AO ‘Functus Officio’ After Passing Order; Fresh Notices on Section 170A Modified Return Stayed

By | January 12, 2026
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AO ‘Functus Officio’ After Passing Order; Fresh Notices on Section 170A Modified Return Stayed

 

Issue

Whether an Assessing Officer (AO) has the jurisdiction to issue fresh notices under Section 143(2) and Section 142(1) to assess a modified return filed under Section 170A (post-amalgamation) if an assessment order considering that return has effectively already been passed, rendering the AO functus officio (having discharged his duty).

Facts

  • Restructuring: The petitioner-company underwent two major restructuring events:

    1. Demerger: Power Transmission/Distribution business demerged (NCLT approved).

    2. Amalgamation: NAPL amalgamated with the petitioner (NCLT approved).

  • Filings:

    • Original Return filed u/s 139(1).

    • Revised Return filed post-demerger approval.

    • Modified Return filed u/s 170A to give effect to the amalgamation.

  • First Round of Assessment: The AO selected the revised return for scrutiny (Notice u/s 143(2)). The petitioner informed the AO about the Section 170A modified return. The AO then issued detailed queries (Notice u/s 142(1)), to which the petitioner responded with comparative computations. The AO subsequently passed an assessment order.

  • The Dispute (Second Round): After the assessment order was passed, the AO issued fresh notices under Section 143(2) and Section 142(1) seeking to assess the income again based on the same modified return filed under Section 170A.

  • Petitioner’s Plea: The petitioner argued that once the assessment was completed (taking into account the Section 170A return), the AO became functus officio. He cannot restart the process for the same return/year without valid recourse to reassessment provisions (like Section 147), which was not the case here.

Decision

  • Prima Facie Case: The High Court found substance in the petitioner’s argument. Since the AO had arguably already exercised his jurisdiction and passed an order regarding the relevant assessment year and the restructuring effects, he could not issue a fresh scrutiny notice under Section 143(2) for the very same modified return.

  • Stay Granted: The Court held that the petitioner made out a strong prima facie case that the AO lacked jurisdiction. Consequently, ad-interim relief was granted (likely staying the fresh proceedings). [In favour of assessee]

Key Takeaways

  • Doctrine of Functus Officio: Once an Assessing Officer passes a final assessment order, their authority over that specific proceeding ends. They cannot simply change their mind and issue a fresh scrutiny notice for the same return.

  • Remedy for Revenue: If the Revenue believes income escaped assessment in the original order, they must follow specific legal routes like Reassessment (Section 147) or Revision (Section 263), rather than issuing a duplicate scrutiny notice u/s 143(2).

  • Section 170A Sanctity: A modified return filed under Section 170A replaces the previous returns for the limited purpose of business reorganization. Once assessed, it cannot be subjected to a second round of regular scrutiny.

