Modified refund under circumstances of business reorganization

1. Section 170A of the Income-tax Act, 1961 provides that the entities going through business reorganization may furnish modified return of income for any assessment year to which such order of business reorganization is applicable within six months from the end of the month of issuance of order of competent authority.

2. Section 170A was inserted vide the Finance Act, 2022 with effect from April 1, 2022, to make provisions for giving effect to the order of business reorganization issued by a tribunal, court or an Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.

3. The section, inter-alia, states that in cases of business reorganisation where prior to the date of order of the High Court or tribunal or an Adjudicating Authority (hereinafter referred to as order in respect of business reorganisation), 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 of the Act 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.

4. As per Rule 12AD of the Income Tax Rules, 1962, the modified return of income is to be furnished by a successor entity to a business reorganisation as referred to in section 170A of the Act for an assessment year shall be filed in Form ITR-A.

5. The legislative intent behind introduction of this section is derived from the judgement of Hon'ble Supreme Court in the case of Dalmia Power Ltd. v. Asstt. CIT [2019] 112 taxmann 252/[2020] 269 Taxman 352/420 ITR 339, dated 18.12.2019. M/s Dalmia Power Limited and M/s Dalmia Cement (Bharat) Limited were public limited companies, incorporated under the Companies Act.

6. The introduction of section 170A of the Act is a welcome step which will help the companies in a smooth transition in cases of business reorganisation, i.e., amalgamation, merger and demerger.

7. Further, this will help to solve the practical difficulties which arise while completing the assessment or reassessment proceedings of the transferee and transferor companies after reorganisation.