The ITAT Mumbai has clarified that the denial of foreign tax credit under Section 90/90A of the Income Tax Act, 1961, on grounds of incomplete documentation during assessment is legally unsustainable when the taxpayer subsequently furnishes complete evidence for the entire financial year. This ruling reinforces the principle that treaty-based relief must be granted substantively, not procedurally.
Background & Facts
The Dispute
The appellant, an individual resident in India, earned income from both India and the United States during the assessment year 2023-24. He claimed a foreign tax credit of Rs. 84,16,067 under Section 90/90A of the Income Tax Act, corresponding to taxes paid in the USA on income earned abroad. The Assessing Officer (AO) disallowed the entire claim, citing failure to provide complete documentation for the period from 01/01/2023 to 31/03/2023.
Key Facts
- The assessee filed his Indian income tax return on 31/07/2023, declaring total income of Rs. 5,03,70,569
- He claimed foreign tax credit of Rs. 84,16,067 against taxes of Rs. 1,96,82,460 paid in the USA
- The US tax return for Calendar Year 2022 (01/01/2022 to 31/12/2022) was submitted, covering the period 01/04/2022 to 31/12/2022 of the Indian financial year
- The US tax return for Calendar Year 2023 (covering 01/01/2023 to 31/03/2023) was not filed at the time of assessment
- The assessee was issued notices under Section 143(2) and Section 142(1) seeking details of foreign tax payments
- In response to a show cause notice, the assessee submitted the US return for 2022 but stated the 2023 return was pending
Procedural History
- 31/07/2023: Assessee filed return of income for A.Y. 2023-24
- 08/03/2025: AO passed order under Section 143(3) read with Section 144B, disallowing entire claim of Rs. 84,16,067 for lack of documentation
- 27/10/2025: CIT(A) passed order allowing proportionate relief for the period 01/04/2022 to 31/12/2022, directing AO to verify and grant relief for that period
- 09/04/2026: Hearing before ITAT Mumbai
- 15/04/2026: ITAT Mumbai passed order
Relief Sought
The assessee sought restoration of the full claim of Rs. 84,16,067 under Section 90/90A, arguing that the denial was based on technical grounds and that complete evidence for the entire financial year (01/04/2022 to 31/03/2023) was now available.
The Legal Issue
The central question was whether the denial of foreign tax credit under Section 90/90A of the Income Tax Act is justified solely because the taxpayer had not submitted the US tax return for the entire financial year at the time of assessment, when the complete documentation was later produced.
Arguments Presented
For the Appellant
The learned Authorised Representative argued that the US tax return for Calendar Year 2023, covering the period 01/01/2023 to 31/03/2023, had since been filed and the taxes paid were verifiable. He relied on Union of India v. Azadi Bachao Andolan and CIT v. Dinesh Vora to assert that treaty-based relief under DTAA must be interpreted liberally and cannot be denied on procedural or technical grounds. He emphasized that the CBDT Circular No. 333/1982 mandates that DTAA provisions prevail over domestic law.
For the Respondent
The Senior Representative of Revenue contended that the claim was initially made without substantiating evidence for the entire financial year and that the AO was justified in disallowing the claim on grounds of non-compliance with procedural requirements under Section 142(1). He argued that the burden of proof lay with the assessee to furnish complete documentation during the assessment proceedings.
The Court's Analysis
The ITAT observed that there was no dispute regarding the fact that the assessee had earned income in the USA and paid taxes there. The court noted that the US tax return for Calendar Year 2022 had been submitted and verified for the period 01/04/2022 to 31/12/2022, and the CIT(A) had already directed proportionate relief for that period.
"Relief under section 90 being a substantive right flowing from the DTAA, cannot be denied merely on technical or procedural grounds, once the fact of tax payment in the foreign jurisdiction is established."
The Tribunal held that the assessee had not wilfully withheld information. The delay in filing the US return for Calendar Year 2023 was attributable to the time required for preparation by a foreign tax consultant, not to any mala fide intent. The ITAT emphasized that the purpose of Section 90/90A is to eliminate double taxation, and denying relief on account of a temporary procedural lapse would defeat the very object of the DTAA.
The Tribunal further noted that the assessee had now produced the US tax return for Calendar Year 2023, thereby providing complete evidence for the entire financial year 2022-23. The court found that the AO, having already been directed to verify the partial claim, was fully equipped to now verify the complete claim.
The Verdict
The appeal was allowed for statistical purposes. The ITAT restored the matter to the file of the Assessing Officer for de novo adjudication. The AO is directed to verify the quantum of foreign income and taxes paid for the entire financial year 2022-23 (01/04/2022 to 31/03/2023) using the US tax returns for Calendar Years 2022 and 2023, and grant relief under Section 90/90A as per law. The claim of Rs. 84,16,067 shall be reconsidered in full upon verification.
What This Means For Similar Cases
Treaty Relief Cannot Be Denied on Procedural Grounds
- Practitioners must argue that denial of FTC under Section 90/90A on grounds of delayed submission of foreign returns is invalid if the taxpayer subsequently provides complete documentation
- The burden shifts to the Revenue to prove mala fide intent or deliberate suppression, not mere delay
- Citations from Azadi Bachao Andolan and Dinesh Vora must be invoked to reinforce the liberal interpretation principle
Documentation Must Be Evaluated in Context
- Tax returns filed in foreign jurisdictions often have different fiscal calendars; this must be accounted for in assessment
- The period covered by a foreign return must be mapped accurately to the Indian financial year
- If the taxpayer provides complete evidence before final adjudication, the AO must reassess the claim in full, not merely proportionately
Proportionate Relief Is Not the Final Answer
- CIT(A) orders granting only proportionate relief are interim and must be revisited upon submission of complete documentation
- Practitioners should not accept partial relief as final; they must promptly file supplementary submissions and seek restoration to AO for full computation
- The ITAT’s direction to conduct de novo adjudication sets a precedent for reopening assessments when new evidence emerges
