First return of income of newly incorporated company or firm for period from date of incorporation to 31st March of calendar year situation in which there is no income or loss and there is no source of income- mandatory provision to file ITR for each year by a company or firm.

[DEV KUMAR KOTHARI]

First return of income of newly incorporated company or firm  for period from date of incorporation to 31st March of calendar year situation in which there is no income or loss and there is no source of income- mandatory provision to file ITR for each year by a company or firm.

Relevant provisions considered:

From Section 2

2. In this Act, unless the context otherwise requires,-

     (34) "previous year" means the previous year as defined in section 3 ;

¹["Previous year" defined.

3. For the purposes of this Act, "previous year" means the financial year immediately preceding the assessment year:

Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.]

 

CHAPTER XIV  PROCEDURE FOR ASSESSMENT

Return of income.

139. ¹[(1) Every person,-

(a) being a company ²[or a firm]; or

b) being a person other than a company ³[or a firm], if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,

shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :

Provided also that every company ⁷[or a firm] shall furnish on or before the due date the return in respect of its income or loss in every previous year :

Newly formed company or firm who have not set up business before 31st March:

A newly formed company or firm that has  not set up any  business  or any source of income at all before 31st March of the first year / year of incorporation or formation  shall not be required to file ROI because:

                   a. there is no previous year during the period ended on 31st March of the year of incorporation / formation.

                  b. there was no transactions  resulting into any income or loss for the period from date of incorporation / formation till end of the financial year as on 31st March of the year of incorporation or formation.

Filing of Return falls within  CHAPTER XIV  - PROCEDURE FOR ASSESSMENT.

When there is neither income nor loss, there cannot be / need not be  assessment of income or loss.

Furthermore, in online filing in case of a company, where there is no account and audit for the FY ended on 31st March, filing of  a ROI online is not accepted.

Therefore, in such circumstances filing of ROI is not mandatory and is also not possible as per system available on line on portal of income tax department.

An impossible action cannot be enforced.

In case Return is not acceptable without any account and / or audit   and  ROI cannot be filed online then it is impossible to file ROI.

Usually in case of newly incorporated company who has not started business till 31st March of the first year, the company adopts for first financial year from date of incorporation to a day which may fall after 31st March. Under companies Act accounting period can be other than a Financial year( 1st April to 31st March) and it can be for a period more than 12 months. Therefore, they may not be any accounting period ending on end of FY (31st March).

In such circumstances, it is advisable to send a communication to the Learned  Jurisdictional AO to inform the facts about date of incorporation of company, date of commencement of business and fact that during the first  FY ended on 31 st March after incorporation a business was not set up,  there was no income , there was no loss and therefore, there is no previous year for the first year of incorporation / formation  for any income or loss till 31st March.

Hence  ROI is not required to be filed and cannot be filed as per format available on line.

It can also be stated therein that accounts and  audit of accounts for Income tax purpose  will be from date of incorporation to end of the  next Financial year.

For example, suppose a company is incorporated on 20th March 2023 and has not set up any business till 31st March 2023  and has no  source of income  till that date then company can decide for previous year beginning from 20.03.2023 to say 31.03.2024 and then can file its firt ROI for assessment year 2024-25.

Other practical approach:

It is advisable to make some efforts and do some business so that some income is earned( or loss is suffered)  before end of FY.  Accounts is made up to  31st March , got audited and  ROI is filed  for the  first  AY  so that there is no question of not filing ITR  which seems mandatory for any company or firm.

In absence of a ROI filed for AY 2023-24, a question may arise as to violation of provisions of S.139 about filing of Return of income to meet the mandate prescribed vide the proviso in terms of

  “Provided also that every company [or a firm] shall furnish on or before the due date the return in respect of its income or loss in every previous year”.

Learned readers are requested to share their views and experience.