Court Rules That Filing of Modified Return under Section 170A(2)(b) Does Not Permit Fresh Scrutiny Proceedings Under Section 143(2) When Original Assessment Is Pending
In a landmark judgment delivered on September 8, 2026, a Division Bench of the Bombay High Court, comprising Justices B.P. Colabawalla and Farhan P. Dubash, quashed notices issued by the Income Tax Department initiating fresh scrutiny proceedings against Thomson Reuters International Services Private Limited. The Court held that when assessment proceedings are pending on the date of filing a modified Return of Income under Section 170A of the Income Tax Act, 1961 (IT Act), the Assessing Officer is mandated to consider the modified return within the ongoing assessment proceedings. Initiating fresh and parallel scrutiny proceedings under Section 143(2) of the IT Act in such scenarios is impermissible.
The case arose after Thomson Reuters filed its original Income Tax Return for Assessment Year (AY) 2022-23 on November 28, 2022. The return was selected for scrutiny, and proceedings commenced. A draft Assessment Order was passed on March 24, 2025, but the assessment was not final as objections were pending before the Dispute Resolution Panel (DRP). Meanwhile, pursuant to a National Company Law Tribunal (NCLT) order approving a merger, Thomson Reuters filed a modified Return of Income on March 28, 2025, under Section 170A of the IT Act reflecting the business reorganisation.
The Income Tax Department issued a fresh notice under Section 143(2) on June 24, 2025, to scrutinize the modified Return of Income, followed by a transfer pricing notice under Section 92CA(2) on February 24, 2026. Thomson Reuters challenged these notices, asserting that the fresh scrutiny was unlawful as the assessment proceedings based on the original return were pending.
The Court analyzed Section 170A(2) of the IT Act, which distinguishes between two situations: (a) where assessment proceedings are completed at the time of filing the modified return, permitting modification of the completed assessment; and (b) where assessment proceedings are pending, requiring the Assessing Officer to consider the modified return in the ongoing proceedings without initiating fresh scrutiny.
Relying on earlier precedents, including Vodafone India Services Pvt. Ltd. v. Union of India and Bajaj Electricals Ltd. v. Assistant Commissioner of Income-tax, the Court held that the assessment proceedings were clearly pending on March 28, 2025, as the DRP had not yet passed directions, and the final assessment order was only passed on January 28, 2026. The filing of the modified return did not create a new assessment proceeding but had to be considered within the pending assessment.
The Court further held that the issuance of the fresh notice under Section 143(2) was without jurisdiction and therefore liable to be quashed. Consequently, the transfer pricing notice under Section 92CA(2), which was predicated on the invalid Section 143(2) notice, was also unsustainable.
This judgment clarifies the procedural framework for handling modified Returns of Income following business reorganisations under the IT Act. It ensures that taxpayers are not subjected to multiple or parallel scrutiny proceedings for the same assessment year when the assessment is already ongoing, thereby upholding the principles of fairness and statutory interpretation.
The writ petition filed by Thomson Reuters was allowed, quashing the impugned notices and all consequential proceedings, with no order as to costs.
Bottom Line:
Income Tax Act, 1961 Section 170A Filing of modified Return of Income following business reorganisation does not permit initiation of fresh and parallel scrutiny proceedings under Section 143(2) when assessment proceedings in respect of the original Return of Income are pending. The modified Return of Income must be considered in the pending assessment proceedings.
Statutory provision(s):
Income Tax Act, 1961 Sections 170A, 143(2), 92CA(2), 144C(1)
