MONIKA RATHORE,GWALIOR vs. INCOME TAX OFFICER WARD -1, MORENA

The assessee filed her return of income for the impugned assessment year on 31.08.2023 in ITR-2, which is a belated return of income, declaring income of Rs.53,51,596/-. The assessee claimed relief u/s. 90 of the Act of the pre-paid taxes(FTC) to the tune of Rs.10,95,293/. 2 | P a g e The Revenue processed the return of income vide intimation dated 30.04.2024 u/s. 143(1), wherein the income was assessed at the returned income Rs.53,51,600/-, but credit of prepaid taxes(FTC) claimed by the assessee to the tune of Rs.10,95,293/- u/s. 90 of the Act was denied by the Revenue to the assessee while processing return of income u/s 143(1).

Assessee being aggrieved, filed first appeal with ld. CIT(Appeals)

Still aggrieved, the assessee has filed second appeal with ITAT and at the outset, ld. Counsel for the assessee submitted that the assessee has duly filed Form-67 on 02.05.2024 wherein there was a credit of Rs.10,95,293/- claimed by the assessee towards FTC. It was submitted that the assessee was working with Google, Germany and was ordinarily resident in India during the year under consideration. Foreign Tax of Rs.10,96,674/- was deducted and an amount of Rs. 10,95,293/- was claimed u/s. 90 of the Act as tax relief, as the total global income was declared by the assessee in return of income filed in India with Revenue. There was tax deducted on dividend earned from USA to the tune of Rs.604/- apart from tax deducted by Google Germany on salary earned in Germany from 15.10.2022 to 31.03.2023, which was also declared in Form No. 67 filed on 02.05.2024 and total FTC of Rs.10,95,293/- was claimed but both the authorities below have denied the credit of the aforesaid foreign tax credit. Assessee relied upon the decision of ITAT, Delhi Bench in the case of Suchi Agarwal v. ITO (ITA No. 601/Del/2024 assessment year 2020-21) order dated 31.05.2024. Assessee also relied upon the 4 | P a g e appellate order passed by ITAT, Bangalore in the case of Vinodkumar Lakshmipathi v. CIT(A) (2022) 145 taxmann.com 235, appellate order passed by ITAT, Bangalore Bench in the case of Deepak ShimogaPadmaraju v. ADIT reported in (2024) 162 taxmann.com 96 (Bang.-Trib) and appellate order passed by ITAT, Bangalore Bench in the case of Shri Subhankar Chakraborty v. ITO (ITA No.

We have considered rival contentions and perused the material on record. We have observed that the assessee is resident and ordinarily resident in India. The assesseefiled its return of income declaring total income of Rs.53,51,596/- on 31.08.2023. The said return of income was filed belatedly by the assessee u/s 139(4). The assessee has declared income from salary to the tune of Rs.53,51,596/-. The assessee has claimed that she worked in Germany with Google Germany for the period from October 15 , 2022 to March 31,2023. Assessee claimed credit of foreign prepaid taxes to the tune of Rs.10,95,293/- u/s 90, out of which claim of credit of prepaid taxes u/s. 90 to the tune of Rs.10,94,689/- was made with respect to income from salary to the tune of Rs.35,96,395/- earned from Google Germany. The Revenue has not allowed the claim of deduction towards foreign tax credit u/s. 90 of the Act on the ground that Form-67 was not filed on or before the due date of filing of return of income as prescribed u/s 139(1), by relying on Rule 128(8) and 128(9) of the 1962 6 | P a g e Rules. Return of income was filed by assessee belatedly on 31.08.2023, which was processed by the Revenue vide intimation u/s 143(1) dated 30.04.2024. Due date of filing the return of income was 31.07.2023. The assessee is resident and ordinarily resident in India under the provisions of 1961 Act.

It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the Assessing Officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961.

The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act. In fact that 8 | P a g e the double taxation avoidance agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective countries except where provisions to the contrary have been made in the agreement.

Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act, that will govern the taxation of income.

There is no condition prescribed in DTAA that the FTC can be disallowed for non- compliance of any procedural provision. As the provisions of DTAA overrides the provisions of the Act, the assessee has vested right to claim the FTC under the tax treaty, and the same cannot be disallowed for mere delay in compliance of a procedural provision. In other words, we would like to submit that as per the provisions of section 90(2) of the Act, where the Central Government of India has entered into a DTAA, the provisions of the Act would apply only to the extent they are more beneficial to a taxpayer. Therefore, the provisions of DTAA override the provisions of the Act, to the extent they are beneficial to the assessee.

