US citizen received Rs 30 lakh income tax demand notice in India, was denied India-US DTAA relief due to a mistake: Know how she won at ITAT Delhi

Mrs Prasad from Tucson, Arizona, USA, had paid income tax in the USA and wanted to claim its benefit under the India-USA DTAA in India. However, she made a critical error by not filing Form 67. Thus, the Income Tax Department denied her the foreign tax credit (FTC) for tax paid in the USA and imposed Rs 30 lakh income tax demand on her.

For those unfamiliar with the rules: if you pay tax in a foreign country that has a Double Taxation Avoidance Agreement (DTAA), then you need to file Form 67 when you submit your ITR. This form allows you to claim the credit in India for the foreign taxes you paid.

Mrs Prasad tried every available option to fix her situation. She submitted a rectification application before the jurisdictional AO and made a belated filing of Form 67 on February 8, 2023, well after the deadline had passed. Despite her efforts, both the tax officer and the commissioner of appeals (CIT A) rejected her requests.


Left with no choice, she appealed to the Income Tax Appellate Tribunal (ITAT) Delhi, to fight the large tax demand. Advocates Snehil Jha and Shishir Jha represented her before ITAT Delhi G bench which was presided over by Ramit Kochar, accountant member and Vimal Kumar, judicial member.

On September 14, 2026, she won the case in ITAT Delhi.

How did Mrs Prasad win the case in ITAT Delhi?

Karanjot Singh Khurana, Partner, DMD Advocates, said to ET Wealth Online : Mrs Prasad (the taxpayer) is a citizen of the United States of America who had earned income in the USA and paid tax thereon in accordance with the income tax law of the USA.

However, she was a tax resident of India during the relevant period and was subjected to tax on her global income in India including the income earned from USA. In order to avoid double taxation in such cases, the tax treaty between India and USA provides that India will grant credit of taxes paid in USA and collect only the differential tax payable in India. However, the grant of credit of foreign taxes required the taxpayer to file Form 67 which was not filed by the taxpayer.

The Indian Income Tax Department initially rejected her claim to credit of US taxes because she had not filed Form 67. She then filed the Form and made an attempt to claim the credit by filing a rectification applicaion, but her claim was rejected a second time, on the ground that the Form had been filed beyond the statutory timeline prescribed.

Khurana says that the ITAT Delhi tax tribunal, relied upon a ruling of the Delhi High Court (Real Time data Services (P.) Ltd. v. PCIT, reported in [2026]183 taxmann.com 701(Delhi)), held that filing Form 67 is directory and not mandatory, meaning that a delay in submitting the form should not, by itself, result in disentitlement of a taxpayer’s right to claim credit for taxes already paid abroad.

Also read: Rs 14.42 lakh Belgium salary of IT pro triggered tax demand in India after Form 67 was missed; ITAT Bangalore gives relief

Why do individuals need to file Form 67?

Khurana says that Form 67 (or Form 44 under the Income-tax Act, 2025) is required to be filed by a resident taxpayer who seeks to claim credit in India in respect of taxes paid or deducted in a foreign country upon income that is also taxable in India.

Khurana says: "The Form must be furnished electronically by 31st March following the financial year in which the foreign income has been offered to tax in India. That said, judicial forums have repeatedly held that the requirement to file such form is directory in nature and not mandatory."

Also read: Man denied double taxation benefit for tax on salary paid in Singapore as Form 67 not filed within due date; He files case in ITAT Delhi and wins case

ITAT Delhi discussion

ITAT Delhi observed that Mrs Prasad had filed the ITR claiming Rs 23.48 lakh foreign tax credit but did not file Form 67 along with her ITR.

Even Form No. 67 was not filed before the Income Tax Department processed her ITR under Section 143(1). Rather, she filed the Form No. 67 belatedly on February 8, 2023.

The CPC, Bengaluru had meanwhile processed the ITR, on March 21, 2020, and Mrs Prasad had been denied the foreign tax credit she had claimed.

Incidentally, before the CPC processed the case, it sent Mrs Prasad’s income-tax return to the jurisdictional AO, on May 9, 2019. The reason was that Mrs Prasad claimed credits for taxes paid outside India claimed in her ITR, but the CPC could not verify these claims.

ITAT Delhi noted that the jurisdictional AO should have started the proceedings for verification of the foreign tax credit. But based on the documents on record, it appeared that no such proceedings were started by the AO.

ITAT Delhi also noted that records made it clear that no notice under Section 139(8) was issued by the AO/CPC, before disallowing the foreign tax credit.

Also, no notice as provided under proviso to Section 143(1) was issued by the Income Tax Department to Mrs Prasad before disallowing her claim of foreign tax credit.

Mrs Prasad’s rectification application under Section 154 was also dismissed. So in the interest of justice and by following the Delhi High Court judgement in the Real Time data Services (P.) Ltd. v. PCIT case, reported in [2026]183 taxmann.com 701(Delhi), ITAT Delhi, the tribunal ordered the AO to allow the foreign tax credit claimed by Mrs Prasad after verifying it. If for any reason the foreign tax credit cannot be given to Mrs Prasad, then the AO is required to pass a speaking order.