The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) held that, a delay of 10 days in filing return cannot vitiate the Foreign Tax Credit (FTC) claimed to the extent of income earned outside India hence restored the matter to Assessing Officer (AO) for de novo consideration.
Mr. Kazuya Watanabe, a citizen of Japan, was assigned to India as an employee of M/s. Toyota Kirloskar Auto Parts Pvt. Ltd., located in Bengaluru, during the relevant Assessment Year (A.Y.). The assessee had made a claim for foreign taxes paid as Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act, 1961.
The income tax return for the Assessment Year 2021-22 was filed with a delay of 10 days. The taxpayer aimed to settle the tax liability of Rs. 99,85,580 by utilizing Foreign Tax Credit (FTC) under Section 90 of the Income Tax Act, amounting to Rs. 9,47,077, as well as Tax Deducted at Source (TDS) of Rs. 22,65,473. However, the Assessing Officer (AO) did not approve the claimed FTC as stated in the income tax return.
Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT (A)] which confirmed the order of AO by observing that the assessee has not filed the return of income within the time prescribed under Section 139(1) of the Income Tax Act.
Furthermore, it was mentioned that Foreign Tax Credit (FTC) is applicable solely to income taxable in India but received from outside the country. In this case, as the income was earned and received within India, without any earnings from abroad, the denial of the FTC claim by the Central Processing Centre (CPC) under Section 143(1) of the Income Tax Act was considered appropriate.
The assessee has filed an appeal before the ITAT and relied on orders of similar cases dealing with identical issue, alike in the case of Sanjiv Gopal Vs. ACIT, the Bangalore Bench of the Tribunal held that Rule 128 for filing the return is only a procedural provision and not a mandatory provision and cannot override the provisions of the Income Tax Act or the Double Taxation Avoidance Agreement (DTAA).
The Departmental Representative supported the order of CIT (A) in denying the claim of FTC.
The Bench comprising of Chandra Poojari, Accountant Member and George George K, Judicial Membercategorically observed that delay in filing the return and Form No.67 (i.e., beyond period under Section 139(1) of the Income Tax Act) is not fatal to the claim of FTC.
Moreover, the Tribunal clarified that if the assessee had earned salary income outside India and declared it for taxation in India, then the assessee would be eligible to claim Foreign Tax Credit (FTC) for that portion.
However, since there is no clear information available in the records regarding whether the entire salary income was earned in India or outside India, further investigation is required to determine the extent of FTC entitlement.
Therefore,the ITAT bench restored the matter to the file of the AO for denovo consideration and directed the assessee to file the necessary evidences / documents to prove its case to the extent of FTC credit claimed.
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