Tessolve Semiconductor Private Limited , Bangalore V. Deputy Commissioner of Income Tax, Circle-7(1)(1) , Bangalore

ITA 310/BANG/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1222 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-05-2024
• Assessment Year: 2021-2022
• Appeal Filed On: 22-02-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Revised return; Set aside
• Section: 139(5); 143(1); 250; 207; 139(1); 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI WASEEM AHMED,ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER ITA No.310/Bang/2024 Assessment Year : 2021-22 M/s. Tessolve Semiconductor Private Limited, Plot No.31(P2) Semicon Park, Electronic City Phase II, Bengaluru – 560 100. PAN : AABCT9789 M Vs. DCIT, Circle – 7(1)(1), Bengaluru. APPELLANT RESPONDENT Assesseeby:Shri. B. R. Sudheendra, CA Revenueby : Shri. Subramanian S, JCIT(DR)(ITAT), Bengaluru. Date of hearing:27.05.2024 Date of Pronouncement:03.06.2024 O R D E R Per Soundararajan K, Judicial Member : This appeal by the assessee is directed against the order passed by the NFAC under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’) dated 30.12.2023, in respect of Assessment Year 2021-22. 2. Brief facts of the case are that assessee is a company engaged in the business of Semiconductor Test Engineering solutions. During the Assessment Year 2021-22, assessee filed its original return of income on 10.03.2022. Thereafter, the assessee filed revised return on 28.03.2022 and claimed the Foreign Tax Credit (FTC) earned for the income earned by them outside India. The return was processed under section 143(1) of the ITA No.310/Bang/2024 Page 2 of 12 Act and intimation was sent on 13.11.2022 in which the CPC had not granted the FTC claimed by the assessee for the reason that the assessee had not filed Form 67 as per Rule 128 of the Income Tax Rules, 1962, within the due date for filing the returns. In fact, the assessee filed the revised return and also filed Form 67 and claimed FTC well before passing of the intimation under section 143(1) of the Act. The assessee challenged this intimation before the NFAC and contended that the Form 67 has been filed along with the revised return on 28.03.2022 by which time no order under section 143(1) of the Act was passed by the authorities and therefore the same is before the completion of the assessment proceedings by the authorities on 13.11.2022. However, the NFAC had not accepted the case of the assessee and held that the filing of Form 67 is mandatory and it should be furnished on or before the due date specified for furnishing the return of income under section 139(1) of the Act. The NFAC also relied on the order of the Vishakapatnam Bench of ITAT in the case of Murali Krishna Vaddi Vs. ACIT [2022] 142 taxmann.com 32 and dismissed the appeal. Against the order of the NFAC, the assessee is before us raising the following grounds: 1.General ground: 1.1The learned Additional / Joint Commissioner of Income Tax, Appeal Madurai (hereinafter referred to as CIT (A) for short) and the learned Assistant Director of Income Tax, CPC, Bengaluru (hereinafter referred to as CPC for short) have erred in passing the appellate order under section 250 of the Act and intimation under section 143(1) of the Act respectively, in the manner passed by them. The appellate order and the intimation so passed are bad in law and liable to be quashed. ITA No.310/Bang/2024 Page 3 of 12 2.Ground relating to principles of natural justice- Section 143(1) 2.1.The learned CPC has erred in passing the intimation under section 143(1) by disallowing the foreign tax credit u/s 90 without issuing a communication as required under proviso to section 143(1) and without providing opportunity to submit the response by the appellant. The intimation passed under section 143(1) is bad in law and liable to be deleted. 2.2 The learned CPC has erred in making adjustments not contemplated under the provisions of section 143(1) of the Act. The same being bad in law, the demand payable as determined in the Intimation under section 143(1) is to be deleted in its entirety. 2.3 Based on facts and circumstances of the case and law applicable, the intimation passed under section 143(1) is bad in law and liable to be deleted. 3.Ground relating to denial of foreign tax credit under section 90/90A 3.1 The learned CPC and the CIT(A) have erred in denying the appellant the foreign tax credit of Rs. 50,11,531 claimed under section 90/90A of the Act merely on delay in filing of Form 67. 