Foreign Tax Credit Can’t Be Denied Through Adjustment U/s 143(1): ITAT

The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that the denial of Foreign Tax Credit (FTC) while processing a return under Section 143(1) of the Income Tax Act, 1961 is not permissible when the issue involves examination of facts and legal interpretation. The bench of Vijay Pal Rao (Vice President) and Madhusudan Sawdia (Accountant Member) observed that such matters are debatable in nature and fall outside the limited scope of adjustments permitted during return processing. The assessee, Amith Vishnav, was working overseas during the relevant period and was employed onsite with Cognizant Technology Solutions US Corp. While working in the United States, he earned salary income of ₹24,04,202 and paid tax of ₹5,55,111 in the US. Subsequently, after returning to India, he worked with Cognizant Technology Solutions India Pvt. Ltd. and earned an additional salary income of ₹8,83,728 in India during the same financial year. While filing his income tax return in India, the assessee reported the aggregate salary income earned in both the US and India and claimed Foreign Tax Credit in respect of taxes paid in the United States, relying on the Double Taxation Avoidance Agreement (DTAA) between India and the USA. However, the Centralised Processing Centre (CPC), Bengaluru, while processing the return under Section 143(1), denied the Foreign Tax Credit claimed by the assessee. After noticing the denial of FTC, the assessee uploaded proof of taxes paid in the United States and filed a rectification application under Section 154 seeking correction of the mistake. Despite submitting the relevant documents, the CPC rejected the rectification application. The assessee then challenged the decision before the Commissioner of Income Tax (Appeals), but the CIT(A) also upheld the CPC’s action. Aggrieved by the decision, the assessee approached the Income Tax Appellate Tribunal. The assessee contended that he had substantially complied with Rule 128, which governs the procedure for claiming Foreign Tax Credit. He had also filed Form 67 along with supporting documents, and any delay in submission was merely procedural. It was further argued that the denial of FTC would lead to double taxation of the same income, which is contrary to the provisions of Section 90 of the Income Tax Act and the DTAA between India and the United States. The assessee also emphasized that adjustments under Section 143(1) are limited to apparent errors and cannot involve adjudication of complex or debatable issues like eligibility of Foreign Tax Credit. The ITAT noted that the only dispute in the case was the denial of Foreign Tax Credit during processing of the return under Section 143(1). The Tribunal observed that the scope of Section 143(1) is limited and only allows for adjustments that are prima facie apparent from the return of income. Issues requiring detailed examination or interpretation of law cannot be addressed at the stage of return processing. The Bench further noted that the assessee had claimed FTC in accordance with the provisions of the DTAA between India and the USA, and the matter involved examination of compliance with Rule 128 and supporting documentation. According to the Tribunal, such issues cannot be treated as apparent mistakes or simple computational errors that can be adjusted while processing returns. The Tribunal held that the denial of Foreign Tax Credit by CPC while processing the return under Section 143(1) was beyond the permissible scope of adjustments. Accordingly, the ITAT allowed the appeal of the assessee and directed that the adjustment denying Foreign Tax Credit be deleted, granting relief to the taxpayer. Case Details Case Title: Amith Vishnav Gudimela Versus ITO Citation: JURISHOUR-390-ITA-2026(HYD) Case No.: ITA No. 1705/hyd/2025 Date: 06/03/3036 Counsel For Appellant: T. Chaitanya Kumar, Advocate Counsel For Respondent: Reema Yadav, Sr. Authorised Representative Click Here To Read Order Read More: ITAT Quashes Reassessment Citing Unsigned Notice

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