In Sangeeta Prasad v. ITO (ITA No. 1393/Del/2026, AY 2018-19, order dated 14 September 2026), ITAT Delhi condoned a delay of nearly five years in filing Form 67 and directed the Assessing Officer to allow foreign tax credit of ₹23,48,278 for tax paid in the USA, subject to verification. The Tribunal followed the Delhi High Court in Real Time Data Services (P.) Ltd. v. PCIT and held that a late Form 67 is a technical lapse that cannot destroy the substantive right to credit under Section 90 and Article 25 of the India-USA DTAA. The ₹30,63,510 demand raised only because the form was missing now has to be recomputed.

Here is why this particular order carries more weight than most Form 67 decisions, and how you can use it if CPC has denied your own credit.

What Happened in Sangeeta Prasad v. ITO?

A US citizen who was tax-resident in India paid tax in the USA, reported that income in her Indian return, and claimed credit for the US tax. She never filed Form 67. CPC Bengaluru stripped out the credit and raised a demand of over ₹30 lakh. Six years and two rejected rectifications later, ITAT Delhi gave her the credit back.

The facts were about as unhelpful for a taxpayer as they get. The form wasn't a week or a month late. It was filed in February 2023 against a return filed in August 2018. Even the relaxed deadline the CBDT introduced in 2022 had been missed by years. The Tribunal still sided with her.

Case at a Glance

Who Was the Taxpayer and Why Could She Claim Credit in India?

She was a US citizen living in Tucson, Arizona, who was tax-resident in India for the year in question. That single fact is what made the claim possible, and most summaries skip it.

Foreign tax credit under Rule 128 is a relief for residents. A resident is taxed in India on global income, so her US income entered the Indian return and the US tax already paid on it was set off against the Indian liability. The India-USA DTAA lets India collect only the differential tax.

A pure non-resident normally never reaches this point, because foreign income of an NRI isn't taxable in India at all. The people who actually fall into this trap are:

• Returning NRIs who cross the residency threshold in the year they move back
• US citizens and green card holders who are tax-resident in India
• Indian residents with overseas salary, RSUs, ESPP shares, dividends or rent
• Residents with 401(k) or IRA distributions taxed in the US

Timeline: How a Missing Form Became a ₹30 Lakh Demand

The sequence matters, because it shows the Department had several chances to fix this and took none of them.

Look closely at the gap between May 2019 and March 2020. CPC itself said it couldn't verify the foreign tax and sent the file to the jurisdictional AO. The AO started nothing. No verification, no query, no notice. CPC then processed the return anyway and removed the credit. The Tribunal picked up on that, and so should anyone drafting a similar appeal.

What the Income Tax Department Argued

The Revenue's case was short and, on a literal reading, not unreasonable.

• Rule 128(9) fixed a deadline for Form 67 and the taxpayer missed it.
• The CIT(A) pointed to CBDT Notification No. 100/2022 dated 18 August 2022, which extended the deadline to the end of the assessment year, and said even that softer date was blown.
• The Departmental Representative argued a claim of this kind is not a "mistake apparent from the record", so Section 154 was the wrong route altogether.

What the Taxpayer Argued

Her counsel built the appeal on four pillars.

1. Form 67 is procedural and directory, not mandatory, relying on the Gujarat High Court in Deepak Pragjibhai Gondaliya v. PCIT (2025) 175 taxmann.com 985.
2. A coordinate bench had already held the same in her own case for AY 2019-20 (ITA No. 6404/Del/2025).
3. The FTC was claimed in the original return itself, so the Department always knew about it.
4. No defect notice under Section 139(9) was issued, and no prior intimation under the first proviso to Section 143(1)(a) was given before the adjustment was made.

She also said plainly that she was unaware of the Form 67 obligation and asked for the delay to be condoned.

What ITAT Delhi Decided and Why

ITAT Delhi condoned the five-year delay and directed the AO to allow the credit after verifying the documents, with a proper hearing for the taxpayer. If the AO still refuses, he has to pass a speaking order giving reasons, which she can then challenge.

The Bench first set out the undisputed facts. The return was filed on time. The credit was claimed in it. Form 67 came only in February 2023, long after processing. CPC had transferred the case for verification but the AO never began any. No Section 139(9) notice and no proviso notice under Section 143(1) were issued before the credit was disallowed.

Then it turned to the jurisdictional High Court. In Real Time Data Services (P.) Ltd. v. PCIT, the Delhi High Court dealt with a company that missed the Form 67 deadline and lost FTC of over ₹1 crore. The Court called the failure a "technical or venial breach" and held the substantive right to credit survives it. Keeping the money, the Court said, would mean withholding a substantial sum without authority of law, which is unjust enrichment. It directed the AO to allow the credit after verification once the form was on record, or pass a speaking order.

