MOOG MOTION CONTROLS PRIVATE LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE

Brief facts of the case are that assessee filed return of income on 28.11.2019 declaring income of Rs.15,98,97,570/- and claimed refund of Rs.48,31,740/-. Subsequently, the return was revised on 19.03.2020 and declared the same income claiming a refund of Rs.54,16,070/-. The said return was processed on 17.03.2021 by the CPC, Bengaluru, and there was a disallowance made under section 36(1)(va) r.w.s. 2(24)(x) of the Act for the delayed remittance of the employees’ contribution of Rs.2,60,000/- and there was also delayed submission of Form No.67 due to this, the foreign tax credit claimed by the assessee of Rs.5,81,713/- was

Aggrieved from the above disallowance by the CPC, assessee filed appeal before the CIT(A). The CIT(A) observed that the disallowance for delayed remittance of employees’ contribution as per section 36(1)(va) of the Act has been settled by the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., and Others Vs. CIT and Others (2022) 448 ITR 518 (SC) dated 12.10.2022 and the grounds were not allowed by the CIT(A). The CIT(A) has also noted that Form No.67 r.w.r. 128 of Income Tax Rules, 1962 should have been filed within the due date of filing of return of income which was filed belatedly on 19.03.2020. Accordingly, the foreign tax credit was not allowed and CIT(A) upheld the disallowance made by the CPC.

Aggrieved from the above order of the CIT(A), assessee filed appeal before the ITAT. The learned AR of the assessee reiterated the submissions made before the CIT(A) and he has also filed written synopsis which is as under: “As regards Ground 1 of the appeal

The learned CIT(A) grievously erred by denying the claim for credit in respect of foreign taxes paid to the extent of Rs. 4,86,566/- u/s 90 of the Income Tax Act, 1961, on the contention that Form 67 was not filed before the time limit specified u/s 139(1).

The learned CIT(A) failed to appreciate that delay in filing Form 67 is merely a procedural lapse and ought not to be a hindrance in allowing a claim rightfully due to a taxpayer. The learned CIT(A) also did not appreciate that one out of the two withholding tax certificates for which relief u/s 90 was claimed was received only after the time limit specified u/s 139(1) had lapsed. Hence, Form 67 in respect of that certificate could not have been filed before the time limit specified u/s 139(1) of the Act.

A copy of the revised return of income filed by the appellant, as well as a copy of Form 67, clearly evidencing the claim of relief u/s 90 for AY 2019-20 in respect of taxes paid in China, are enclosed respectively as Annexure A and Annexure B of the Paper Book.

At this stage, we wish to bring to the Hon’ble Bench’s attention that at the time of filing the revised return of income / Form 67, while computing the eligible relief u/s 90 in respect of foreign taxes, the company had erroneously computed the said relief even on the GST component.

In other words, while computing the eligible foreign tax credit u/s 90 read with Rule 128 of the Income Tax Rules, 1962, the company had erroneously included the GST component also on the income which was doubly taxed in India and China. Foreign tax credit is not eligible on such GST component as the same is not to be considered as income which is doubly taxed for the purpose of claim of relief u/s 90 of the Act.

This inadvertent error was realised by the appellant during the course of the proceedings before the learned CIT(A) and accordingly, the appellant had re-calculated the eligible relief u/s 90, and the same stood at Rs. 4,86,566/- vis-à-vis Rs. 5,81,713/- claimed in the return of income. Hence, the appellant had submitted before the learned CIT(A) that the claim for relief u/s 90 for AY 2019-20 be restricted to Rs. 4,86,566/- only as against Rs. 5,81,713/- claimed in the revised return of income.

Proof of payment / withholding of taxes in China in respect of two certificates are enclosed as Annexure C and Annexure D of the Paper Book. A detailed working for the eligible relief u/s 90 to the extent of Rs. 4,86,566/- is enclosed as Annexure E of the Paper Book.

