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 an assessment taking that modified return into account, subsequent notices under ordinary scrutiny and inquiry provisions seeking fresh scrutiny of the same modified return are impermissible as they amount to re scrutiny. The court reasoned that allowing fresh selection would defeat the statutory distinction between assessment routes for modified returns and permit double scrutiny; further, a mechanically issued, identity blind notice without application of mind is vitiated. Consequence: the impugned notices were quashed.

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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.

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