Section 170A: Modified Return Must Be Considered in Pending Assessment Proceedings

By | March 4, 2026
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Section 170A: Modified Return Must Be Considered in Pending Assessment Proceedings

The Legal Issue

The central question is whether the Assessing Officer (AO) is required to consider a modified return filed under Section 170A within the ongoing (pending) assessment proceedings, or whether the AO can ignore it, pass an assessment order on the old return, and then issue fresh notices to assess the modified return separately.

Facts Of Case

  • The Reorganization: The assessee underwent a complex business restructuring involving both a demerger of its power business to ‘B’ Ltd and an amalgamation with ‘N’ Ltd.

  • Return Timeline:

    • Original Return: Filed on 31-10-2023.

    • Revised Return: Filed on 30-12-2023 (to effect the demerger). This return was selected for scrutiny.

    • NCLT Order: Passed on 01-03-2024, approving the amalgamation.

    • Modified Return (Section 170A): Filed on 16-09-2024 to give effect to the NCLT order.

  • The Conflict: Despite the modified return being on record, the AO passed a scrutiny assessment order on 26-03-2025 based on the old revised return (income of ₹183.45 crores) instead of the modified return (income of ₹130.48 crores).

  • The Action: After passing the order, the AO issued fresh notices under Section 143(2) and Section 142(1) on 24-06-2025 to “start again” and assess the modified return.

The Decision

The Authority/Court ruled in favour of the assessee, quashing the fresh notices and the flawed assessment order:

  • Mandate of Section 170A(2)(b): The law explicitly states that if assessment proceedings are pending on the date a modified return is furnished, the AO must pass the order taking into account that modified return.

  • No “Double Assessment”: The AO cannot choose to ignore a modified return during a pending scrutiny just to complete the assessment by a deadline and then initiate a second round of scrutiny for the same year.

  • Lack of Jurisdiction: Since the assessment was already completed (albeit incorrectly) on 26-03-2025, the issuance of fresh notices in June 2025 to assess the same modified return was deemed without jurisdiction. The AO had the opportunity and the legal obligation to use the modified return in the first instance.

  • Procedural Correctness: The AO should have calculated the total income in accordance with the NCLT-approved scheme within the original scrutiny window.

Key Takeaways

  • Section 170A Supremacy: Once a scheme is approved by the NCLT/Court, Section 170A provides a specific window of six months to file a modified return. This return replaces previous filings for the purpose of ongoing assessments.

  • Pending Proceedings: If you file a modified return while a scrutiny is active, ensure the AO acknowledges it. The AO is legally barred from passing an order based on the “old” figures once the modified return is filed.

  • Finality of Scrutiny: The Department cannot use fresh Section 143(2) notices as a “correction tool” for their own failure to consider a modified return during the original scrutiny period.