Ledger extracts evidencing recording of foreign income from China by the company are enclosed as Annexure F and Annexure G of the Paper Book respectively for both the certificates. Debit notes raised by the company, and the margin thereon which was recorded as income of the company, and on which taxes were withheld in China, are enclosed as Annexure H and Annexure I respectively of the Paper Book for both the certificates.

The learned CIT(A), in the order u/s 250 of the Act, has upheld the denial of claim of relief u/s 90 solely on the contention that the appellant has not filed Form 67 before the time limit prescribed u/s 139(1) of the Act. While the appellant concedes that in respect of the taxes withheld in China as per the second certificate [Annexure D of the Paper Book], Form 67 was not filed before the due date prescribed u/s 139(1), it is pertinent to note that the first certificate [Annexure C of the Paper Book], dated 27 February 2020, was received only after the time limit specified u/s 139(1) had lapsed and could not have been claimed earlier.

Thus, there was impossibility of filing filed Form 67 / claiming relief u/s 90 in respect of the first withholding tax certificate as the same was received from China only after the time limit u/s 139(1) had lapsed. In respect of the second certificate, Form 67 was erroneously missed to be filed within the due date specified u/s 139(1) of the Act.

Hence, the claim of relief u/s 90 of the Act was made by filing Form 67 on 19th March 2019 [i.e., after the due date u/s 139(1) for AY 2019-20] and the return of income was also revised to make the said claim.

The action of the learned CIT(A) in denying relief u/s 90 solely on the contention that the appellant did not file Form 67 before the due date prescribed u/s 139(1) of the Act is against all principles of natural justice. Filing Form 67 is merely a procedural requirement and a genuine claim cannot be denied citing procedural lapses. Moreover, the claim in respect of the first certificate could never have been made by the appellant as the withholding tax certificate from China itself was received after the due date u/s 139(1) for AY 2019-20 had lapsed.

While the learned CIT(A) has alleged that Rule 128(9) [erroneously mentioned as Rule 129(8) in the order u/s 250] mandates an assessee to file Form 67 before the due date u/s 139(1) of the Act, the appellant humbly submits that the Rule nowhere provides that if Form 67 is not filed within the said due date, the relief u/s 90 of the Act would be denied to an assessee.

In case the intention was to deny the claim of relief u/s 90 of the Act, either the Act or the Rules would have specifically provided that credit for foreign taxes would be denied if the assessee does not file Form 67 within the due date prescribed u/s 139(1).

Filing of Form 67 is merely a procedural / directory requirement. A violation of procedural norm does not extinguish the substantive right of claiming the benefit of relief u/s 90 of the Act. A procedural law should not ordinarily be construed as mandatory. A procedural law is always subservient to and is an aid to justice. Filing of Form 67 as per the provisions of section 90 read with Rule 128(9) is only a procedural requirement and should not have a bearing on the allowability of such a claim.

Moreover, there is no condition prescribed in the DTAA between India and China that the claim of relief u/s 90 in respect of taxes paid in China can be denied for non-compliance of any procedural aspects. As the provisions of the DTAA override those under the Act, relief u/s 90 in respect of taxes paid in China cannot be denied to the appellant under any circumstances.

In any case, Form 67 was filed by the appellant and the claim was made in the revised return of income. Hence, non-furnishing of Form 67 before the due date u/s 139(1) of the Act cannot be fatal to the claim of relief u/s 90 of the Act. Attention is drawn to CBDT Circular No. 14(XL-35), dated 11th April 1995 [Annexure K of the Paper Book], wherein it has been stated in no uncertain terms as under:

The appellant places strong reliance on the judgement of the Hon’ble jurisdictional Tribunal, Bangalore Bench, in the case of Brinda RamaKrishna vs. ITO in ITA. No. 454/Bang/2021 [copy enclosed as Annexure L of the Paper Book], wherein the Hon’ble Bench made the following observations while allowing the claim of relief u/s 90 despite Form 67 not being filed before the due date u/s 139(1) of the Act:

I have given a careful consideration to the rival submissions. I agree with the contentions put forth by the learned counsel for the Assessee and hold that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. I am of the view that the issue was not debatable and there was only one view possible on the issue which is the view set out above.

