2026 (2) TMI 643 - HC - Income Tax

Scrutiny notices on modified tax return after business reorganisation invalidated; subsequent notices quashed as impermissible re scrutiny

Where a modified return was furnished under the business reorganisation regime while assessment proceedings were pending and the Assessing Officer passed ... Effect of order of tribunal or court in respect of business reorganization u/s 170A - NCLT Order approving the scheme of amalgamation with assessee - re-scrutiny of a modified return HELD THAT:- Respondent No. 2 was not only under an obligation to assess the total income of the said assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished, but in discharge of the said obligation, it has actually carried out that exercise examining the aspects arising from the amalgamation of Nirlep Appliances Pvt. Ltd. Since, the modified return of income has already been subjected to scrutiny and an assessment order passed thereon, we are of the opinion that issuance of the impugned notices with a view to again scrutinize the said modified return of income is contrary to the express provisions of Section 170A(2)(b) of the IT Act. The clarification from the office of DDIT (Systems), Delhi, to the effect that the impugned notice dated 24.06.2025 issued under Section 143(2) of the IT Act itself infers that the said notice has been issued in a mechanical manner and without application of mind, which would vitiate such notice. Section 170A(2) makes a distinction between two scenarios, one being that covered by clause (a) thereof, where the assessment stood completed on the date of furnishing of the modified return of income, and the other being that covered by clause (b), where the assessment was pending on the date of furnishing of such return of income. It is only in the cases covered by clause (a) that the assessing officer has to pass a separate order on the modified return of income. In the cases covered by clause (b), which is also the present case, the assessment order passed has to be in accordance with the order of the business reorganisation and taking into account the modified return so furnished. If the contentions as canvassed by the Respondents is accepted, then no distinction will be left between cases covered by clause (a) and those covered by clause (b). Hence, the same needs to be rejected. The impugned notices issued u/s 143(2) and 142(1) of the IT Act by Respondent Nos. 2 and 1, respectively, are hereby quashed and set aside. Issues: Whether the notices dated 24.06.2025 (under Section 143(2)) and 14.11.2025 (under Section 142(1)) seeking to scrutinise and seek clarifications in respect of the modified return filed under Section 170A are valid, when an assessment order in respect of the same assessment year has already been passed after taking into account the modified return in terms of Section 170A(2)(b).Analysis: Section 170A applies where, prior to the date of an order of business reorganisation, a return has been furnished and requires the successor to furnish a modified return within the prescribed period. Section 170A(2)(b) mandates that where assessment proceedings were pending on the date of furnishing the modified return, the Assessing Officer shall pass an order assessing or reassessing total income in accordance with the order of business reorganisation and taking into account the modified return so furnished. In the present case, the modified return was filed while assessment proceedings were pending and the Assessing Officer subsequently passed an assessment order dated 26.03.2025 which took the amalgamation and the modified return into account. The issuance of a subsequent notice under Section 143(2), issued mechanically by the selection system, and a later notice under Section 142(1) seeking to again scrutinise or seek clarifications on the modified return would result in re-scrutiny of the same modified return already subject to assessment under Section 170A(2)(b). Accepting the respondents' contention that a modified return may be selected for fresh scrutiny would nullify the distinction between clauses (a) and (b) of Section 170A(2) and permit double scrutiny contrary to the statutory mandate. Further, the record indicates that the 24.06.2025 notice was issued in an identity-blind, mechanical manner without application of mind, which vitiates that notice.Conclusion: The impugned notices dated 24.06.2025 (under Section 143(2) of the Income-tax Act, 1961) and 14.11.2025 (under Section 142(1) of the Income-tax Act, 1961) are quashed and set aside.