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CMA Final · Direct Tax Laws and International Taxation · Assessment of Companies

Under section 314 of the Income-tax Act, 2025, an order in respect of business reorganisation was passed and the successor, Kiran Ltd, furnished a modified return while the assessment for an earlier tax year was still pending. Which statement is correct?

The Assessing Officer must assess or reassess the total income in line with the reorganisation order and the modified return, and tax is chargeable at the rates applicable to that tax year. The modification route applies only to completed assessments, not pending ones.

  1. AThe Assessing Officer must assess the total income as per the order and taking into account the modified return, applying the rates applicable to that tax yearCorrect
  2. BThe assessment is treated as invalid and must be dropped
  3. CThe Assessing Officer must pass an order modifying an earlier completed assessment, using the rates of the tax year of the order
  4. DThe modified return is ignored until the assessment is completed, and rates of the current tax year apply

Explanation

Section 314(2)(b) requires the Assessing Officer, where proceedings are pending on the date of the modified return, to assess or reassess total income as per the order and the modified return. Section 314(3) keeps the rates applicable to the tax year concerned. The modifying-order option applies only to completed assessments, so it is wrong.

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