Likewise, the Hon’ble jurisdictional Tribunal, Bangalore Bench, in the case of Vinodkumar Lakshmipathi vs. CIT(A), NFAC in ITA No. 680/Bang/2022 [copy enclosed as Annexure M of the Paper Book], relying on the judgement in the case of Brinda RamaKrishna (supra), also upheld the claim of relief u/s 90 of the Act even when Form 67 is not filed before the due date specified u/s 139(1) of the Act. The Hon’ble Tribunal observed as under:

We have heard the rival submissions and perused the materials available on record. The claim of the assessee has been denied while processing return of the assessee u/s 143(1) of the Income-tax Act,1961 ['the Act' for short] dated 11.6.2020 on the reason that assessee has not filed the Form No.67 along with return of income so as to claim the foreign tax credit. However, the same has been filed before the Ld. CIT(A) on 22.9.2018. The assessee has made the contention before Ld. CIT(A) that assessee has offered the foreign income of Rs.2,01,024/- and also paid tax on it at Rs.63,342/- and levying of additional tax of Rs.28,431/- is amounting to double taxation. In our opinion, the plea of the assessee is justified. The assessee has filed the copy of Form No.67 before Ld. CIT(A). He ought to have given direction to give credit for foreign tax which has been paid as per Form 67.

Further, we note that on identical issue, This Tribunal in the case of Brinda Rama Krishna (in ITA No. 454/Bang/2021 for AY.2018-19), order dated 17.11.2021 held that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. Therefore, non furnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC.

Reliance is also placed on the judgement of the Hon’ble Madras High Court in the case of Duraiswamy Kumaraswamy vs PCIT in [2023] 156 taxmann.com 445 (Madras) - W.P. No. 5834 of 2022 [copy enclosed as Annexure N of the Paper Book] wherein the Hon’ble High Court has categorically held that claiming credit for foreign taxes in terms of the Rule 128 is only directory in nature and relief u/s 90 cannot be denied merely because Form 67 was not filed within the due date specified u/s 139(1) of the Act. Similar views have been expressed by the Hon’ble Tribunal, Delhi Bench, in the case of Vikash Daga vs. ACIT in ITA No. 2536/Del/2022 [copy enclosed as Annexure O of the Paper Book].

Thus, based on above judgements, it is clear that delay in filing Form 67 cannot be an impediment in allowing relief that is rightfully due to a taxpayer. Accordingly, it is prayed that relief u/s 90 of the Act in respect of foreign taxes paid in China be directed to be granted to the appellant to the extent of Rs. 4,86,566/-, and the intimation u/s 143(1) passed by CPC /

The learned CIT(A) grievously erred by sustaining the disallowance made by CPC / AO in respect of employees' contribution to Provident Fund to the extent of Rs. 2,60,000/- u/s 36(1)(va) r.w.s 2(24)(x) of the Income Tax Act, 1961, by relying on the judgement of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd., without appreciating that the disallowance ought not to have been made prior to the judgement of the Hon'ble Apex Court on a debatable and controversial issue which is beyond the scope of adjustment under section 143(1).

The details of remittance of employees’ contribution towards PF, as disallowed by CPC in the intimation u/s 143(1), is tabulated below for reference:

While the appellant acknowledges the judgement of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., dated 12th October 2022, wherein this disputed matter has been decided against the assessee and in favour of the revenue, it is submitted that the disallowance cannot be made for AY 2019-20 by relying on the said judgement, i.e., prior to the order passed by the Hon’ble Supreme Court.

The provisions of section 143(1) of the Act permit adjustment to total income only when there is an arithmetical error or an apparent incorrect claim in the return of income or disallowance of expenditure is indicated in the tax audit report but not taken into account in computing the total income in the return.

