[Section 284]: Service of Notice in Case of Discontinued Business

Section 284 of the Income Tax Act, 1961, governs how notices, orders, or summons must be served when a business is discontinued. This ensures tax authorities can still pursue pending assessments, recovery, or penalties even after a business shuts down.

1. Who Can Be Served the Notice?

Notices must be issued to:

• The person who was running the business at the time of discontinuation(e.g., proprietor, partner, director).
• Legal representatives(if the business owner is deceased).
• Any successor entity(if the business was sold/transferred).

Example:

• If a sole proprietorship discontinues, notices must be sent to the ex-owner.
• If a partnership firm dissolves, notices go to all ex-partners.

2. Modes of Service

The notice can be served via:

✅ Registered Post – Sent to the last known business address.

✅ Hand Delivery – Given to the ex-owner or authorized representative.

✅ Electronic Means (if the taxpayer has consented to e-communication).

Key Rule:

• If the business was registered as a company/LLP, notice must be served to the last known directors/partners.

3. Time Limit for Service

• Notices can be issued within 6 yearsfrom the end of the relevant assessment year (unless extended for tax evasion cases).
• Example: For AY 2023-24, notices can be sent until March 31, 2030.

4. Consequences of Invalid Service

• If a notice is not properly served, any subsequent:
  • Assessment order
  • Penalty imposition
  • Recovery proceeding
    can be challenged in court(CIT vs. Ramendra Nath Ghosh).

5. Judicial Precedents

• ITO vs. Laxmi Narain– Notice sent to an old address (but last known) is valid, even if undelivered.
• CIT vs. Bharat Nidhi Ltd.– If a company is dissolved, notice must go to the liquidator.

6. Key Takeaways

✔ Update IT Dept. if you discontinue a business (file Form ITR-4/6).

✔ Check old business addresses – Notices may still arrive there.

✔ Legal heirs must respond – If the owner is deceased, heirs are liable for pending taxes.

7. Example of Section 284

Scenario:
A partnership firm, XYZ Traders, discontinues its business operations on March 31, 2025. The Income Tax Department later identifies unreported income for AY 2024-25 and intends to issue a notice for reassessment under Section 148.

How Section 284 Applies

1. Recipient of Notice:

• • The notice must be served to all ex-partnersof XYZ Traders (since the firm is dissolved).
  • If the firm was a company, notices would go to the last known directors.

2. Mode of Service:

• • Registered Post: Sent to the firm’s last registered address (even if undelivered, it’s deemed valid if the address was correct) .
  • Electronic Notice: Uploaded to the e-filing portalif the partners had linked their PANs to the firm .

3. Invalid Service Example:

• • If the notice is sent only to one partner(ignoring others), the reassessment order could be quashed in court