3.2 The learned CPC and the CIT(A) have erred in not appreciating the time limit prescribed under Rule 128 of the Income Tax Rules, 1962 is directory in nature and not mandatory. 3.3The learned CPC and the CIT(A) have erred in not appreciating that rule 128 does not provide for disallowance of foreign tax credit on account of non filing or late filing of prescribed form i.e., Form No 67 3.4The learned CPC and the CIT(A) have erred in not following the judgment of the Madras High Court in the case of Duraiswamy Kumaraswamy in WP No. 5834 of 2022 and WMP No. 5925 and 5927 of 2022. The learned CPC and CIT(A) also erred in not following the judgements of the ITAT, Bangalore bench in several cases. 3.5On facts and circumstances of the case and law applicable, the foreign tax credit claimed in the revised return is to be accepted and the variations thereto is to be deleted fully. ITA No.310/Bang/2024 Page 4 of 12 4.Prayer: 4.1Based on the above grounds and other grounds adduced at the time of hearing, the appellant prays that the order passed under section 250 be quashed or in alternative the above grounds and relief prayed thereof be allowed. The appellant prays accordingly. 3. The learned AR at the time of hearing had filed a Paper Book and also the case laws in support of his arguments and prayed to allow the appeal since the intimation was issued after the revised return along with Form 67 was filed before the AO. The ld AR also relied on the order of the coordinated Bench of this Tribunal and the judgement of the Hon’ble High Court of Madras in support of his argument. 4. The learned DR relied on the orders of the Lower Authorities and prayed to dismiss the appeal. 5. We heard the arguments of both sides and perused the materials available on record and also the case laws and Paper Book filed by the assessee. As seen from the records, the assessee filed the revised return on 28.03.2022 and claimed the FTC earned by the company as per sections 90/91 of the Act by filing Form 67. Thereafter, the return was processed under section 143(1) of the Act and the intimation was issued on 13.11.2022 in which the FTC was denied. These facts are not disputed by the Department but the Department relied on the Rule 128(9) of the IT Rules that the Form 67 should be filed along with the original return of income filed under section 139(1) of the Act. This issue was already decided by the Co-ordinate Bench of the Tribunal in the case of Sanjiv Gopal Vs. ADIT [2022] 145 taxmann.com 378 (Bangalore Trib.) in which ITA No.310/Bang/2024 Page 5 of 12 this Tribunal had followed the earlier order of the Co-ordinate Bench of the Tribunal in which it was held as follows: “2. The Assessee is an individual and during the previous year relevant to AY 2018-19 an ordinary resident in India. The Assessee worked with Ernst & Young Australia from 20.11.2017 till 16.05.2019. Since her global income was taxable in India, the Assessee offered to tax salary income earned for services rendered in Australia for the period from December 2017 to March 2018 to tax in India. The Assessee claimed foreign tax credit (“FTC”) for taxes paid in Australia. 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: 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 ITA No.310/Bang/2024 Page 6 of 12 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 subsection (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 18.04.2020. The revised return of income was processed by Centralized Processing Centre (CPC) electronically and intimation u/s 143(1) of the Act on 28.05.2020 was passed disallowing the claim of FTC. 5. The Assessee filed a rectification application before the AO on 15.06.2020 & 25.02.2021 and submitted that credit for FTC as claimed in the return should be given. In the rectification order dated 10.03.2021, 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 03.09.2021 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 Assessee that filing of Form 67 is a procedural requirement and noncompliance thereof does not disentitle the Assessee of the FTC. ITA No.310/Bang/2024 Page 7 of 12 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. 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;” ITA No.310/Bang/2024 Page 8 of 12 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. