Direct Tax Alert - Revised return can be filed manually where the NCLT’s sanction date is after the expiry of deadline for revised return

BACKGROUND

In any scheme of arrangement, a Scheme is made effective from an appointed date. Generally, there is a time gap between approval of a scheme of arrangement and its appointed date. Quite often, it happens that both these dates fall in different fiscal years. Hence, there are chances that by the time the National Company Law Tribunal (NCLT) /High Court (HC) sanctions a Scheme of Arrangement, the deadline for filing a tax return would have lapsed. In such cases, the taxpayer files its tax return as if the Scheme of Arrangement is not made effective. Once the Scheme is approved, the taxpayer is required to revise its tax return capturing the effect of the order approving the Scheme of Arrangement. In some instances, it may so happen that the Scheme is sanctioned only after the expiry of timeline for revising the return of income. In such instances, the taxpayer would also face technological challenges, viz., with e-filing of tax return on income tax portal being made mandatory for all Companies, as the system will not permit a taxpayer to file revised return after the expiry of the deadline.

Recently, the Gujarat High Court1 (Gujarat HC) had an occasion to delve on a similar matter. We, at BDO in India, have summarised this ruling and provided our comments on the impact of this decision hereunder.

FACTS OF THE CASE

The taxpayer, an Indian Company, had business of Oil and Gas exploration and production of oil and gas services. It formulated a Scheme of Arrangement to demerge its Oil and Gas Service division and an application was filed with NCLT in this respect. While the Scheme of Arrangement was sanctioned on 17 March 2020, it was made effective from 1 April 2017. The certified copy of the order sanctioning the Scheme of Arrangement was received by the Company on 26 May 2020 and the same was filed with the Registrar of Companies on 20 June 2020.

The taxpayer electronically filed the original tax return for fiscal year (FY) 2017-18 on 30 March 2019. Upon sanctioning of the Scheme, it tried to file the online revised return on income tax portal. However, as the deadline for filing revised return had lapsed and in absence of any mechanism, the taxpayer couldn’t electronically file the revised return. Hence, it raised grievance on income tax portal on 26 June 2020 via e-Nivaran facility and physically filed the revised tax return along with a letter dated 28 July 2020 with the jurisdictional tax officer explaining the cause of revision. However, the tax officer did not process the revised return of income on the ground that revised return was filed manually and belatedly & was constrained invalid as there is no provision under the IT Act to accept the revised return beyond the limitation period. Accordingly, it passed an order under section 143(3) of the Income-tax Act, 1961 (IT Act) on the basis of original return. Given the situation, the taxpayer filed a writ before the Gujarat HC.

GUJARAT HC RULING

Gujarat HC quashed the assessment with a direction that the Tax Officer shall process the revised tax return filed by the taxpayer. If the revised return is not filed electronically, the taxpayer should be permitted to do that by a specific order and the Tax Officer should grant reasonable time of minimum 1 week to do it. Otherwise, the taxpayer’s physical copy should be taken into consideration. While coming to this conclusion, the Gujarat HC made the following observations:

  • The taxpayer’s revised return filed manually was not considered as the same was not filed electronically. However, this was in complete disregard to the fact that the order of NCLT approving the Scheme of Arrangement effective from 01 April 2017 was issued on 17 March 2020 and therefore, it was not possible for the taxpayer to file a revised return of income within the statutory time specified under Section 139(5) of the IT Act. Accordingly, the taxpayer would be entitled to file a revised return of income in manual form.
  • Reliance was placed on the Hon’ble Supreme Court’s (SC) decision in case of Dalmia Power2 wherein SC had examined the provision of Section 139(5) of the IT Act to hold that the provision is not applicable since the revised returns were not filed on account of omission or wrong statement.
  • The delay in filing the revised tax return occurred on account of the time taken to obtain the sanction of the Schemes of Arrangement and Amalgamation from the NCLT. Therefore, the delay in filing the revised return is valid and permitted,

Further, as a parting note, the Gujarat HC made following observations:

  • The matter has travelled to HC only because the revised return was not permitted beyond the prescribed time limit as set under Section 139(5) of the IT Act.
  • When the Revenue Authorities are desirous of operating in the regimes of electronic mode and faceless assessment, it shall need to improvise the software and allow the revised return more particularly, when the law has been made quite clear by virtue of the direction of Hon’ble Supreme Court.
  • Software should be improvised wherever necessary since its limitations have tendency to swell the Court litigation and remarked that the Taxpayer could have been saved from this ordeal, if permitted to revise the return in an electronic mode once the direction of the NCLT was communicated.

BDO COMMENTS

With the economy opening up and many M&A deals underway, this decision will be helpful for companies where the appointed date and the sanction date falls in two different fiscal years. Currently, the online utility does not permit a taxpayer to file revised return if the deadline has lapsed. The taxpayer in such instances can place reliance on this decision and consider filing a revised return of income in manual form alongwith a letter explaining the reasons for the same with the jurisdictional tax officer. It would be interesting to see how the changes in the online utility & software is brought about to capture the returns filed pursuant to an order giving effect to a Scheme of Arrangement.

1Deep Industries Limited vs DCIT (Civil Appeal No. 11916 of 2021)

2Dalmia Power Limited vs ACIT (420 ITR 339 (SC))

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