The processing centre has disallowed my entire foreign tax credit because Form 67 went in after the end of the assessment year - is Rule 128(9) mandatory, and what is the route now?
The client is a software architect, resident and ordinarily resident, assessed at a ward in Hyderabad. He was on deputation to his employer's United States affiliate from 1 July 2023 to 31 March 2024, and for AY 2024-25 his global income of Rs 1,04,60,000 includes United States salary of USD 96,000. Federal and state tax of USD 21,400 was withheld there, Rs 17,82,000 at the telegraphic transfer buying rate applied. The Indian return was filed on 29 July 2024 disclosing the whole of it and claiming credit of Rs 17,82,000 under s.90 read with the double taxation agreement. Form 67 was uploaded on 3 April 2025 - three days after the end of the assessment year - because the United States return for calendar 2024, which carries the final state figure, was filed on 25 March 2025 and the transcripts took a week. An intimation under s.143(1) dated 18 September 2025 disallows the credit in full, citing Rule 128(9), and raises a demand of Rs 19,60,000 with interest. A rectification application filed on 6 October 2025 was rejected on 2 February 2026 on the single ground that the Form was beyond the time the rule allows. An appeal was filed on 3 March 2026 and is pending. The client holds the United States wage and tax statement, the federal return with proof of payment, the state return, transcripts from the federal authority and the employer's certificate of deputation and of tax withheld.
Fix the exact date and pin it to the amended rule rather than to the old one. The sub-rule was amended so that Form 67 may be furnished on or before the end of the assessment year, which for this year was 31 March 2025 - not, as officers still write, on or before the due date for filing the return. An intimation citing the rule without saying which version it applies is worth a letter on that point alone. Put the three days at the top of every document: the argument that a procedural condition should not destroy a treaty entitlement is strongest on a delay measured in days and explained by the foreign filing calendar.
The framework is that s.90 or s.90A gives the credit where an agreement exists and s.91 gives unilateral relief where none does, with Rule 128 setting the conditions and requiring Form 67. The date in the sub-rule was moved by notification so that the form may be furnished up to the end of the assessment year, and that change applies to the year in this file. That matters for two reasons. First, an intimation that measures the delay from the return due date has applied the wrong date and the error is apparent, which is a rectification ground quite apart from any argument about whether the rule is mandatory. Second, it narrows the dispute to three days, which is the ground on which the discretionary arguments are actually won.
The proposition is that Rule 128(9) does not provide for disallowance of the credit where Form 67 is filed late, that filing the form is directory and not mandatory, and that the treaty overrides the Act with the rules unable to run contrary to the Act. A Bangalore Bench of the Tribunal held exactly that and allowed the credit, and the library carries that entry as good law. The library's own statement of the position records that Tribunals have repeatedly so held. That is the strongest available framing and it should be the lead ground in the appeal, built on the absence of any consequence in the rule rather than on the number of orders.
The best authority in this collection for the proposition that a procedural provision cannot take away a treaty entitlement is not about Form 67 at all. A Special Bench of the Tribunal held that the withholding provision penalising a payee without a permanent account number does not have an overriding effect over all other provisions of the Act, and that treaty provisions, to the extent more beneficial, override it by force of s.90(2). A High Court reached the same result by reading that provision down where the payee's government has an agreement with India. The Supreme Court's software decision applies s.90(2) in the same way. Another High Court has allowed the treaty's non-discrimination article to defeat a disallowance the Act imposed on a cross-border payment but not a domestic one. The argument to build is that a subordinate rule can be no stronger than the section it was made under, and weaker than a treaty given effect by s.90(2).
The credit turns as much on what is proved as on when the form went in. Rule 128 requires a statement of the income offered to tax abroad and the tax paid on it, together with proof of payment - a certificate or statement from the foreign tax authority, or from the person responsible for deduction, or from the assessee himself accompanied by an acknowledgement of the payment. The client holds all three kinds here. The nearest analogue the library carries is on the residence certificate: a High Court has held that the certificate itself is compulsory and that surrounding documents are no substitute, and the library's statement of the position sets out how the certificate and the prescribed form work together. Read across, the lesson is that the specific document the rule names is the one to produce, and secondary evidence is argued from weakness.
The adjustments permitted at the processing stage are a closed and mechanical list, and a claim for credit of foreign tax supported by a form on the record and by documents the assessee holds is not an arithmetical error or an incorrect claim apparent from information in the return. That proposition is written here from the words of s.143(1)(a) and not from any decision in this collection, because this topic's authority list carries none on the processing power. What the collection does carry is an illustration of the same failure: a Tribunal Bench deleted a late-filing fee and interest where the processing centre had simply ignored an original return that was on the record and treated the revised return as the first one. The pattern is the same - a summary system deciding something it could see the answer to on its own record.
Where the intimation applied the pre-amendment date, that is an error apparent and the officer is under a duty to correct it; the appeal and the rectification are alternatives and not a sequence. There is a close parallel in the collection for a credit that could only be quantified after the return was filed: a High Court has held that the statutory provision for amending an assessment on production of a certificate places the officer under an obligation to amend the assessment or intimation, and that it neither contemplates nor requires the original return to be revised first. And a High Court has quashed an order refusing rectification and refund in a cross-border file on the footing that a Board circular was binding on the Department, which is the frame to use if any circular or instruction on Form 67 is produced.
If the credit is finally refused the same salary bears tax twice, and the agreement's own machinery addresses that. The Board's guidance records that India permits an appeal and a mutual agreement proceeding to be pursued simultaneously, which many treaty partners do not, but that a final Tribunal order on the merits for the same year ends it - the competent authorities will not deviate from that order and the proceeding is closed. So the choice has to be made before the appeal is decided, not after. Where a settlement is reached, a High Court has held that the authorities cannot defer implementing it, and has directed amendment of the assessments and refund with interest under the prescribed procedure.
Most of these are allowed at the Tribunal on the directory-rule ground, and a good number are allowed earlier where the delay is short and the intimation applied the pre-amendment date - that error is documentary and hard for the Department to defend. The commonest bad outcome is not a loss on the principle but a loss on proof: the credit is allowed in principle and then restored to the officer for verification of the foreign tax, and it is at that stage that a claim resting on a payslip rather than a certificate or return falls away. A refusal that stands all the way is uncommon on a three-day delay but is not unknown, and the client should be told that the point is settled in the Tribunal's practice and not above it.
