ARUN SARABHAI,AGRA V. ACIT, CIRCLE 2(1)(1), AGRA

ITA 561/AGR/2025

AI Insights

The case revolves around the denial of a foreign tax credit claimed by Arun Sarabhai for the assessment year 2018-19. The credit was denied by the lower authorities on the grounds that Form No. 67, required to claim the credit, was not filed within the due date prescribed under Section 139(1) of the Income-tax Act, 1961. The tribunal, referencing various precedents and the provisions of the Double Taxation Avoidance Agreement (DTAA), concluded that the procedural requirement of filing Form No. 67, even if not adhered to within the prescribed time, should not extinguish the substantive right of the assessee to claim the foreign tax credit.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 846335 (ITAT-AGRA)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Agra
• Assessment Year: 2018-2019
• Appeal Filed On: 10-12-2025
• Other Referred Cases: Brinda Ramakrishna vs ITO, Muralikrishna Vaddi vs DCIT, Nagubabu Kuchibhotla vs ITO, Shri Govinda Rajulu Dhondu vs ACIT, Deepak Shimoga Padmaraju vs ADIT, Vinodkumar Lakshmipathi vs NFAC, Mangalore Chemicals & Fertilizers Ltd. v. Dy. Commissioner, Sambhaji v. Gangabai, Union of India v. Azadi Bachao Andolan, CIT v. Eli Lilly & Co. (India) (P.) Ltd., GE India Technology Centre (P.) Ltd. v. CIT, Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT, CIT v. Axis Computers (India) (P.) Ltd, Pr. CIT v. Surya Merchants Ltd., CIT v. American Data Solutions India (P.) Ltd., CIT v. Mantec Consultants (P.) Ltd., CIT v. ACE Multitaxes Systems (P.) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RISHI AGARWAL
• Keywords: Revised return; Rectification of order; Double taxation relief; Residential status
• Section: 154; 90; 139(5)

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL AGRA BENCH “SMC”: AGRA BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHIR SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. 561/AGR/2025 (Assessment Year: 2018-19) Arun Sarabhai, 71-A, Verma House, Bank Colony, Oppo. Subhash Park, Agra Vs. ACIT, Circle-2(1)(1), Agra (Appellant) (Respondent) PAN: ADMPS4050P Assessee by : Shri Rishi Agarwal, CA Shri Shailendra Srivastava, Sr. DR Revenue by: Date of Hearing 18/03/2026 Date of pronouncement 27 /03/2026 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.561/AGR/2025 for AY 2018-19, arises out of the order of the ld Jt. Ld. Commissioner of Income Tax (Appeals)-1, Pune [hereinafter referred to as ‘ld. JCIT(A)’, in short] dated 26.08.2025 against the order of assessment passed u/s 154 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 22.07.2024 by the Assessing Officer, KNP-C(80)(1) (hereinafter referred to as ‘ld. AO’). 2. At the outset, there is a delay in filing of appeal by the assessee before us by 41 days. Considering the reasons adduced in the condonation petition, in the interest of substantial justice, we hold that the assessee was prevented from sufficient cause from filing appeal in time and hence we are Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 2 inclined to condone the delay and admit the appeal of the assessee for adjudication. 3. Though the assessee has raised several grounds of appeal, the only effective issue to be decided in this appeal is as to whether the Learned JCITA was justified in upholding the action of the Learned AO in denying the foreign tax credit of Rs 1,80,424/- for the reason that Form No. 67 was filed beyond the due date of filing the return of income under section 139(1) of the Act. 4. We have heard the rival submissions and perused the materials available on record. The assessee filed his original return of income for the assessment year 2018-19 on 31-10-2018 declaring total income of Rs. 42,73,060/- with full disclosure of foreign income and claimed foreign tax credit of Rs 1,80,424/- under section 90/90A/91 of the Act. The said return was duly processed by the Learned CPC under Section 143(1) of the Act dated 03-09-2019 denying the foreign tax credit on the ground of non- furnishing of Form 67. It was submitted that the assessee initially omitted to file Form No. 67 while filing the income tax return on account of being ignorant regarding procedural formalities of filing Form No. 67 to claim the foreign tax credit. Later on, when the assessee came to know this requirement, he filed Form No. 67 as required under Rule 128 of the Income Tax Rules on 4-1-2022. The details of rectification applications filed under section 154 of the Act are as under :- a) Filed before CPC Bengaluru on 21-09-2019 which was disposed vide order dated 25-11-2019 denying foreign tax credit. b) Filed before CPC Bengaluru on 24-03-2021 which was disposed vide order dated 3-4-2021 without carrying out the requisite rectification. Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 3 c) Filed before Jurisdictional AO i.e. ACIT Circle 2(1)(1), Agra on 2-2- 2024 which was disposed vide order dated 22-07-2024 wherein the foreign tax credit was again denied. 4.1. The reason for denial of the foreign tax credit was that Form No. 67 was not filed by the assessee within the due date of filing the return of income under Section 139(1) of the Act. This action of the Learned AO was upheld by the Learned JCITA. Aggrieved, the assessee is in appeal before us. 5. It is not in dispute that assessee had foreign income and had paid taxes in Germany. The assessee in the status of Resident had duly offered the foreign income while filing his ITR in India and claimed foreign tax credit of Rs 1,80,424/-. Admittedly the assessee filed Form No. 67 on 4-1-2022 belatedly. Since this Form No. 67 was not filed by the assessee within the due date prescribed under Section 139(1) of the Act, the assessee was denied the foreign tax credit of 1,80,424/- by the lower authorities. The law is now very well settled by the decision of Bengaluru Tribunal in the case of Brinda Ramakrishna vs ITO in ITA No. 454/Bang/2021 dated 17-11-2021 reported in 193 ITD 840 (Bang Trib). The relevant operative portion of the said order is reproduced below:- “3. There is no dispute that the Assessee is entitled to claim FTC. Rule 128 of the Income-tax Rules, 1962 (Rules) provides for giving FTC and reads thus : 'Foreign Tax Credit. 128. (1) An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the manner and to the extent as specified in this rule : Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 4 Provided that in a case where income on which foreign tax has been paid or deducted, is offered to tax in more than one year, credit of foreign tax shall be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax in India.\" One of the requirements of Rule 128 for claiming FTC is provided by Rule 128 (8) & (9) of the Rules and the same reads thus: \"(8) Credit of any foreign tax shall be allowed on furnishing the following documents by the assessee, namely :— (i) a statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No. 67 and verified in the manner specified therein; (ii) certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee,— (a) from the tax authority of the country or the specified territory outside India; or (b) from the person responsible for deduction of such tax; or (c) signed by the assessee:\" Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by,— (A) an acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee; (B) proof of deduction where the tax has been deducted. (9) The statement in Form No. 67 referred to in clause (i) of sub- rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income.' 4. The Assessee claimed FTC of Rs. 4,73,779/- u/s. 90 of the Act read with Article 24 of India Australia tax treaty (\"DTAA\") in a revised return of income filed on 31-8-2018. The Assessee had not filed the Form 67 before filing the return of income. On realising the same, the Assessee filed Form 67 in support of claim of foreign tax credit on 18-4-2020. The revised return of income was processed by Centralized Processing Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 5 Centre (CPC) electronically and intimation u/s 143(1) of the Act on 28- 5-2020 was passed disallowing the claim of FTC. 5. The Assessee filed a rectification application before the AO on 15-6- 2020 & 25-2-2021 and submitted that credit for FTC as claimed in the return should be given. In the rectification order dated 10-3-2021, the AO upheld the action on the ground that the Assessee has failed to furnish Form 67 on or before the due date of furnishing the return of income as prescribed u/s 139(1) of the Act which is mandatory according to Rule 128(9) of the Rules. 