Loading judgment…
Facts
The assessee, Excelsoft Technologies Ltd., appealed against the order of the CIT(A) concerning disallowance of foreign tax credit and carry forward of losses. The assessee had claimed foreign tax credit and carry forward of losses, which were initially denied by the AO and partly allowed by the CIT(A).
Held
The Tribunal held that the filing of Form 67 is directory in nature and the assessee should have been allowed foreign tax credit as it was filed during the pendency of the appeal. The Tribunal also directed the AO to allow the carry forward of losses after verification.
Key Issues
1. Whether the disallowance of foreign tax credit due to late filing of Form 67 is justified. 2. Whether the assessee is eligible for carry forward of business losses.
Sections Cited
90, 91, 139(1), 143(1), 154, 115JB, 128, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI PRAKASH CHAND YADAV
Date of hearing : 19.12.2024 Date of Pronouncement : 13.01.2025 O R D E R
Per Prashant Maharishi, Vice President
This appeal is filed by Excelsoft Technologies Ltd. (the assessee/appellant) for the assessment year 2020-21 against the appellate order passed by the CIT(Appeals)-II, Coimbatore [ld. CIT(A)] dated 30.9.2024 wherein the appeal filed by the assessee against the intimation passed u/s. 143(1) of the Income-tax Act, 1961 [the Act] dated 6.8.2021 issued by CPC, Bengaluru [ld. AO] was partly allowed.
The assessee, aggrieved with the same, has preferred this appeal raising the following the two effective grounds of appeal:-
“2. Grounds relating to claim of Foreign Tax Credit: 2.1 The lower authorities have erred in not allowing relief under section 90 in respect of foreign taxes of Rs. 34,05,019. 2.2 The learned JCIT(A) has erred in (i) confirming the disallowance for the reason that the Appellant did not claim the credit of foreign taxes in the return of income nor in the application for rectification under section 154; (ii) not appreciating that not claiming foreign tax credit in the return of income was a bonafide mistake; (iii) not appreciating that there was no provision in the online application under section 154 for claiming credit of foreign taxes paid. 2.3 The learned JCIT(A) has erred in concluding that the credit of foreign taxes cannot be granted as the Appellant failed in furnishing Form 67 within the due date under section 139(1) as mandated under rule 128 of the Income-tax Rules, 1962. 2.4 The learned JCIT(A) has erred in (i) not appreciating that furnishing of Form 67 within the due date under section 139(1) is a directory requirement; (ii) not appreciating that rule 128 cannot override section 90 read with applicable Double Taxation Avoidance Agreement; (iii) disregarding the binding precedents and holding that filing of Form 67 within the due date under section 139(1) is mandatory in nature. 2.5 On facts and circumstances, the Appellant is eligible for credit of foreign taxes under section 90.
3. Grounds relating to carry forward of losses: 3.1. The learned JCIT(A) erred in concluding that the Appellant is eligible to carry forward business loss determined in the rectification order passed under section 154 for AY 2020-21 of Rs 10,81,30,100 as against Rs 12,12,46,777 claimed in the return of income.
3.2. The learned JCIT(A) erred in concluding that the Appellant is eligible to carry forward business loss of AY 2018-19 only to the extent determined in the order passed under section 143(3) for the said assessment year.”
The brief facts of the case show that assessee is a private limited company engaged in the business of providing innovative technology based solutions in education and e-learning space. It filed return of income on 13.02.2021 declaring a loss of Rs.12,12,46,777 as per normal computation and book profit was disclosed u/s. 115JB at Rs.278,63,938. This return was processed and intimation was issued u/s. 143(1) on 6.8.2021 wherein amongst other issues, the assessee was denied the benefit of claim of foreign tax credit of Rs.34,05,090 and restricted the grant of carry forward losses of Rs.12,12,46,777 to Rs.10,81,30,100.