HIGH COURT OF BOMBAY
Bajaj Electricals Ltd.
v.
Assistant Commissioner of Income-tax *
B. P. COLABAWALLA and FIRDOSH P. POONIWALLA, JJ.
WRIT PETITION (L) NO. 40696 OF 2025
FEBRUARY  9, 2026
Nitesh Joshi and Jeet Kamdar for the Petitioner. Abhishek R. Mishra for the Respondent.
ORDER
1. Rule. Respondents waive service. With the consent of the parties, Rule is made returnable forthwith and heard finally.
2. The above Writ Petition has been filed seeking quashing and setting aside of the impugned notices dated 24.06.2025 and 14.11.2025 issued under Section 143(2) and Section 142(1) of the Income Tax Act, 1961 (for short “IT Act”), for the Assessment Year 2023-24. These notices have been challenged as without jurisdiction in view of Section 170A of the IT Act, as they were issued after the passing of the assessment order dated 26.03.2025 under Section 143(3) of the Act.
3. The Petitioner is a public listed company incorporated under the Indian Companies Act, 2013. It has two distinct business segments, viz., Consumer Products segment being (appliances, fans, lightings etc.) and Engineering Procurement and Construction (EPC) segment (illumination business, power transmission and power distribution, etc.). It filed its original return of income for the assessment year 2023-24 on 31.10.2023, declaring a total income of Rs.175,66,76,180/-.
4. It entered into a Scheme of Arrangement with BAJEL Projects Limited for the demerger of its Power transmission and power distribution business to them. The said scheme was approved by the NCLT by its Order dated 08.06.2023. The appointed date of demerger was 01.04.2022, and the effective date, based on fulfillment of the conditions referred to in the scheme and the NCLT order, was 01.09.2023. Pursuant thereto, it prepared revised special purpose financial statements and Tax Audit report considering the effect of demerger and also filed its revised return of income for assessment year 2023-24 on 30.12.2023, declaring a total income of Rs.183,45,46,964/-.
5. Subsequently, the Petitioner entered into a Scheme of amalgamation with Nirlep Appliances Pvt. Ltd. This Scheme was approved by the NCLT by its Order dated 01.03.2024 with the appointed date as 01.04.2022. Pursuant thereto, the Petitioner prepared special purpose financial statements and revised the Tax Audit report to give effect to the said amalgamation. Consequent thereto, it also filed its modified return of income for the A.Y. 2023-24 on 16.09.2024, declaring a total income of Rs.130,48,68,607/-.
6. According to the Petitioner, by the Finance Act 2022, with effect from 01.04.2022, section 170A has been introduced in the Act. The said Section, as amended by the Finance Act 2023 with effect from 01.04.2023, deals with the effect of the business reorganisation. Sub-section (1) thereof, mandates that where prior to the date of order in respect of business reorganisation, if an Assessee has furnished its return of income 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. As per sub-section (2) thereof, insofar as it is relevant for the present purpose, where the assessment proceedings for an assessment year relevant to a previous year to which the order in respect of reorganisation applies is pending on the date of furnishing of the modified return, the assessing officer is bound to pass an order assessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. In the present case, the revised return of income as filed on 30.12.2023 had been selected for scrutiny by issue of notice dated 19.06.2024 under Section 143(2) of the IT Act. Hence, the assessment proceedings were pending at the time of filing of the modified return of income on 16.09.2024. Hence, as per Section 170A(2)(b) of the IT Act, Respondent No.2 was under an obligation to pass the order for A.Y. 2023-24 in accordance with the order of business reorganisation and taking into account the modified return.
7. Accordingly, by its letter dated 06.11.2024, the Petitioner brought the fact relating to filing of the modified return of income on 16.09.2024, in accordance with Section 170A, to the attention of Respondent No.2. Referring to sub-section (2) thereof, it was requested to conclude the assessment proceedings initiated by issue of notice under Section 143(2) on the basis of such modified return.
8. In the course of assessment proceedings, notices dated 21.01.2025 and 25.02.2025 were issued seeking various information and clarifications. Question 4 of the notice dated 21.01.2025 specifically referred to the substantial amount of reduction of taxable income between the original and the revised computation after amalgamation with Nirlep Appliances Pvt. Ltd. The Petitioner was therefore requested to furnish a detailed comparative computation in this regard. Further, various clarifications sought therein were in respect of change in the closing value of balance sheet items for the earlier years and opening balance of such items for the current year. In response to the same, the Petitioner filed detailed submissions vide its letters dated 28.01.2025, 17.02.2025 and 21.02.2025. Apart from providing the statement explaining the difference between the original return of income filed on 31.10.2023, the revised return of income filed on 30.12.2023 and the modified return of income filed on 16.09.2024, an explanation was also given with respect to the carry forward and set off of brought forward accumulated loss and unabsorbed depreciation as relatable to the amalgamating company, which would be allowable as per Section 72A of the IT Act, including details thereof being provided in the tax audit report. Further, change in the value of balance sheet items were also duly explained with reference to the fact of amalgamation. One of the issues raised, concerned the reduction of interest income. Referring to the TDS return filed by the payers of interest, a query was raised by the Assessing Officer that such interest ought to be Rs.3233.07 lakh, whereas, the revised audited special purpose financial statements disclosed such interest income of Rs.1677.7 lakh. While explaining the said difference, it was inter alia clarified by the Petitioner that interest of Rs.75.66 lakh was due from Nirlep Appliances Pvt. Ltd. and Rs.19.65 lakh from Starlite Lightings Ltd. Since the appointed date of amalgamation of the said companies was before the accrual of such interest, the transaction relating to the existence of a loan and the earning of interest got nullified.