The claim for deduction pertaining to delayed remittance of employees’ contribution to provident fund is not an arithmetical error. It also cannot be held to be an incorrect claim. Also, no specific disallowance of expenditure is indicated in the tax audit report in this regard. Thus, the learned AO / CPC has grievously erred in traversing beyond their powers by making this addition u/s 143(1)(a) of the Act.

The addition made by the CPC is beyond the scope of section 143(1) of the Act as the impugned matter has been a controversial and debatable issue. This view was upheld by the Hon’ble Tribunal, Delhi Bench in the case of SVS Guarding Services Private Limited in ITA No. 231/Del/2022 and ProwizMansystems Private Limited in ITA No. 817/Del/2021.

Moreover, while your appellant concedes that various judgements of the Hon’ble Tribunal, Bangalore Bench, are against the assessee on this disputed matter, at this stage, it may also not be out of place to bring to the Hon’ble Bench’s attention the judgement of the Hon’ble Tribunal, Jaipur Bench, in the case of Paris Elysees India Private Limited vs. DCIT in ITA No. 357/JPR/2022 [enclosed as Annexure P of the Paper Book] wherein the Hon’ble Tribunal, after considering the judgement of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., has upheld the view that disallowance of employees’ contribution to PF and ESI is outside the ambit of adjustment u/s 143(1) of the Act. The observations of the Hon’ble Tribunal are reproduced below for reference:

Per contra, the ld. Sr. DR supported the contentions raised in the order of the ld. CIT(A) and vehemently argued that the disallowance are evidently not paid in time the same is disallowable and for that he has relied upon the decision of Hon’ble Apex Court in case of Checkmate Services P. Ltd. vs CIT Appeal No. 2833 of 2016 dated 12.10.2022.

Reliance is also placed on the judgement of the Hon’ble Tribunal, Raipur Bench, in the case of Parv Buildcon vs. DCIT, CPC in ITA No. 357/RPR/2023 [enclosed as Annexure Q of the Paper Book] wherein the Hon’ble Tribunal, relying on various other judgements, categorically upheld the view that disallowance could not have been made prior to the judgement of the Hon’ble Apex Court in the case of Checkmate Services. The observations of the Hon’ble Tribunal are reproduced below for reference:

At the threshold, we may herein observe that the issue involved in the present appeal, i.e., whether or not prior to the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT-1 (2022) 448 ITR 518 (SC), the assessee’s claim for deduction of delayed deposit of employee’s share of contribution towards ESI/PF could have been validly disallowed by the CPC, Bengaluru vide intimation issued u/s. 143(1) of the Act had been

As the facts and issue involved in the present appeal on the first principle, i.e., as to whether or not prior to the judgment of the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT-1 (supra), the CPC, Bengaluru was well within its right in disallowing the assessee’s claim for deduction of delayed deposit of employees share of contributions towards ESI/PF vide an intimation issued u/s. 143(1) of the Act, remains the same, therefore, we follow the same.

We, thus, in terms of our aforesaid observations, set-aside the order passed by the CIT(Appeals) wherein he had upheld the order passed by the CPC/A.O u/s. 154 of the Act, and thus, declined the assessee’s claim for deduction of delayed deposit of employees share of contribution towards ESI/PF and vacate the addition of Rs.24,72,236/ made by the A.O. 11. In the result, appeal of the assessee company is allowed in terms of our aforesaid observations.

The learned DR relied on the order of the lower authorities and submitted that the issue regarding delayed remittance of employees’ contribution to PF/ESI has been settled by the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., (supra) as relied on by the CIT(A). The CPC has made adjustment u/s 143(1)(a) (iv) of the Act on the basis of Tax Audit Report. The ld. Dr further submitted that the issue has been settled by the Hon’ble High Court of Madras in the case of AA520 Veerappampalayam Primary Agricultural Cooperative Credit