That the lower authorities intends to disallow the claim of the assessee in terms of Rule 128(9), however as stated above, the provisions laid down in the Income Tax Rules shall stand to be overridden by the specific provisions mentioned in the DTAA more so to the extent that the same is beneficial to the tax payer. And as such, since the DTAA does not specifically state to disallow the claim of FTC on mere delay in filing of Form 67, we would submit that the disallowance made by the CPC and further confirmed by the CIT(A) is arbitrary, unjustified and fit to be deleted.

That lastly, we would like to contend that this being a debatable issue, the disallowance made by CPC was uncalled as the same cannot be termed as an adjustment in terms of section 143(1). In a similar matter before the Hon'ble ITAT Kolkata Bench in the case of M/s Surendra steel Pvt Ltd Vs CPC in dated 20/05/2022, it was held as below:- We have duly considered rival contentions and perused the material available on record. To our mind there are two issues involved. First being the procedural irregularity and second the legitimate quantification for disallowance. If the adjustment has been made on the basis of first defect i.e., for procedural irregularity then according to the decisions referred by the Id. Counsel for the assessee, this irregularity is not fatal 9 | P a g e enough to deny the claim of deduction u/s 80IC of the Act. More so, when in response to the first proposed adjustment, the assessee has reiterated submission of Form 10CCB. As far as the arguments raised by the Id. D/R is concerned, if a disallowance is to be made after filing of Form 10CCB, then it is a debatable issue and the same is not permissible u/s 143(1) in a prima facie adjustment and the assessee should have been given a notice for that. In other words, if a disallowance is required to be established by arguments and long drawn process of reasoning on points, which there may conceivably be two opinions about, then the case should have been selected for scrutiny assessment. In view of the above discussion, we delete the disallowance of deduction u/s 80IC of the Act, made by the Assessing Officer and upheld by the Ld. CIT(A) and allow the appeal of the assessee. As such, we would like to contend that the CPC was not right in disallowing the claim of FTC solely on the ground that Form 67 was filed belated.

That in support of our above contentions above, we would like to rely upon the following decisions of the coordinated Benches of ITAT:- * Vinod Kumar Lakshmipati Vs CIT(NFAC) Delhi - 145 taxmann.com 235 - ITAT Bangalore - It was held that:- Section 90, read with section 90A, of the Income-tax Act, 1961 and ride 128 of the Income-tax Rules, 1962 Double Taxation Relief - Where agreement exists (Foreign tax credit) Assessment year 2018- 19- Assessee claimed foreign tax credit under section 90/90A Assessing Officer disallowed claim, on ground that assessee had not filed Form No. 67 along with return Assessee filed Form No. 67 before Commissioner (Appeals) Commissioner (Appeals) held that since assessee had failed to file Form No. 67 within due date specified for filing return under section 139(1), Assessing Officer had rightly disallowed claim for foreign tax credit - It was noted that Bangalore Bench of Tribunal on identical issue in case of Ms. Brinda Ramakrishna v. ITO [2022] 135 taxmann.com 358/193 ITD 840 held that non- furnishing of Form No. 67 before due date specified for furnishing return under section 139(1) was not fatal to claim for foreign tax credit - Whether Assessing Officer was to be directed to give credit for foreign tax as per Form No. 67 filed before Commissioner (Appeals) Held, yes [Paras 5 and 6] [In favour of assessee] * Ritesh Kumar Garg Vs ITO in dated 15/09/2022 - ITAT Jaipur Bench held that:- Held that filing of Form 67, in my view, is a procedural/directory requirement and is not a mandatory requirement. Therefore, violation of procedural norms does not extinguish the substantive right of claiming the credit of FTC. There are no conditions prescribed in DTAA that FTC can be disallowed for non compliance of any procedural provision, 10 | P a g e

In the light of foregoing discussions, we are of the opinion that filing of Form 67 is a directory not mandatory and violation of procedural norm does not adversely affect the substantive rights or claims.

On the basis of discussion, submissions and abovementioned binding precedents, we set aside the orders of authorities below and restore the matter to the file of Ld. AO with the direction to verify the assessee’s claim in respect of foreign tax credit as per law after admitting / accepting Form 67 and decide the issue in accordance with law.

Consequently, the appeal of assessee is allowed as indicated above for statistical purpose.”

In the result, the appeal of the assessee is allowed for statistical purposes as indicated above.