Foreign Tax Credit | Belated Form 67 Filing Does Not Bar DTAA Relief: ITAT Pune

The Income Tax Appellate Tribunal, Pune, has clarified that the belated filing of Form 67 cannot be used to deny foreign tax credit when the underlying claim is substantiated and the Double Taxation Avoidance Agreement (DTAA) applies. This decision reinforces the principle that procedural lapses, especially those arising from extraordinary circumstances like the COVID-19 pandemic, do not extinguish substantive rights under international tax treaties.

Background & Facts

The Dispute

The appellant, Ganesh Vishwas Petkar, a resident individual and salaried employee of Veritas Software Technologies India Private Limited, claimed Foreign Tax Credit (FTC) of Rs. 2,74,369/- for taxes paid in the United States on dividend income of Rs. 10,97,479/- received during the assessment year 2020-21. The claim was disallowed by the Centralized Processing Centre (CPC), Bangalore, in its intimation under Section 143(1) dated 24.12.2021, on the ground that Form 67 - required for claiming FTC - was not filed on or before the due date of filing the return.

Key Facts

• The assessee filed his income tax return for AY 2020-21 on 08.12.2020, declaring total income of Rs. 62,49,270/- and claiming FTC of Rs. 2,74,369/-.
• Due to the nationwide lockdown during the COVID-19 pandemic, the assessee was unable to obtain the necessary tax documentation from the U.S. in time.
• Form 67 was filed belatedly on 21.04.2022, after the due date of filing the return (31.07.2021).
• The CPC rejected the FTC claim in its intimation dated 24.12.2021, citing non-filing of Form 67.
• The assessee filed multiple rectification applications under Section 154 of the Income Tax Act, 1961, seeking correction of the intimation.
• A rectification order dated 03.01.2024 was issued by CPC, Bangalore, upholding the original denial.
• The assessee appealed to the Learned Commissioner of Income Tax (Appeals), Udaipur, who confirmed the CPC’s order on 24.07.2025.

Procedural History

• 08.12.2020: Return of income filed for AY 2020-21.
• 24.12.2021: CPC issued intimation under Section 143(1), disallowing FTC.
• 21.04.2022: Form 67 filed belatedly.
• Various dates in 2022 - 2023: Multiple Section 154 rectification applications filed.
• 03.01.2024: Rectification order issued by CPC, denying change.
• 24.07.2025: CIT(A), Udaipur, dismissed the appeal.
• 17.02.2026: Hearing before ITAT Pune.
• 23.04.2026: Judgment pronounced by ITAT Pune.

Relief Sought

The appellant sought: (1) Allowance of Foreign Tax Credit of Rs. 2,74,369/-; (2) Setting aside of the CIT(A) order dated 24.07.2025; (3) Direction to the Assessing Officer to grant FTC upon verification of Form 67; and (4) Recognition that Rule 128(9) of the Income Tax Rules, 1962, does not mandate strict compliance where the claim is substantiated.

The Legal Issue

The central question was whether the non-filing of Form 67 before the due date of return filing operates as an absolute bar to claiming Foreign Tax Credit under Section 90 of the Income Tax Act, particularly when the delay is attributable to the COVID-19 pandemic and the claim is otherwise substantiated under a Double Taxation Avoidance Agreement.

Arguments Presented

For the Appellant

The appellant’s counsel argued that:

• Filing of Form 67 is a procedural, not substantive, requirement.
• Rule 128(9) of the Income Tax Rules does not expressly state that failure to file Form 67 on time results in disallowance of FTC.
• The DTAA between India and the U.S. overrides domestic rules, and the Act cannot be interpreted to defeat treaty obligations.
• The decisions in Suchi Agrawal v. ITO (ITA No. 601/Del/2024) and Monika Rathore v. ITO (ITA No. 290/AGR/2024) directly supported the allowance of FTC despite belated filing.
• The pandemic constituted a valid reason for delay, and denying FTC would violate the principle of natural justice and the spirit of international tax cooperation.

For the Respondent

The Revenue did not contest the factual basis of the claim or the applicability of the DTAA. It relied solely on the non-compliance with Rule 128(9) and the timing of Form 67 filing, without citing any binding precedent or statutory provision that explicitly bars FTC in such circumstances.

The Court's Analysis

The Tribunal examined the language of Rule 128(9) of the Income Tax Rules, 1962, which requires Form 67 to be filed "on or before the due date of filing the return of income." However, the Tribunal noted that the rule does not state that failure to comply results in automatic disallowance of FTC.

"The violation of a procedural requirement does not automatically vitiate a substantive right, especially when the underlying claim is genuine and supported by documentary evidence."

The Tribunal further held that Section 90 of the Income Tax Act, which gives effect to DTAA provisions, is a substantive provision designed to prevent double taxation. Any rule that contradicts or undermines this objective must yield to the statutory mandate.

The Tribunal relied on the Delhi and Allahabad Benches’ decisions in Suchi Agrawal and Monika Rathore, which had held that belated filing of Form 67, particularly during the pandemic, cannot be a ground to deny FTC where the taxpayer has otherwise established the payment of foreign tax and the entitlement under the DTAA.

The Tribunal emphasized that the Assessing Officer retains the power to verify the authenticity of the claim, including the foreign tax paid, the nature of income, and the correctness of the credit claimed. Denial of FTC on procedural grounds alone would be arbitrary and contrary to the legislative intent behind Section 90.

The Verdict

The appeal was allowed for statistical purposes. The Tribunal set aside the order of the CIT(A) dated 24.07.2025 and remanded the matter to the Jurisdictional Assessing Officer with directions to: (1) allow the Foreign Tax Credit of Rs. 2,74,369/- after verifying Form 67 and supporting documents; (2) provide the assessee a reasonable opportunity of hearing; and (3) ensure the assessee responds to all notices without seeking adjournments on frivolous grounds. Failure to cooperate may result in the Assessing Officer passing an order as per law.

What This Means For Similar Cases

Procedural Non-Compliance Cannot Override Treaty Rights

• Practitioners must now argue that Rule 128(9) is directory, not mandatory, in the context of FTC claims under DTAA.
• Belated filing of Form 67 due to pandemic, natural disaster, or administrative delay cannot be a standalone ground for denial.
• The burden shifts to the Revenue to prove fraud or misrepresentation, not merely non-compliance with a procedural form.

DTAA Supersedes Domestic Rule Rigidity

• Any domestic rule that conflicts with the substantive benefit under a DTAA is ultra vires to the extent of inconsistency.
• Taxpayers should cite Section 90 and relevant DTAA articles (e.g., Article 23 of India-U.S. DTAA) to reinforce the primacy of treaty relief.
• Assessing Officers must conduct a substantive review of FTC claims, not merely check form compliance.

Practical Takeaways for Practitioners

• File Form 67 as early as possible, but if delayed, immediately submit a detailed explanation with supporting evidence (e.g., travel restrictions, embassy closures, courier delays).
• Cite Suchi Agrawal and Monika Rathore in all FTC appeals involving belated Form 67.
• In rectification applications under Section 154, emphasize that the claim is substantiated and the denial violates Section 90 and the DTAA.
• If the Assessing Officer denies FTC on procedural grounds, file an appeal before CIT(A) and, if necessary, to ITAT, citing this judgment as binding precedent.