Considering the rival submissions, we note that the assessee has deposited belatedly the employees’ contribution to PF./ESI as prescribed in the respective Act. as per the Tax Audit report filed electronically and the Central Processing Center (CPC) has disallowed the dealy deposited as per section 36(1)(va) of the Act. The CIT (A) has not accepted the arguments of the assessee. As per the submissions, we note that in the month of March, 2019, the due date was 15.04.2019, however the actual date of deposit to the respective account was on 17.04.2019. Disallowance of delayed payment of employee’s contribution to PF and ESI in terms of section 36(1)(va) is incorrect claim of deduction apparent from any information in the return. This issue has been settled by the Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd., (supra). Respectfully following the above judgment, we dismiss the grounds of the assessee on this issue. The assessee has also raised issue regarding disallowance made by the CPC under section 143(1)(a) of the Act that CPC has no power to disallow under section 36(1)(va) of the Act while processing the income tax return. This issue has also been settled by the Co-ordinate Bench of ITAT JODHPUR in the case of Tarun Construction Co. vs ITO in ITA NO. 108 & 109/JODH/2023 order dated 2023 reported

The aforesaid observations of Hon'ble Supreme Court would leave no room for doubt or ambiguity regarding the real intent and purport of section 36(1)(va) read with section 2(24)(x) of the Act. Thus, as per the clear language of the aforesaid provisions, unless employees' contribution to PF and ESI are deposited within the due date prescribed under the PF and ESI Acts, not only the assessee would get no deduction under section 36(1)(va), but the amount in question has to be treated as assessee's income under section 2(24)(x) of the Act. To that extent, the issue stands squarely settled by the ratio laid down by Hon'ble Supreme Court in case of Checkmate Services (P.) Ltd. (supra). 12. Now reverting back to the contention of the assessee that the adjustment made is not within the scope and ambit of section 143(1)(a)(iv) of the Act, it is necessary to look into the said provision, which reads as under : "143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) to (iii) ** ** ** (iv) disallowance of expenditure or increase in income indicated in the audit report but not taken into account in computing the total income in the return" 13. As could be seen from the provision reproduced herein above, in its earlier form, the provision was little different from the present one, as the words "or increase in income" appearing in the provision was inserted by Finance Act, 2021 w.e.f. 1-4-2021. However, without taking note of the said amendment, the provision states that disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return, can be the subject matter of adjustment under section 143(1)(a) of the Act. In this regard, assessee's contention is that in the tax audit report, the auditor has not indicated about any disallowance, but has merely furnished the details of contribution received from employees for various funds as contemplated under section 36(1)(va) of the Act. 14. On an examination of column 20b of the tax audit report, it is quite clear that it provides for furnishing details relating to nature of fund, sum received from employees, due date for payment, the actual amount paid and the actual date of payment. If we keep the format in column 20b in juxtaposition to the provisions contained in section 36(1)(va) of the Act, it will be quite evident that there is a clear indication by the auditor that the employees' contribution to various funds were not paid within due date, but were paid beyond the due date. Thus, such clear indication by the auditor in the audit report calls for suo motu disallowance of such amount paid beyond the due date, as it is in contravention of section 36(1)(va) of the Act, while computing the total income in the return of income. Instead of doing that, the assessee has claimed deduction of the amount under section 36(1)(va) of the Act. Thus, in our considered opinion, the adjustment clearly falls within the ambit of section 143(1)(a)(iv) read with Explanation (a). Therefore, we reject assessee's contention in this regard. 15. Further, in our view, the concept of prima facie adjustment under section 143(1)(a) has long been obliterated, as, after the amendment of section 143(1), first and second proviso to section 143(1)(a) provide for complying with the requirements of rule of natural justice in case

The next issue is regarding not giving Foreign Tax Credit (FTC) by the CPC for delay filling of Form No. 67. The CIT(A) has not accepted the plea of the assessee. We note from the submissions (supra) that assessee had genuine reason for not getting Form No.67 in time and it was received on 19.03.2020 and on the same date, the assessee had revised its return of income and claimed foreign tax credit. The FTC( Foreign is enclosed in the Paper Book at pages 97 to 98. Assessee has also enclosed proof of

To sum up, appeal of the assessee is partly allowed for statistical purposes.