Foreign Tax Credit Denial for Late Form 67 Filing Held Invalid by ITAT Hyderabad

Background of the Dispute

The Income Tax Appellate Tribunal, Hyderabad Bench, in Pakala Shailendra Prasad Vs ITO examined whether Foreign Tax Credit (FTC) can be refused simply because Form No. 67 was not filed within the due date prescribed under Section 139(1) of the Income Tax Act 1961.

The matter arose from an order passed by the CIT(A)-NFAC, Delhi for Assessment Year (AY) 2021-22, where relief was denied to the assessee on the ground of delayed filing of Form 67, despite the foreign income and foreign taxes paid having been duly disclosed.

Condonation of Delay in Appeal Filing

Nature of Delay

  1. The order of the CIT(A)-NFAC was received by the assessee on 16.12.2022.
  2. The assessee e-filed the appeal before the ITAT using Form No. 36 on 15.02.2023, which fell within the statutory time limit.
  3. However, the physical set of the appeal papers and acknowledgment were lodged with the ITAT Registry only on 12.04.2023.

This led to a delay of 57 days in depositing the hard copy set, for which the assessee moved a condonation petition supported by an affidavit explaining the circumstances.

Tribunal’s View on Condonation

After reviewing:

  • The condonation application,
  • The affidavit filed by the assessee, and
  • Submissions from both sides,

the Tribunal accepted that the appeal had been instituted electronically within time, and the delay related only to submission of physical documents. The delay of 57 days was therefore condoned, and the appeal was admitted for adjudication on merits.

Note: ITAT once again affirmed that procedural lapses in physical filing, when the e-filing is within limitation, should not defeat substantive rights.

Income Profile and FTC Claim

Assessee’s Profile and Income Details

The assessee is an individual who filed the return of income for AY 2021-22 on 24.02.2021, disclosing income from multiple heads as under:

  • Income from Salaries – ₹9,36,309
  • Capital Gain from Trading of Shares – ₹6,79,307
  • Interest & Dividend Income – ₹5,01,939
  • Foreign Income – ₹1,45,11,957

The foreign income was primarily from the United States.

Foreign Tax Payment and FTC Claim

The assessee had:

  1. Filed a US tax return in respect of the foreign income.
  2. Paid income tax in the USA on the said income.
  3. Disclosed the same foreign income in the Indian return of income.
  4. Claimed FTC in India for the taxes already paid in the USA.
  5. Filed Form No. 67 on 24.02.2022, i.e., after the due date under Section 139(1) but before completion of assessment.

Despite this, while processing the return under Section 143(1) via CPC Bengaluru, the FTC claim was not allowed.

Proceedings Before CIT(A)-NFAC

CPC Adjustment

The Centralized Processing Centre, Bengaluru, through an intimation dated 10.11.2022 issued under Section 143(1), declined the FTC claim on the sole ground that Form 67 had been furnished late—beyond the prescribed due date under Section 139(1).

Findings of CIT(A)-NFAC

The assessee challenged the CPC adjustment before the CIT(A)-NFAC.
The CIT(A):

  • Upheld CPC’s denial of FTC.
  • Relied on Rule 128(8) and Rule 128(9) of the Income Tax Rules.
  • Concluded that filing Form No. 67 within the prescribed timeline was a mandatory requirement.
  • Held that there was no condonation of the delay in filing Form 67 and, therefore, the assessee was not eligible for FTC.

As a result, the appeal was dismissed at the first appellate stage.