9. Be that as it may, in the said proceedings, a show-cause notice dated 06.03.2025 came to be issued, calling for an explanation on why the adjustments to the total income as proposed therein, ought not be made. The said show cause notice also repeatedly made a reference to the fact of amalgamation. In the submissions as filed by the Petitioner, reference has been made to the filing of the modified return of income and the impact of Section 170A of the IT Act. Therefore, not only was Respondent No.2 bound to pass the assessment order based on the order of business reorganisation as well as the modified return of income, but he has also scrutinised the claims made therein.
10. Consequent thereto, an Assessment Order dated 26.03.2025 came to be passed assessing the total income for the A.Y. 2023-24 at Rs.208,98,17,180/- after making certain adjustments. The said assessment order also makes a reference to the fact of amalgamation. One of the errors made while computing the income in the final part of the assessment order was that the income as per the return of income was taken at Rs.183,45,46,964/- (which was the income as reflected in the revised return filed on 30.12.2023). The said income ought to have been taken as per the modified return of income at Rs.130,48,68,607/-. For correction of the said mistake, a rectification application dated 16.04.2025 has been filed by the Petitioner with Respondent No. 1, and the said issue has also been raised in the appeal filed by it before the Commissioner of Income-tax (Appeals) against the assessment order dated 26.03.2025. Respondent No.2 and the CIT(A) will independently consider the said claim of the Petitioner in accordance with law.
11. However, the grievance raised by the Petitioner in the present Writ Petition concerns the issue of the impugned notice dated 24.06.2025 under Section 143(2) of the IT Act seeking to assess the modified return of income filed by it on 16.09.2024. Since the claims made in the said return of income already stood adjudicated in the assessment order dated 26.03.2025, and which was also in accordance with the provisions of Section 170A, the Petitioner requested Respondent No. 2 to drop the said proceedings as not in accordance with law. However, on 14.11.2025, another impugned notice was issued under Section 142(1) of the IT Act, seeking various clarifications and information. Aggrieved by these notices, the Petitioner has filed the present Writ Petition.
12. In this backdrop, the Counsel appearing for the Petitioner has taken us through the aforesaid facts relating to filing of the original return of income on 31.10.2023, the revised return of income on 30.12.2023 pursuant to demerger of the Power transmission and power distribution business to BAJEL Projects Ltd. and the modified Return of Income filed on 16.09.2024 pursuant to the amalgamation of Nirlep Appliances Pvt. Ltd. with the Petitioner. The modified return of income has been filed in accordance with Section 170A(1). Since the assessment proceedings relating to assessment year 2023-24 were pending at the time of filing of such modified return, as per Section 170A(2)(b) of the IT Act, Respondent No.2 was under an obligation to pass an order assessing the total income in accordance with the order of business reorganisation and taking into account the modified return so furnished. In fact, Respondent No.2 had taken the fact relating to the aforesaid amalgamation into account while passing the assessment order dated 26.03.2025. Hence, according to the Petitioner, initiation of the present proceedings by issuance of the impugned notices dated 24.06.2025 [under Section 143(2) of the IT Act] and 14.11.2025 [under Section 142(1) of the IT Act], to again assess the modified Return of Income, was not permissible.
13. On the other hand, the learned Counsel appearing for the Respondents, urged that the present petition may be dismissed in view of an alternate and efficacious remedy. He inter alia referred to a note received from the office of DDIT (Systems), Delhi, which effectively clarified that selection of a return for scrutiny was based on the Computer Assisted Scrutiny Selection (CASS) Committee specially constituted by the CBDT. The said Committee establishes criteria for the selection of cases for scrutiny. It also provides exclusion parameters for the non-selection of cases. Business reorganisation to which Section 170A applies, has not been explicitly listed in the exclusion criteria. Thereafter, it has been explained that the impugned notice dated 24.06.2025 has been issued “. in an identity-blind manner, without human intervention, discretion, or application of mind by any Assessing Officer.” It has been thereafter urged that there is no express provision in Section 170A, against selection of modified return of income for scrutiny by issue of notice under Section 143(2) of the IT Act. That the impact of the modified return filed under Section 170A, including the issues connected therewith, will be considered in the said assessment proceedings. Lastly, it is also urged that the said Section 170A does not override the statutory obligation of the Assessing Officer to examine, verify and assess the correctness of the claim/s arising from such modified return in accordance with the provisions of the IT Act.
14. In the rejoinder, it was submitted that a bare perusal of the note from the office of the DDIT (Systems), Delhi, [as reproduced in paragraph 6 of the Affidavit-in-reply] shows that the impugned notice dated 24.06.2025 issued under Section 143(2) of the IT Act was without application of any mind and in a mechanical manner. Further, since Section 170A(2)(b) specifically mandates that the Assessing Officer shall pass an order assessing the total income of the relevant Assessment Year in accordance with the order of the business reorganisation, and taking into account the modified return, the Respondents have erred in urging that there is no express prohibition against selection of a modified return of income for scrutiny after passing of the assessment order. In fact, this will tantamount to scrutiny of the same Return of Income, which has already been subject to assessment, and which would be clearly contrary to the mandate contained in Section 170A(2)(b). The Respondents have erred in urging that the impact of the modified return filed under Section 170A or the allowability and quantum of set-off of unabsorbed depreciation will be considered and adjudicated in the course of assessment. They have failed to appreciate that as per Section 170A(2)(b), the claims as made in the modified return of income have to be, and they have actually been considered in the course of assessment proceedings before passing of the Assessment Order dated 26.03.2025. Hence, the present exercise would tantamount to again scrutinising the same return of income, which cannot be permitted in law. The submission made by the Respondent that Section 170A does not override the statutory obligations of the assessing officer is also contrary to the express provisions of the Act. With respect to the submissions made to the effect that an alternate remedy exists in the present case, it was urged that, by the present petition, the impugned notices dated 24.06.2025 and 14.11.2025 issued under Sections 143(2) and 142(1) respectively have been challenged. Issuance of the said notices cannot be a subject matter of the appeal before the appellate Authority. In view of the above, it was urged that the said impugned notices may be quashed and set-aside as without jurisdiction.
