Successor to File Updated Return--Law and Procedure Regarding

CA. Manoj Gupta

1. Insertion of section 170A by the Finance Act, 2022

It is seen that post business reorganization, the affairs of the successor entity go through a complete change with effect from the date from which such reorganization takes place. However, due to the indefinite timeline involved in issuing such orders, there is a gap between the effectivity of such order and the date on which such order is issued by the competent authority. This also affects the final accounts of such entities as they are unable to modify their already filed returns in accordance with the reorganization. Hence, in order to remove this anomaly, a new section 170A has been inserted in the Act, to enable for the entities going through such business reorganization, for filing of modified returns for the period between the date of effectivity of the order and the date of issuance of final order of the competent authority.

In the case of Dalmia Power Ltd. & Anr. v. Asstt. CIT 2019 TaxPub(DT) 8388 (SC) : (2020) 420 ITR 339 (SC) : (2020) 269 Taxman 352 (SC) : (2020) 312 CTR (SC) 113 assessee's transferee companies manually filed revised return of income on 27-11-2018 after schemes of amalgamation were sanctioned and approval was granted by NCLT. The revised returns were based on the revised and modified computation of total income and tax liability of Transferor/Amalgamated Companies. In the revised returns of income, assessee claimed losses in the concerned year to be carried forward. Assessing officer relied on section 139(5) and 119(2)(b) read with Circular No. 9 of 2015 issued by CBDT and took the view that assessee ought to have made application for condonation of delay, and sought permission from CBDT, before filing revised returns beyond the statutory period of 31-3-2018 and, therefore, assessment could only be done on the basis of the original returns. It was held that on a plain reading of section 119(2)(b), it was found that this provision would not be applicable where an assessee has restructured business, and filed a revised return of income with prior approval and sanction of NCLT, without any objection from department. In the instant case, the predecessor companies/transferor companies had been succeeded by assessee's transferee companies who had taken over their business along with all assets, liabilities, profits and losses, etc. with prior approval of NCLT and without any objection from department. Accordingly, in view of section 170(1) assessing officer was required to assess income of assessee's after taking into account revised returns filed after amalgamation of companies.

In the case of Deep Energy Resources Ltd. v. Addl./Jt./Dy./Asstt. CIT/ITO 2021 TaxPub(DT) 6546 (Guj-HC), assessee was having business of Oil and Gas exploration and production and oil and Gas Services. It decided to demerged its Oil and Gas services business therefore, a scheme of arrangement was formulated and a company application was moved before NCLT. He filed original return of income where the Scheme of Arrangement was not sanctioned by the NCLT. The return of income was filed successfully online and on the sanction of the scheme being effective, assessee sought to file the revised return for assessment year 2018-19, however, the time for the same had lapsed. There was no mechanism to file it online. Assessee's grievance on income tax portal via e-Nivaran facility. It was lamented by assessee that the authority did not process the revised return of income filed by the petitioner and has passed the Assessment Order on the protective basis. The matter had travelled to this Court only because the revised return was not permitted beyond the prescribed time limit as set under section 139(5). Apex Court in case of Dalmia Power Ltd. & Anr. v. Asstt. CIT (2020) 420 ITR 339 (SC) : 2019 TaxPub(DT) 8388 (SC) had categorically held that section 119 in such matters also would not be applicable and therefore, the least authority could have done was to permit revised return. When authority have geared up to operate in the regime of electronic and faceless mode for conducting all its operations including the filing of returns document, hearing and assessment, it shall need to improvise the software and closely examine the difficulties experienced by the tax payers. Let the requisite care be taken expeditiously in improvising the software wherever necessary since its limitations would have direct bearing on the satisfaction of tendency to swell the court litigation. Thus, with this direction, appeal was allowed.

New section 170A provides that notwithstanding anything to the contrary contained in section 139, in a case of business reorganisation, where prior to the date of order of a High Court or Tribunal or an Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016, as the case may be, any return of income has been furnished by the successor under the provisions of section 139 for any assessment year relevant to the previous year to which such order applies, such successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in such form and manner, as may be prescribed, in accordance with and limited to the said order.

(i) 'Business reorganisation' means the reorganisation of business involving the amalgamation or de-merger or merger of business of one or more persons;

(ii) 'Successor' means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.

2. Effect of section 170A

(a) This section now enables the entities going through such business reorganization (i.e. the successor entity), for filing of modified returns for the period to which order of the High Court or Tribunal or an Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 applies.

(b) Filing of such modified return would be a time bound obligation of the successor entity, i.e., within six months from end of the month in which order of restructuring is issued by the High Court or Tribunal or an Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016.

(c) Such modified return has to be filed in accordance with and shall be limited only to the changes which are in accordance with the final order of restructuring by the competent authority.

3. Procedural aspects

1. As per rule 12AD the modified return of income to be furnished by a successor entity to a business reorganisation, as referred to in section 170A, for an assessment year, shall be in the Form ITR-A and verified in the manner specified therein.

2. The return of income shall be furnished electronically under digital signature

3. If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the order of the business reorganisation applies have been completed or are pending on the date of furnishing of the modified return in accordance with the provisions of section 170A, the assessing officer shall, pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, or proceed to complete the assessment or reassessment proceedings, as the case may be, in accordance with the order of the business reorganisation and the modified return so furnished.

4. Extension of time to file

As per law, in a case of business reorganisation, where prior to the date of order of a High Court or Tribunal or an Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016, as the case may be, any return of income has been furnished by the successor under the provisions of section 139 for any assessment year relevant to the previous year to which such order applies, such successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in such form and manner, as may be prescribed, in accordance with and limited to the said order.

In order to address this genuine hardship and provide adequate time for furnishing of return under section 170A of the Act, the CBDT has, allowed that for successor companies in cases where the order of business reorganisation of the competent authority was issued between the period 1st April, 2022 and 30th September, 2023, the time available to furnish modified returns under section 170A of the Act shall stand extended to 31st March, 2023.