Taxation of filing modified ITR in cases of Succession otherwise than by death (Section 170 & 170A)

Section 170 of the income tax Act governs the procedure of taxation in case of succession to business in the event of reorganization or restructuring of the business

170 (1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,—

(a)  the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession;

(b)  the successor shall be assessed in respect of the income of the previous year after the date of succession.

170 (2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.

170(2A) Notwithstanding anything contained in sub-sections (1) and (2), where there is succession, the assessment or reassessment or any other proceedings, made or initiated on the predecessor during the course of pendency of such succession, shall be deemed to have been made or initiated on the successor and all the provisions of this Act shall, so far as may be, apply accordingly.

Explanation.—For the purposes of this sub-section, the term “pendency” means the period commencing from the date of filing of application for such succession of business before the High Court or tribunal or the date of admission of an application for corporate insolvency resolution by the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and ending with the date on which the order of such High Court or tribunal or such Adjudicating Authority, as the case may be, is received by the Principal Commissioner or the Commissioner.]

Further, it is seen that post such reorganization, the affairs of the successor entity go through a complete change with effect from the date from which such reorganization takes place. However, due to the indefinite timeline involved in issuing such orders, there is a gap between the effectivity of such order and the date on which such order is issued by the competent authority. This also affects the final accounts of such entities as they are unable to modify their already filed returns in accordance with the reorganization.

Hence, in order to remove this anomaly, it is proposed to insert a new section 170A to the Act Finance Act 2022, to enable the entities going through a such business reorganization, for filing modified returns for the period between the date of effectivity of the order and the date of issuance of the final order of the competent authority.

Timeline for Filing

The modified return shall be furnished in the prescribed form and manner within 6 months from the end of the month in which the said order was issued.

Rule 12 AD

To implement the changes made in Finance Act 2022, the Central Board of Direct Taxes (CBDT) has notified now Rule 12AD for filing of Modified returns under section 170A to be furnished by a successor entity to a business reorganisation and relevant Form ITR-A vide Notification No. 110/2022-Income Tax | Dated: 19th September, 2022

12AD Return of income under section 170A

(1) The modified return of income to be furnished by a successor entity to a business reorganisation, as referred to in section 170A, for an assessment year, shall be in the Form ITR-A and verified in the manner specified therein

(2) The return of income referred to in sub-rule (1) shall be furnished electronically under digital signature.

(3) If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the order of the business reorganisation applies have been completed or are pending on the date of furnishing of the modified return in accordance with the provisions of section 170A, the Assessing Officer shall, pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, or proceed to complete the assessment or reassessment proceedings, as the case may be, in accordance with the order of the business reorganisation and the modified return so furnished.

(4) The Principal Director-General of Income-tax (Systems) or Director-General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to furnishing the return in the manner specified in sub-rule (2)

In the principal rules, in Appendix-II,––

(I) in Form ITR-6, for every assessment year commencing on the 1st day of April, 2022 or any earlier assessment year, in the Part A-GEN, for entries of serial number (A19)(a)(i), the following shall be substituted, namely:—

(II) after the ITR – Ack, the following Form ITR-A (ITR under section 170A) shall be inserted, namely:––

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VERIFICATION

I, ……………… son/ daughter of solemnly declare that to the best of my knowledge and belief, the information given in the return is correct and complete and is in accordance with the provisions of the Income-tax Act, 1961. I further declare that I am making this return in my capacity as ………..(drop down to be provided) and I am also competent to make this return and verify it. I am holding permanent account number (Please see instruction).

I further declare that the terms and conditions specified in the order of business reorganisation passed by the Competent Authority have been complied with.

Date:

Signature:.

Disclaimer:

The views expressed in this article are the personal views of the author. Neither the views nor the analysis constitute a legal opinion and are not intended to be advice