The Tribunal respectfully followed that judgment and allowed the appeal.

Directory, Not Mandatory: The Distinction That Decides These Cases

A mandatory provision is one where non-compliance kills the right. A directory provision tells you how and when to do something, but missing it doesn't destroy the entitlement underneath.

The credit itself flows from Section 90 and Article 25 of the India-USA DTAA. Rule 128 only prescribes the manner of claiming it. Nothing in Rule 128(9) says the credit is forfeited if the statement arrives late. Courts and tribunals have read that silence in the taxpayer's favour for years, and with the Delhi High Court now saying it squarely, AOs and CIT(A)s in Delhi have a binding precedent in front of them.

What the Tribunal Did Not Decide

This is worth being precise about, because write-ups on rulings like this often overstate them.

The Tribunal gave no separate finding on whether the 143(1) intimation was void for want of prior notice, or whether Section 154 was the correct remedy. It didn't need to. Having condoned the delay on the strength of the High Court judgment, it granted relief on merits.

So if you rely on this order, lean on the Form 67 reasoning. The jurisdictional grounds stay arguable in your own case, but this order is not authority for them.

Form 67 Deadline: How the Rule Has Changed

Form 67 must be filed electronically, and the deadline has moved twice since 2017. Here is where things stand.

For AY 2018-19, the year in this case, the deadline was the Section 139(1) due date falling in 2018. Her form arrived in 2023. That is exactly what makes this ITAT Delhi foreign tax credit ruling significant: the Bench condoned a delay that no version of the rule would have forgiven on its own terms.

Why This Ruling Matters for NRIs and Returning NRIs

If you're moving back to India or already living here on a US passport, this order is your safety net when Form 67 slips.

The year of return is when the problem usually bites. You become resident, your US salary, 401(k) withdrawals or brokerage income land in the Indian return, and the software invites you to claim credit. What it does not do is warn you loudly that a separate Form 67, with proof of foreign tax paid, has to go in before the deadline.

US citizens and green card holders face it every single year, because the US taxes on citizenship. Resident Indians holding US RSUs or ESPP shares see US withholding on dividends and sometimes on sale proceeds. In each case, a missing form creates a demand for tax you've already paid once.

There's a limit, though. The relief was granted "subject to verification". The AO will still want proof that the US tax was actually paid on income that was also taxed in India:

• Your US federal return (Form 1040) for the matching year
• IRS account transcript, W-2 or 1099 showing the tax withheld or paid
• A computation showing the credit capped at the Indian tax on that income
• Proof that the same income was offered to tax in the Indian return

A late Form 67 can be forgiven. A credit you can't document cannot.

FTC Denied Because of a Late Form 67? Your Options

Start with the cheapest remedy and escalate only if it fails.

Mistakes We See Taxpayers Make

Most FTC disputes we handle trace back to one of five avoidable errors.

• Assuming the FTC schedule in the ITR is enough. It isn't. The schedule and Form 67 are separate filings, and CPC checks for the form.
• Filing Form 67 without proof of foreign tax. The form asks for it, and the AO will ask again at verification.
• Ignoring the 143(1) intimation because the tax was paid abroad anyway. Unanswered demands attract interest and get adjusted against future refunds.
• Getting residential status wrong. If you were RNOR in the year of return, much of your foreign income may not be taxable in India at all and the FTC question may never arise.
• Claiming the full foreign tax as credit. Indian law caps the credit at the Indian tax attributable to that income. Over-claiming invites a separate adjustment.

Our Take

This order doesn't create new law. What it does is apply the Delhi High Court's Real Time Data Services judgment to about the hardest facts imaginable: a five-year delay, two rejected rectifications, and a CIT(A) order against the taxpayer. If the Tribunal condoned that, someone who missed the deadline by a few months stands on very firm ground.

Even so, we'd never advise planning around litigation. It took this taxpayer from 2020 to 2026 to get a direction the AO must still act on. File Form 67 before you file the return, keep your US transcripts ready, and if you're returning to India, map your residential status before the first Indian return. The cheapest FTC dispute is the one you never have.

Facing a Foreign Tax Credit Demand? Talk to Us

At Dinesh Aarjav & Associates, we handle FTC claims, Form 67 filings and litigation over denied credits for NRIs, returning NRIs, OCI holders and US citizens resident in India. If CPC has disallowed your credit, or you're moving back and want your first Indian return done right, reach out through our NRI & OCI Services page or our Returning to India desk.