Section 170A of the Income Tax Act 1961 was inserted by the Finance Act 2022 w.e.f 1.4.2022 and has been later substituted by finance act 2023 w.e.f 1.4.2023. The section inter Alia states that in cases of business reorganization where, prior to the date of order of High Court or tribunal or adjudicating authority (here in after referred to as order in respect of business reorganization) as the case may be, any Return Of Income has been furnished by an entity to which such order applies under the provisions of sec 139 of the Act or for any assessment year relevant to the previous year to which such order applies, the successor shall furnish within a period of 6 months from the end of the month in which the order was issued, a modified return in such form and manner as may be prescribed in accordance with and limited to the said order.
It is a very crucial provision under the Income Tax Act specially designed for business entities undergoing Amalgamation, Mergers, Demergers or Reorganizations. It facilities in filing Modified Returns during the specified time frame, thus bridging the gap created by the uncertainty of issuing organization orders. This articles emphases on the procedural aspects of filing of returns of Income under Section 170A and the scheme to introduction of ITR-A and the time frame within which the Modified Returns are to be filed.
LEGAL BACKGROUND OF SEC 170A
The legislative intent behind the introduction of this section was derived from the judgment of honorable supreme court in the case of Dalmia Power Ltd. vs. Asst. CIT (2019) 112 Taxman.com 252(2020) 269 Taxman 352/420 ITR 339 Dated 18/12/2019.
THE BARE ACT TEXT OF SECTION 170A READS AS FOLLOWS:
[Effect of order of tribunal or court in respect of business reorganization.
170A. (1) Notwithstanding anything to the contrary contained in section 139, in a case of business reorganization, 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 (31 of 2016) (hereinafter referred to as order in respect of business reorganization), as the case may be, any return of income has been furnished by an entity to which such order applies under the provisions of section 139 for any assessment year relevant to the previous year to which such order applies, the successor shall furnish, within a period of six months from the end of the month in which the order was issued, a modified return in such form and manner, as may be prescribed, in accordance with and limited to the said order.
(2) Where the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the order in respect of the business reorganization applies,—
(a) have been completed on the date of furnishing of the modified return in accordance with the provisions of sub-section (1), the Assessing Officer shall pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, in accordance with such order and taking into account the modified return so furnished;
(b) are pending on the date of furnishing of the modified return in accordance with the provisions of sub-section (1), the Assessing Officer shall pass an order assessing or reassessing the total income of the relevant assessment year in accordance with the order of the business reorganization and taking into account the modified return so furnished.
(3) Save as otherwise provided in this section, in an assessment or reassessment made in respect of an assessment year under this section, all other provisions of this Act shall apply, and the tax shall be chargeable at the rate or rates as applicable to such assessment year.
Explanation.—In this section, the expressions—
(i) “business reorganization” means the reorganization of a business involving the amalgamation, demerger, or merger of the business of one or more persons;
(ii) “successor” means all resulting companies in a business reorganization, whether or not the company was in existence prior to such business reorganization.]
REASON FOR INTRODUCING ITR – A
Before 01-04-2022, the Successor Company was required to file ITR u/s 139 for the Previous Financial Year, however due to the reorganization of the business, it created a lot of confusion and uncertainty while determining the exact tax liability. This gap was duly recognized by CBDT and hence introduced the most structured approach towards filing of ITR in business reorganization cases. All these confusions gave birth to Section 170A of The Income Tax Act, 1961. and thus the birth of ITR–A for Returns of reorganized entities.
TIME FRAME FOR ITR – A
Section 170A of the Income Tax Act, 1961, has categorically set a time frame for filing ITR – A. As specified in the section, the Successor Entity must file Modified ITR using ITR – A within 6 months from the end of the month in which the reorganization order is passed.
PROCEDURE LAID DOWN FOR FILING ITR – A
Rule 12AD outlines the process for a successor entity in a business reorganization to file a modified return. This allows them to adjust their tax filings according to a court or tribunal-approved plan for affected assessment years. The modified return must be filed in Form ITR-A and verified as specified. Filing must be done electronically with a digital signature. The deadline is six months from the end of the month in which the reorganization order was issued. Upon receipt, the Assessing Officer modifies the total income or completes pending proceedings per the order. Procedures for electronic filing of Form ITR-A are set by the Principal Director-General or Director-General of Income-tax (Systems). Rule 12AD was introduced by the Income-tax (31st Amendment) Rules, 2022, effective November 1, 2022. The full text of the rule is available on the Income Tax Department website.
PRACTICAL GUIDE
Modified Returns up to Assessment Year 2023-24 filed U/s 170A are duly accepted by the department. However, while filing the Modified Returns for Assessment Year 2024-25 and 2025-26, the Schema for filing Returns was altered in such a way that the JSON file generated using third-party software were not accepted, and hence we need to use the Department’s Excel Utility for generating Income Tax Returns.
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