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) 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 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 and Others v. Gangabai and Others, reported in (2008) 17 SCC 117, wherein it has been held that procedure cannot be a tyrant but only a ITA No.310/Bang/2024 Page 9 of 12 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 vs Axis Computers (India) (P.) Ltd [2009] 178 Taxman 143 (Delhi) PCIT, Kanpur vs Surya Merchants Ltd [2016] 72 com 16 (Allahabad) CIT, Central Circle vs American Data Solutions India (P.) Ltd [2014] 45 com 379 (Karnataka) CIT-II vs Mantec Consultants (P.) Ltd [2009] 178 Taxman 429 (Delhi) CIT vs ACE Multitaxes Systems (P.) Ltd [2009] 317 ITR 207 (Karnataka). 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] 263 ITR 706 (SC) CIT v Eli Lily & Co (India) P Ltd (2009) 178 Taxman 505 (SC) GE India Technology Centre P Ltd v CIT (2010) 193 Taxman 234 (SC) Engineering Analysis Centre of Excellence P Ltd v CIT (2021) 125 taxmann.com 42 (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. ITA No.310/Bang/2024 Page 10 of 12 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.” 7. The aforesaid decision has also been followed by a Division Bench of ITAT Surat Bench in the case of Sanjay Patil Vs Assessing Officer (ITAT Surat) ITA No.189/SRT/2021 Order dated 18/05/2022. Following the view expressed in the aforesaid decision, we hold that ITA No.310/Bang/2024 Page 11 of 12 the assessee is entitled to FTC and the AO is directed to allow the claim. The decision rendered by the ITAT Visakapatnam Bench in ITA No.269/Viz/2021 dated 14.6.2022 is distinguishable in as much as in the present case, Form No.67 was filed along with the return of income by the assessee and not after the commencement of the scrutiny proceedings by the AO after a delay of more than 2 years, as was the facts in the case decided by the Visakapatnam Bench (supra). We are therefore of the view that the said decision rendered by the Visakapatnam Bench is not applicable to the facts of the present case and the other decisions taking a view in favour of the assessee are applicable. The said decision also does not consider the effect of DTAA and Sec.90 of the Act, vis-à-vis the provisions of Rule 128(9) of the Rules and as to whether the Rules can override the Act. Therefore, we hold that the assessee is entitled to FTC and the AO is directed to allow the same.” 8. In the result, the appeal is allowed.” 6. The above view of the coordinated Bench was approved by the Hon’ble Madras High Court in its judgement reported in (2023) 156 taxmann.com 445 (Madras) in the case of Duraiswamy Kumaraswamy Vs. Principal Commissioner of Income Tax, wherein it was held that, “11. The law laid down by the Hon’ble Apex Court in G.M. Knitting Industries (P) Ltd (2016) 376 ITR 456, would be squarely applicable to the present case. In the present case, the returns were filed without FTC, however the same was filed before passing of the final assessment order. The filing of FTC in terms of Rule128 is only directory in nature. The rule is only for implementation of the provisions of the Act and it will always be directory in nature. This is what the Hon’ble Supreme Court had held in the above case when the returns were filed without furnishing Form 3AA and the same can be filed the subsequent to the passing of the assessment order. 12. Further, in the present case, the intimation under section 143 (1) was issued on 26.03.2021, but the FTC was filed on 02.02.2021. Thus, the respondent is supposed to have provided the due credit to the FTC of the petitioner. However, the FTC was rejected by the Respondent, ITA No.310/Bang/2024 Page 12 of 12 which is not proper and the same is not in accordance with law. Therefore the impugned order is liable to be set aside.” 7. In view of the above Judgement of the Hon’ble Madras High Court cited supra and the order of the Co-ordinate Bench of the Tribunal, which are identical to the facts of the present case, we set aside the orders of the authorities below and allow the appeal filed by the assessee. 8. In the result, appeal filed by the assessee is allowed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (WASEEM AHMED) (SOUNDARARAJAN K) Accountant Member Judicial Member Bangalore, Dated : 03.06.2024. /NS/* Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.