Merger – Filing of ITRs and Section 170A Compliance

[Ramanathan Seshan]

Dear Experts,

Company B Pvt. Ltd. has been merged into Company A Pvt. Ltd. with the following details:

• Appointed Date: 01/04/2023

• NCLT Order Date: 20/11/2024

• Effective Date (as per NCLT Order): 01/01/2025

• Company B continued to operate independently up to 31/12/2024.

Additional info: Company B is a profit-making entity with no carry forward of losses.

Based on this, I have a few questions regarding income tax return (ITR) filing and compliance under Section 170A:

1. Does Company A need to file a separate ITR for FY 2024–25?

2. Does Company B need to file a separate ITR for FY 2024–25?

3. For which financial years is Company A required to file a modified return under Section 170A?

4. If Company A is not required to file a separate ITR for FY 2024–25, would filing a return under Section 170A alone be sufficient?

5. Given that Company B is profit-making and has no carry forward of losses, does that change the ITR filing requirements in any way?

Regards,

S Ram

[YAGAY andSUN]

As per the provisions of the Income Tax Act, 1961, when a merger or amalgamation takes place by way of an order of the NCLT, the treatment of income tax return filing is governed by Section 170 and Section 170A, along with related judicial interpretations.

Since the appointed date of the merger is 01.04.2023, and the effective date as per NCLT order is 01.01.2025, Company B legally stands merged into Company A from 01.01.2025. However, the appointed date being backdated to 01.04.2023, has significance in the context of financial reporting and tax compliance post-NCLT order.

As per Section 170A, when a business reorganization (like amalgamation) occurs and the return of income for the assessment year relevant to the previous year in which the reorganization takes place has already been filed, the successor company (Company A) must file a modified return within 6 months from the end of the month in which the NCLT order is issued. Since the NCLT order was dated 20.11.2024, the modified return under Section 170A (for AY 2024–25) must be filed by 31.05.2025.

Accordingly, for FY 2023–24 (AY 2024–25), both Company A and Company B may have originally filed separate returns. Post NCLT order, Company A is required to file a modified return under Section 170A for AY 2024–25 incorporating the merged position from the appointed date (01.04.2023). Thus, Company B’s return for AY 2024–25 gets subsumed, and Company A’s 170A return replaces the original returns.

For FY 2024–25 (AY 2025–26), since Company B ceased to exist from 01.01.2025, it does not file a separate return. Company A must file the ITR for the full financial year, including income and transactions of Company B from 01.04.2024 to 31.12.2024, and its own income for the entire year.

The fact that Company B is profit-making and has no carry forward of losses does not alter the filing obligations, but it simplifies the modified return under Section 170A, as there are no complexities related to loss adjustment or carry forward.

Summary:

– Company A must file a modified return under Section 170A for AY 2024–25 by 31.05.2025.

– Company B need not file any ITR for FY 2024–25 (AY 2025–26).

– Company A must file a single ITR for FY 2024–25, covering both entities.

– Profit position or absence of losses in Company B does not change these requirements.

AI Summary

Section 170A modified return required; successor must file modified return to subsume predecessor's return for affected assessment years. The successor company must file a modified return under Section 170A within the prescribed six month period following the adjudicatory order, reflecting the appointed date to subsume the predecessor's originally filed return. When the predecessor ceases to exist partway through a financial year, the predecessor does not file a separate return for that year; the successor files a single return for the year including the predecessor's income for the period up to cessation. Absence of carry forward losses does not change these obligations.