Against the same, assessee preferred an appeal before the ld. CIT(A) wherein on the issue of foreign tax credit, assessee submitted that actual foreign tax credit available to assessee is Rs.32,65,624 in terms of provisions of sections 90 & 91 of the Act and Rule 128 of the I.T. Rules. The ld. CIT(A) noted that assessee has filed return of income on 13.12.2021 within the extended due date of 15.02.2021 and filed Form 67 on 9.12.2022. Return of income was processed on 6.8.2021 before filing of Form 67 and therefore assessee did not report foreign tax credit in its return of income. Subsequently assessee has filed rectification application and claimed such foreign tax credit. The ld. CIT(A) noted that in the return of income assessee has not claimed credit for foreign tax
and Form 67 was also not filed. It was filed only on 8.12.2022 and revised on 9.12.2022. The ld. CIT(A) held that filing Form 67 is mandatory for claiming the benefit of foreign tax credit in terms of Rule 128 (9) of The Income tax Rules. He further relied upon CBDT Notification dated 19.9.2017 wherein it was held that submission of Form 67 shall precede the filing of return of income and as assessee has not filed return u/s. 139(1) and claimed such foreign tax credit and also failed to claim it u/s 154 proceedings, the claim of assessee was dismissed.
With respect to carry forward of losses which were not granted to the assessee against the claim of Rs.26,07,03,459, the ld. CIT(A) noted that assessee has claimed carry forward of loss which was disallowed by the CPC. The ld. CIT(A) directed the ld. AO to allow the benefit of carry forward losses as determined in scrutiny assessment for AYs 2018-19 and 2020-21 as per rectification order dated 20.4.2022 after verification of records. The appellate order was passed on 30.9.2024. Aggrieved with the same, the assessee is in appeal.
Ground No.1 is general in nature, hence no arguments are advanced and therefore the same is dismissed.
Ground No.2 is with respect to the claim of foreign tax credit of Rs.34,05,019. The facts relating to the same are that in the original return filed by the assessee in Schedule TR of the return of income, no foreign tax credit was claimed. Return was processed on 6.8.2021 u/s. 143(1). As there was no claim in the return of income, no foreign tax credit is allowable. Order u/s. 154 was passed on 20.4.2022 wherein also as no claim was made of foreign tax credit, same was not allowed. Subsequently when the appeal was filed against the order u/s 143(1), assessee filed Form 67 on 8.12.2022 claiming foreign tax credit of Rs.34,05,019. Subsequently on 9.12.2022 another Form 67 was filed claiming foreign tax credit of Rs. Rs.32,65,624. Based on this, additional ground was raised by assessee before the ld. CIT(A) for allowing foreign tax credit of Rs. Rs.32,65,624. The ld. CIT(A) noted that the issue was not at all available even in the order u/s. 154 when assessee has failed to claim the same in the return u/s. 139(1) also. The additional ground raised by assessee claiming foreign tax credit of Rs. Rs.32,65,624 was not allowed.
The ld. AR submitted that Forms can be filed even after issuance of intimation u/s. 143(1) as held by the Hon’ble Karnataka High Court in 250 ITR 432. He further relied on the decision of the Hon’ble Madras High Court in Duraiswamy Kumaraswamy v. PCIT, 156 taxmann.com 445 wherein it has been held that filing of Form 67 in terms of Rule 128 is only directory in nature and therefore assessee should have been allowed foreign tax credit. He further relied on the decision of coordinate Bench in 42 Hertz Software India Pvt. Ltd. v. ACIT, 139 taxmann.com 448 wherein it has been held that if Form 67 is submitted even during the assessment proceedings, assessee is entitled to claim foreign tax credit. He
submits that appeal proceedings is a process of assessment of total income only and therefore when Form 67 was submitted before the CIT(A), the credit should have been granted which is available according to DTAA and Income tax Act. He further referred to the decision of coordinate Bench in the case of Krishnakumar Balasankara Subramanian v. DCIT, 165 taxmann.com 500 wherein also it has been held that filing of Form 67 is directory in nature. He further relied upon the decision of coordinate Bench in Manoj Kumar Srivastava v. ACIT, 163 taxmann.com 296 and Priya Savina Murzello v. DCIT 148 taxmann.com 472. Thus, claim of assessee is that foreign tax credit should have been granted to the assessee as filing of Form no. 67 is directory in nature, there is no dispute on the facts that income is offered and charged to tax.
