Successor companies: CBDT allows e-filing of modified returns

Providing relief to companies that have undergone business reorganisation as part of amalgamations or mergers including those falling under the Insolvency and Bankruptcy Code (IBC), the income tax department has now allowed these firms to file modified income tax returns on the e-filing portal. The relief is only for business reorganisations sanctioned by the High Court, tribunals or the National Company Law Tribunals after June 1, 2016 but prior to April 1, 2022.

“On consideration of difficulties being faced by such entities in electronic filing of return of income pursuant to order of the competent authority issued after Jun 1, 2016 but prior to April 1, 2022 and to mitigate their genuine hardship, the Board, hereby allows the successor companies to furnish the return with modified particulars for the relevant assessment year in accordance with and limited to the said order by using functionality on e-filing portal,” said a recent order by the CBDT.  

The move is expected to give significant relief to successor companies that have undergone business reorganisation or been acquired through the IBC process.  The move follows the Supreme Court ruling in Dalmia Power where it was held that income tax returns filed by the successor companies, after taking into account the business reorganisations sanctioned by the NCLT will be received by the department. The NCLT was constituted with effect from June 1, 2016.

Sandeep Sehgal, Partner-Tax, AKM Global, a tax and consulting firm noted that under the IBC proceedings, the Court or the NCLT may have provided certain relief to the successor and the effect of which may be required to be taken in the tax return of the entity. However, the return may have already been filed till the time of receipt of final order. “Section 170A allowed filing of a modified return but the facility was not available for returns prior to April 1, 2022 especially since the IBC came into force in 2016. This is a welcome step as it will remove one hiccup faced by acquirer and will add to the smooth transition of the entity acquired,” he said.

Section 170A of the Income-tax Act,1961, inserted through the Finance Act, 2022 with effect from April 1, 2022, provides that the entities going through such business reorganisation can furnish modified return of income for any assessment year to which the order of business reorganisation is applicable, within six months from the end of the month of issuance of the order. The Central Board of Direct Taxes then in September 2022 allowed successor companies in cases where the order of business reorganisation of the competent authority was issued between April 1, 2022 to September 20, 2022 to furnish such modified returns until March 31, 2023.

However, the entities, whose business reorganisation was sanctioned before April 1, 2022 were outside the purview of this provision and could not file modified income tax returns.  

Our take Amit Agarwal, Partner, Nangia & Co said the initiative is aimed at enhancing efficiency and fairness in tax compliance. “This notification is poised to alleviate the compliance burden on affected entities while ushering in a new era of tax transparency and fairness,” he said.

The procedural roadmap delineated in the directive encompasses a structured framework for filing modified returns. Foremost, it mandates communication with the Jurisdictional Assessing Officer (JAO), followed by rigorous verification to ensure the congruence of the return with the reorganisation order. Notably, the directive obviates the necessity for standalone applications before the CBDT, thereby simplifying the filing process for affected entities, Agarwal further said.

According to the order, the companies can communicate with the JAO for enablement of electronic 30.04.2024. filing of the return until April 30 this year. The verification process can be completed within 30 days of the date of application and the modified return can be filed until June 30 this year.