2026 (3) TMI 710 - HC - Income Tax

Modified return under Section 170A requires assessments to follow the reorganisation; previous assessment and giving-effect orders quashed.

Where a business reorganisation took effect and the successor filed a modified return under the statutory scheme, assessments must proceed having regard ... Effect of business reorganisation on assessment proceedings - Statutory intervention under Section 170A - principles of natural justice - double taxation avoidance - transferor transferee succession. Effect of business reorganisation on assessment proceedings - Validity of draft assessment order and giving effect order issued in the names of the transferor and transferee companies after amalgamation - HELD THAT:- The Court held that the draft Assessment Order dated 29.12.2023 issued in the name of the transferor company and the giving effect order dated 30.12.2023 issued in the name of the transferee company were unsustainable where the companies had ceased to be separate entities pursuant to NCLT orders and where modified returns had been filed in consequence of the scheme of amalgamation. The Court observed that allowing proceedings to be carried independently against the transferor would risk dual demands and would defeat the statutory scheme enacted by Section 170A and the corresponding rules, and accordingly quashed the impugned orders. [Paras 13, 14, 19, 20] Draft Assessment Order dated 29.12.2023 and the giving effect order for Assessment Year 2020-2021 are quashed as unsustainable in view of the amalgamation and the statutory scheme under Section 170A. Obligation to file modified return under section 170A - Consequences of a successor entity filing a modified return under Section 170A and direction for further proceedings - HELD THAT:- The Court applied the purpose and operation of Section 170A (as introduced w.e.f. 01.04.2022 and amended w.e.f. 01.04.2023) and Rule 12AD to hold that where a modified return has been furnished by a successor entity pursuant to an NCLT order, assessment proceedings must take that modified return and the business reorganisation into account. The Court directed the Transfer Pricing Officer to examine the modified return filed on 30.11.2022 and to pass a fresh order on merits, leaving the petitioner free to approach the Dispute Resolution Panel thereafter. [Paras 15, 16, 18, 21] Transfer Pricing Officer to consider the modified return filed and pass a fresh order on merits; petitioner may thereafter pursue remedy before the Dispute Resolution Panel or accept the order. Final Conclusion: The impugned draft assessment and giving effect orders for Assessment Year 2020-2021 are quashed; the Transfer Pricing Officer is directed to consider the modified return filed pursuant to the amalgamation and pass a fresh order on merits, after which the petitioner may seek appropriate recourse. Issues: Whether the draft assessment order dated 29.12.2023 passed in the name of the transferor company and the giving effect order dated 30.12.2023 passed in the name of the transferee company for Assessment Year 2020-21 are sustainable in view of the scheme of amalgamation, filing of modified return under Section 170A of the Income-tax Act, 1961, and alleged violation of principles of natural justice.Analysis: The petitioners established that the transferor and transferee companies were merged pursuant to NCLT orders dated 13.10.2021 and 28.04.2022 and that a modified/revised return was filed by the successor entity within the timeline mandated by Section 170A as incorporated by the Finance Act, 2022. Section 170A and Rule 12AD (Income-tax Rules, 1962) require filing of a modified return by the successor in a business reorganisation and contemplate that assessment or reassessment proceedings be carried out taking such modified return and the order of business reorganisation into account. Proceeding independently against the transferor without regard to the statutory mechanism under Section 170A and the modified return risks duplicative or conflicting demands. The petitions also raised lack of notice before issuing the giving effect order; the statutory scheme and requirements for modified return and consequent assessment were examined in light of the factual sequence of NCLT orders and the dates on which returns were filed.Conclusion: The draft assessment order dated 29.12.2023 and the giving effect order dated 30.12.2023 for Assessment Year 2020-21 are quashed. The Transfer Pricing Officer is directed to consider the modified return filed on 30.11.2022 and pass fresh orders on merits; thereafter the petitioner may pursue remedies including before the Dispute Resolution Panel.Ratio Decidendi: Where a business reorganisation has taken effect and a successor files a modified return under Section 170A of the Income-tax Act, 1961, assessment proceedings must be conducted with regard to the modified return and the order of reorganisation; independent proceedings in the name of the transferor or issuance of giving effect orders without compliance with the statutory scheme are unsustainable and liable to be quashed.