HIGH COURT OF BOMBAY
Bajaj Electricals Ltd.
v.
Assistant Commissioner of Income-tax
B. P. COLABAWALLA and AMIT S. JAMSANDEKAR, JJ.
WRIT PETITION (L) NO. 40696 OF 2025
DECEMBER  16, 2025
Nitesh Joshi and Atul K. Jasani, Advs. for the Petitioner. Abhishekh Mishra, Adv. for the Respondent.
ORDER
1. The above Writ Petition has been filed to quash and set aside the impugned notice dated 24th June, 2025, issued under Section 143(2), and another Notice dated 14th November, 2025 issued under Section 142(1) of the Income Tax Act, 1961 (“IT Act”). To put it in a nutshell, both these Notices have been challenged on the ground that the Assessing Officer had become functus officio, and had no jurisdiction to issue the aforesaid Notices.
2. According to the Petitioner, the Petitioner entered into a scheme of arrangement with BAJEL Projects Limited (“BPL”) for demerger of its Power Transmission and Power Distribution Business. BPL is a public Company incorporated on 19th January, 2022, and its main object was to carry out power transmission and power distribution. The appointed date of the demerger, as per the scheme of arrangement, was 1st April, 2022, and the effective date was 1st September, 2023. This scheme of demerger was approved by the National Company Law Tribunal, Mumbai (“NCLT”) on 8th June, 2023. Subsequently, the scheme along with the certified copy of the order of the NCLT was e-filed with the Registrar of Companies on 1st September, 2023 and treated as the effective date of demerger.
3. Subsequent to this, the Petitioner filed its return of income under Section 139(1) of the Act on 31st October, 2023, declaring a total income of Rs.175.66 Crores for A.Y. 2023-2024, based on its standalone financial statements, which did not contain the effect of the scheme of demerger.
4. After the NCLT approving the scheme from the effective date of 1st September, 2023, the Petitioner prepared the revised special purpose financial statements and filed its revised return of income on 30th December, 2023 declaring a total income of Rs.183.45 Crores for A.Y. 2023-2024.
5. Apart from this demerger, there was also a scheme of amalgamation of Nirlep Appliances Private Limited (“NAPL”). This scheme of amalgamation was approved by NCLT vide its order dated 1st March, 2024. Based on the order of NCLT approving the scheme of amalgamation between the Petitioner and NAPL, the Petitioner filed a modified return of income on 16th September, 2024 under Section 170A, of the IT Act. This was done to give effect to the scheme of amalgamation of NAPL with the Petitioner for A.Y. 2023-2024.
6. While the approval of the scheme of amalgamation was pending before the NCLT, Respondent No.2 issued a Notice dated 19th June, 2024 under Section 143(2) of the Act, wherein it was mentioned that the revised return of income was selected for Scrutiny Assessment in accordance with the provisions of the Act, and subsequently a Notice under Section 142(1) dated 29th June, 2024 was also issued. To these notices, the Petitioner filed their replies dated 4th July, 2024, 15th July, 2024 and 8th November, 2024.
7. It is the case of the Petitioner that during the course of the Assessment proceedings, the Petitioner filed a letter dated 6th November, 2024 with Respondent No.2 intimating the filing of the modified return of income under Section 170A, and requested Respondent No.2 to conclude the Assessment proceedings based on the modified return of income. In this letter, the Petitioner pointed out that the scheme approved by the NCLT required the Petitioner to file a revised return of income with the respective Tax Authorities for tax and other regulatory purposes. Further, attention was also drawn of Respondent No.2 to the provision of Section 170A(2), which stipulates that in case where the Assessment proceedings are pending on the date of furnishing the modified return of income, the Assessing Officer shall pass an order assessing or re-assessing the total income in accordance with the order of the NCLT and taking into account the modified return of income furnish by the Petitioner.
8. After this, Respondent No.2 issued a notice dated 21st January, 2025 under Section 142(1), requesting the Petitioner to furnish clarifications on 16 points raised in the Notice, on or before 28th January, 2025. This was duly replied to by the Petitioner vide its letter dated 28th January, 2025, 17th February, 2025, 21st February, 2025. Thereafter, the Assessing Officer, passed an Assessment Order dated 26th March, 2025. It is in these facts, that the Petitioner argues, that now, once the Assessment is completed, no fresh notice under Section 143(2) could be issued by the Assessing Officer seeking to now assess the modified return of income filed under Section 170A(2) of the IT Act.
9. It is the case of the Petitioner, that this very modified return was taken into consideration while passing the Assessment Order dated 26th March, 2025 and hence the Assessing officer could not embark upon this journey once again. It is in this light, that the Notice under Section 143(2) dated 24th June, 2025, and Notice dated 14th November, 2025 issued under Section 142(1), are impugned in the present Writ Petition.
10. The learned advocate appearing on behalf of the Revenue sought time to file an Affidavit-in-Reply to the above Writ Petition. Acceding to the request of the Revenue, we direct that the Reply shall be filed on or before 12th January, 2026, and a copy of the same shall be served on the advocate for the Petitioner.
11. As far as ad-interim relief is concerned, we find at least prima facie considerable force in the argument canvassed on behalf of the Petitioner. In the original Assessment proceedings, a Notice dated 21st January, 2025, under Section 142(1) was issued to the Petitioner raising 16 queries.
12. Query No.4 was specifically with reference to the amalgamation of the Petitioner with NAPL. The query in fact noted that from the original and revised computation after amalgamation, it was found that there is a substantial amount of reduction of taxable income, which was tabulated in the said query. Accordingly, the Petitioner was requested to furnish a detailed comparative computation for the year under consideration and also to bring on record the assessed loss of the amalgamating Company (“NAPL”) which are available for setting off.
13. In answer to this specific query, the Petitioner submitted that a detailed comparative computation of the original and the revised / modified return of income filed by the Company and enclosed it as Annexure “11”. Further, the Petitioner contended that the provision of Section 72A of the Act allowed the Amalgamated Company (Petitioner) to carry forward and set off the accumulated loss and unobserved depreciation of the Amalgamating Company (“NAPL”) from the previous year in which the amalgamation was effected.
14. The details of loss and unobserved depreciation of NAPL were provided in the tax audit report, which was also furnish as Annexure “12”. After all this, the Assessing Officer passed an Assessment Order dated 26th March, 2025. Once this is the case, at least prima facie, we find substance in the argument of the Petitioner that the Assessing Officer could not have issued a fresh Notice under Section 143(2) for the very same year, seeking to assess the income on the basis of the modified return of income submitted under Section 170A of the IT Act.
15. Accordingly, we are of the view that the Petitioner has made out a strong prima facie case for grant of ad-interim relief.
16. We also find that the balance of convenience is in favour of the Petitioner. Accordingly, we direct that there will be ad-interim relief in terms of prayer clause (d) which reads thus :-
“(d.) that pending the hearing and final disposal of this petition the Respondents, their successors in office, subordinates, servants and agents be restrained by an order and injunction of this Hon’ble Court from taking any steps pursuant to the impugned notices dated June 24, 2025 and November 14, 2025 including passing of an assessment order thereon;
17. We now place the above matter on 19th January, 2026 under the caption for ad-interim relief. We put the parties to notice that we may dispose of the Writ Petition at that stage itself, time permitting.
18. 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.