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Section 170A: A Solution to the Challenge of Filing Modified Returns After Business Reorganization

Updated: Jan 26

I. Introduction


Section 170A of the Income Tax Act was inserted on April 1, 2022 to address the issue of filing modified returns by successor entities following a business reorganization. The provision allows entities that have undergone a business reorganization, such as an amalgamation or demerger, to file 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. This is to remove the anomaly that arises due to the indefinite timeline involved in issuing such reorganization orders, which affects the final accounts of such entities.


II. The Importance of Section 170A for Successor Entities


When a business reorganization takes place, the affairs of the successor entity go through a complete change with effect from the date of the reorganization. However, due to the indefinite timeline involved in issuing such reorganization orders, there is a gap between the effectiveness of such order and the date on which


the competent authority issues such order. This also affects the final accounts of such entities as they are unable to modify their already filed returns in accordance with the reorganization. This is where Section 170A comes in, by enabling the entities going through such business reorganization to file 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.


III. The Details of Section 170A


Section 170A so inserted reads as under:


170A. 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, as the case may be, any return of income has been furnished by the successor under the provisions of section 139 for any assessment year relevant to the previous year to which such order applies, such successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in such form and manner, as may be prescribed, in accordance with and limited to the said order.

The provision applies to a successor entity that has furnished a return of income prior to the date of order of a High Court or tribunal or an Adjudicating Authority, and the return can be furnished under any sub-section of section 139 of the Income Tax Act. The modified return must be furnished in the prescribed form and manner within 6 months from the end of the month in which the said order was issued.


IV. Business Reorganization and Its Impact on Tax Compliance


Explanation (i) to section 170A provides that "business reorganization" means the reorganization of business involving the amalgamation or demerger or merger of business of one or more persons. In a general sense, business restructuring is a comprehensive process by which a company can consolidate/diversify its business operations and strengthen its position for achieving its short-term and long-term corporate objectives. However, for the purpose of this provision, only amalgamation and merger/demerger should be covered in the expression business reorganization. Acquisition of an entity by acquiring 100% of the shareholding or by way of a slump-sale or by any other mode, will not be covered under this provision.


Business reorganization can have a significant impact on tax compliance, as the successor entity may be required to file modified returns for the period between the date of effectivity of the order and the date of issuance of the final order. Section 170A aims to address this issue by allowing successor entities to file modified returns under specified conditions.


V. The Modified Return Filing Process


The modified return filing process under Section 170A is fairly straightforward. The successor entity, which has furnished a return of income prior to the date of order of a High Court or tribunal or an Adjudicating Authority, is required to furnish the modified return within six months from the end of the month in which the said order was issued. The modified return must be furnished in the prescribed form and manner, and must be in accordance with and limited to the said order.


It's important to note that the modified return should be filed only for the period between the date of effectivity of the order and the date of issuance of the final order of the competent authority. The modified return should not include any information or transactions that occurred outside of this period.


VI. Conclusion


In conclusion, Section 170A of the Income Tax Act aims to address the anomaly that arises due to the indefinite timeline involved in issuing business reorganization orders by allowing successor entities to file modified returns. This provision applies to entities that have undergone amalgamation or demerger and have furnished a return of income prior to the date of order of a High Court or tribunal or an Adjudicating Authority. The modified return must be furnished in the prescribed form and manner within 6 months from the end of the month in which the said order was issued. It's important for successor entities to be aware of this provision and comply with it to ensure smooth tax compliance after a business reorganization.




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