6. On appeal by the Assessee, the CIT(A) vide Order dated 3-9-2021 confirmed the Order of AO. The CIT(A) held that the Assessee has not filed Form 67 before the time allowed under section 139(5) of the Act, and therefore Form 67 is non-est in law. The CIT(A) also held that provisions of rule 128 are mandatory in nature. The CIT(A)rejected the contention of the Appellant that filing of Form 67 is a procedural requirement and non- compliance thereof does not disentitle the Assessee of the FTC. 7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that disallowance of FTC is bad in law. He submitted that section 90 of the Act provides that Government of India can enter into Agreement with other countries for granting relief in respect of income on which taxes are paid in country outside India and such income is also taxable in India. Article 24 of India Australia DTAA provides for credit for foreign taxes. Article 24(4)(a) is relevant in the present context. Same is extracted below : \"4. In the case of India, double taxation shall be avoided as follows : (a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax; \" It was submitted by him that section 90 of the Act read with article 24(4)(a) provides that Australian tax paid shall be allowed as a credit against the Indian tax but limited to proportion of Indian tax. Neither section 90 nor DTAA provides that FTC shall be disallowed for non- compliance with any procedural requirements. FTC is Assessee's vested right as per article 24(4)(a) of the DTAA read with section 90 and same cannot be disallowed for non-compliance of procedural requirement that is prescribed in the Rules. Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 6 8. It was further submitted by him that section 295(1) of the Act gives power to the CBDT to prescribe Rules for various purposes. Section 295(2)(ha) gives power to the Board to issue Rules for FTC. The relevant extract is as follow: \"(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters :— ………………… (ha) the procedure for granting of relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, against the income-tax payable under this Act;\" 9. It was submitted that the Board has power to prescribe procedure to granting FTC. However, the Board does not have power to prescribe a condition or provide for disallowance of FTC. The procedure prescribed in rule 128 should therefore be interpreted in this context. Rule 128 is therefore a procedural provision and not a mandatory provision_ 10. It was further submitted that rule 128(9) provides that Form 67 should be filed on or before the due date of filing the return of income as prescribed u/s 139(1) of the Act. However, the rule nowhere provides that if the said Form 67 is not filed within the above stated time frame, the relief as sought by the assessee u/s 90 of the Act would be denied. The learned counsel for the Assessee submitted that in case the intention was to deny the FTC, either the Act or the Rules would have specifically provided that the FTC would be disallowed if the assessee does not file Form 67 within the due date prescribed under section 139(1) of the Act. It was submitted that that there are many sections in the Act which specifically deny deduction or exemption or relief in case the return is not filed within prescribed time. Reference was made to section 80AC, 80-IA(7), 10A(5) and 10B(5). Such language is not used in rule 128(9). Therefore, such condition cannot be read into rule 128(9). 11. It was further submitted that Filing of Form 67 is a procedural/directory requirement and is not a mandatory requirement. It was submitted that violation of procedural norm does not extinguish the substantive right of claiming the credit of FTC. Reliance was placed on the decision of the Hon'ble Supreme Court, in the case of Mangalore Chemicals & Fertilizers Ltd. v. Dy. Commissioner AIR 1952 SC 152 wherein it observed that : \"The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 7 equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.\" Further reliance was placed on the decision of the Hon'ble Supreme Court, in the case of Sambhaji v. Gangabai [2008] 17 SCC 117, wherein it has been held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. It was submitted that filing of Form 67 as per the provisions of section 90 read with rule 128(9) is a procedural law and should not control the claim of FTC. 12. It was further submitted that even in the context of 80IA(7), 10A(5) etc, wherein there is specific provision for disallowance of deduction/exemption if audit report is not filed along with the return, various High Courts have taken a view that filing of audit report is directory and not mandatory. Reliance in this regard was placed on the following cases : ♦ CIT v. Axis Computers (India) (P.) Ltd [2009] 178 Taxman 143 (Delhi) ♦ Pr. CIT v. Surya Merchants Ltd. [2016] 72 taxmann.com 16/387 ITR 105 (All.) ♦ CIT v. American Data Solutions India (P.) Ltd. [2014] 45 taxmann.com 379/223 Taxman 143 (Kar.) ♦ CIT v. Mantec Consultants (P.) Ltd. [2009] 178 Taxman 429 (Delhi) ♦ CIT v. ACE Multitaxes Systems (P.) Ltd. [2009] 317 ITR 207 (Kar.) 13. It was submitted 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 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. Reliance in this regard is placed on the following cases and circulars : • Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263 ITR 706 (SC) • CIT v. Eli Lilly & Co. (India) (P.) Ltd. [2009] 178 Taxman 505/312 ITR 225 (SC) • GE India Technology Centre (P.) Ltd. v. CIT [2010] 7 taxmann.com 18/193 Taxman 234/327 ITR 456 (SC) Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 8 • Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 125 taxmann.com 42/281 Taxman 19/432 ITR 471 (SC) (Pg 106-109 of PB 2-Para 25 & 26) • CBDT Circular No 333 dated 2/4/82 137 ITR (St.) It was submitted that when 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 override the provisions of the Act, the Assessee has vested right to claim the FTC under the tax treaty, the same cannot be disallowed for mere delay in compliance of a procedural provision. 14. The learned DR reiterated the stand of the revenue that rule 128(9) of the Rules, is mandatory and hence the revenue authorities were justified in refusing to give FTC. He also submitted that the issue was debatable and cannot be subject matter of decision in sec.154 proceedings which are restricted in scope to mistakes apparent on the face of the record. 15. In his rejoinder, the learned counsel for the Assessee submitted that Form No. 67 was available before the AO when the intimation u/s.143(1) of the Act dated 28-5-2020 was passed. He pointed out that the AO or the CIT(A) did not dismiss the Assessee application for rectification u/s.154 of the Act on the ground that the issue was debatable but rather the decision was given that the relevant rule was mandatory and hence non furnishing of Form No. 67 before the due date u/s.139(1) of the Act was fatal to the claim for FTC. 16. 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. I am also of the view that the issue in the proceedings u/s.154 of the Act, even if it involves long drawn process of reasoning, the answer to the question can be only one and in such circumstances, proceedings u/s.154 of the Act, can be resorted to. Even otherwise the ground on which the revenue authorities rejected the Assessee's application u/s.154 of the Act was not on the ground that the issue was debatable but on merits. I therefore do not agree with the submission of the learned DR in this regard. 17. In the result, the appeal is allowed. Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 9 6. We are conscious of the fact that this issue has been decided against the assessee by the Co-ordinate Bench of Vizag Tribunal in the ccase of Muralikrishna Vaddi vs DCIT reported in 196 ITD 705. But at the same time, the very same issue has been decided in favour of the assessee by the following Co-ordinate Benches of various Tribunals:- a) Hyderabad Tribunal in the case of Nagubabu Kuchibhotla vs ITO in ITA No. 28/Hyd/2024 dated 27-02-2024 distinguishing the decision of Vizag Tribunal. b) Hyderabad Tribunal in the case of Shri Govinda Rajulu Dhondu vs ACIT in ITA No. 113/Hyd/2023 dated 11-5-2023 c) Bangalore Tribunal in the case of Deepak Shimoga Padmaraju vs ADIT reported in 206 ITD 803 d) Bangalore Tribunal in the case of Vinodkumar Lakshmipathi vs NFAC reported in 145 taxmann.com 235 7. We find that the aforesaid decisions favouring assessee had categorically held that filing of Form No. 67 is to be construed as directory and not mandatory. In our considered opinion, filing of Form No. 67 for claiming foreign tax credit is only a procedural requirement. Eventhough the same was filed belatedly by the assessee, atleast the same should have been taken due cognizance by the Learned JCIT (A), which was not done in the instant case. It is trite law that procedural requirements are always directory and not mandatory in nature and any violation of procedural requirement cannot fasten any substantive tax liability on the assessee. Printed from counselvise.com ITA No. 561/AGR/2025 Arun Sarabhai Page | 10 8. In view of the aforesaid observations and respectively following the decisions favouring the assessee as detailed supra, we direct the Learned AO to grant foreign tax credit of Rs 1,80,424/- to the assessee and re-compute the tax liability accordingly. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 27/03/2026. -Sd/- -Sd/- (SUNIL KUMAR SINGH) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 27/03/2026 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Printed from counselvise.com "