15. We have heard the rival submissions made by both the parties. Since, the issue arising for our consideration concerns interpretation of Section 170A of the IT Act, it would be appropriate to reproduce the same:-
“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 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 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 reorganisation applies,—
(a) have been completed on the date of furnishing of the modified return in accordance with the provisions of subsection (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 reorganisation 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-
“business reorganisation” means the reorganisation of business involving the amalgamation or demerger or merger of business of one or more persons;
“successor” means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.”
(emphasis supplied)
16. The said section comes into application, where, prior to the date of the order in respect of business reorganisation, the Assessee has furnished any return of income for any assessment year relevant to the previous year to which such order applies. The consequence of the application of Section 170A is that, as per sub-section (1) thereof, the successor is under an obligation to furnish a modified return of income in the prescribed manner in accordance with and limited to the order of business reorganisation within a period of six months from the end of the month in which the said order was issued. In the present case, the Petitioner had filed its original return of income for the A.Y. 2023-24 on 31.10.2023, which came to be revised on 30.12.2023 to give effect to the scheme of arrangement for demerger of the Power transmission and distribution business to BAJEL Projects Ltd. The NCLT Order approving the scheme of amalgamation of Nirlep Appliances Pvt. Ltd. with the Petitioner, was passed on 01.03.2024. Therefore, the provisions of Section 170A(1) of the IT Act are applicable to its case. Since the NCLT approved the scheme of amalgamation by its Order dated 01.03.2024, in fulfillment of the said obligation, the Petitioner filed the modified return of income on 16.09.2024.
17. Sub-section (2) of Section 170A inter alia deals with the assessment proceedings to be carried out in respect of such modified return of income. Clause (a) thereof provides that, where the assessment proceedings for a relevant assessment year stood completed on the date of furnishing of the modified return of income, the assessing officer has to 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. Therefore, an independent scrutiny of the modified return of income is contemplated only in such cases where the assessment stood completed on the date of furnishing of the modified return of income. In the present case, the modified Return of Income has been filed on 16.09.2024, and the assessment order has been passed thereafter on 26.03.2025. Hence, the said clause (a) has no application to the present case. In the present case, as referred to hereafter, clause (b) of Section 170A(2) will apply.
18. As per clause (b) thereof, in cases, where assessment proceedings for the relevant assessment year are pending on the date of furnishing of the modified return of income, the assessing officer has to pass an order assessing or reassessing the total income of the said assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. In the present case, the said clause will be applicable as the revised return of income filed on 30.12.2023 had been selected for scrutiny by issuance of notice dated 19.06.2024 under Section 143(2) of the IT Act. Therefore, the assessment proceedings were pending on 16.09.2024, being the date on which the modified return of income was furnished. Further, as narrated hereinabove, Respondent No.2 was not only under an obligation to assess the total income of the said assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished, but in discharge of the said obligation, it has actually carried out that exercise examining the aspects arising from the amalgamation of Nirlep Appliances Pvt. Ltd. Since, the modified return of income has already been subjected to scrutiny and an assessment order passed thereon, we are of the opinion that issuance of the impugned notices with a view to again scrutinize the said modified return of income is contrary to the express provisions of Section 170A(2)(b) of the IT Act.
19. The clarification from the office of DDIT (Systems), Delhi, to the effect that the impugned notice dated 24.06.2025 issued under Section 143(2) of the IT Act itself infers that the said notice has been issued in a mechanical manner and without application of mind, which would vitiate such notice. Section 170A(2) makes a distinction between two scenarios, one being that covered by clause (a) thereof, where the assessment stood completed on the date of furnishing of the modified return of income, and the other being that covered by clause (b), where the assessment was pending on the date of furnishing of such return of income. It is only in the cases covered by clause (a) that the assessing officer has to pass a separate order on the modified return of income. In the cases covered by clause (b), which is also the present case, the assessment order passed has to be in accordance with the order of the business reorganisation and taking into account the modified return so furnished. If the contentions as canvassed by the Respondents is accepted, then no distinction will be left between cases covered by clause (a) and those covered by clause (b). Hence, the same needs to be rejected.
20. In view of the aforesaid discussion, the impugned notices dated 24.06.2025 and 14.11.2025 issued under Sections 143(2) and 142(1) of the IT Act by Respondent Nos. 2 and 1, respectively, are hereby quashed and set aside.
21. Rule is accordingly made absolute in the above terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
22. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.