The ld. DR relied upon the order of the ld. CIT (A), Rule 128 (9) and Circular to state that such Form should have been filed in time to take the credit of FTC.
We have carefully considered rival contentions and perused the orders of the ld. lower authorities. The issue in this ground is denial of Foreign tax credit to the assessee because of filing of form no. 67 beyond prescribed time.
According to the provisions of Rule 128(8) credit for foreign tax credit shall be allowed to assessee on furnishing of Form 67 verified in specified manner mentioned therein. According to Rule 128(9) such Form shall be submitted on or before the end of assessment year in which income related to foreign tax credit is offered to tax and return for such year is furnished within the time provided for filing of return u/s. 139(1) or 139(4) of the Act. Therefore, according to the Rules, Form 67 can be furnished up to the end of assessment year. In this case assessee has filed Form 67 first time on 8.12.2022 which was revised on 9.12.2022. Prior to that, on the return of income filed by assessee, intimation u/s. 143(1) was already passed and further rectification application thereon was also disposed of on 20.4.2022. The assessee filed appeal in Form 35 before the ld. CIT(A) on 19.11.2021. Therefore, it is apparent that Form 67 was filed by assessee after the filing of appeal before the ld. CIT(A). Therefore, the issue is that, whether Form 67 filed by assessee claiming foreign tax credit during the pendency of the first appeal, even then foreign tax credit can be allowed to the assessee or not?
As already seen, according to provisions of Rule 128(9) Form 67 shall be furnished on or before the end of relevant assessment year. The assessment year is AY 2020-21 which has already ended on 31.3.2021. The Hon’ble Madras High Court in Duraiswamy Kumaraswamy v. PCIT, 156 taxmann.com 445 in para 11 has categorically held that filing of Form for foreign tax credit in terms of Rule 128 is only directory in nature. In that case foreign tax credit was claimed on 2.2.2021 where intimation was issued u/s. 143(1) on 26.3.2021. The coordinate Bench in 42 Hertz Software India Pvt. Ltd. v. ACIT, 139 taxmann.com 448 in para 6 relying
upon the decision of another coordinate bench in the case of Ms. Brinda Ramakrishna v. ITO, 135 taxmann.com 358 further held that requirement of filing of Form 67 is directory in nature. Other decisions cited by the ld. AR also held that filing of Form 67 and time limit prescribed under Rule 128(9) of the I.T. Rules is merely directory in nature. In fact an appeal is continuation of the original assessment proceedings, therefore taking this as a corollary, Form 67 filed by the assessee after filing of the appeal before the ld. CIT(A) and when the time limit for filing such claim under Rule 128(9) is held to be mere directory in nature, the ld. CIT(A) should have granted the credit for foreign tax claimed by assessee. The ld. CIT(A) has merely looked at the timeline as assessee failed to claim the same in the return of income and in the rectification proceedings, he disallowed the same. On a reading of the judicial precedents cited before us, we find that foreign tax credit should have been allowed to the assessee as Form 67 was filed by assessee during the pendency of the appeal before the ld. CIT(A). However, as the claim of credit is also related to the income offered by the assessee in the return of income, we direct the ld. AO to verify the claim of foreign tax credit and if found in order, to grant credit for the same. Accordingly ground No. 2 of the appeal is allowed.
Ground No.3 of the appeal relates to carry forward of losses. The ld. CIT(A) has categorically held that assessee is eligible to carry forward of business loss as determined u/s. 154 of the Act for AY 2020-21 and eligible to carry forward business losses for AY 2018-
19 to the extent determined in the assessment proceedings. We find that for AY 2018-19 the total business loss of Rs.26,03,25,930/- comprises of unabsorbed depreciation of Rs.12,08,69,248. Therefore, the condition of business loss does not apply to unabsorbed depreciation. The AO is directed to allow the benefit of carry forward losses for earlier year as determined in the assessment proceedings in accordance with law, after granting an opportunity of hearing to assessee. Accordingly, ground No.3 of the appeal is allowed.
In the result, the appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on this 13th day of January, 2025.