceedings, the Assessing Officer has made due inquiry and after proper application of mind to the facts and material on record has completed the assessment. As it appears from the show cause notice issued under Section 263 of the Act as well as the impugned order passed under the said provision, learned PCIT has essentially stepped into the shoes of the Assessing Officer and has taken up a fresh assessment proceedings himself by examining each item of income and expenditure of the assessee and has tried to find deficiencies in the assessment order.
This, in our view, is not the purport of section 263 of the Act. The pre- conditions of invoking section 263 of the Act are for revising an order which is not only erroneous prejudicial to the interest of the Revenue.
It is not the duty of the revisionary authority to scrutinize each and every order of the subordinate authority through a magnifying glass to find out innocuous as well as imaginary errors. However, this is what has happened in the present case. Thus, upon consideration of overall facts and circumstances of the case in the light of decisions relied upon, we are of the view that the twin conditions of section 263 of the Act are not satisfied. Therefore, the assessment order cannot be held as erroneous and prejudicial to the interest of Revenue. Accordingly, we quash the order passed under Section 263 of the Act and restore the assessment order.
In the result, the appeal is allowed. Order pronounced in the open court on 17thFebruary, 2023.