Section 176 of ITA, 1961 : Section 176: Discontinued Business

Explanation using Example

Imagine a scenario where Mr. A runs a garment manufacturing business. On July 15, 2023, Mr. A decides to discontinue his business due to declining profits. According to Section 176(1) of the Income-tax Act, 1961, the income from April 1, 2023, to July 15, 2023, can be taxed in the assessment year 2023-2024 if the Assessing Officer chooses to do so.

Mr. A must also inform the Assessing Officer about the discontinuation of his business within 15 days, as required by Section 176(3). If Mr. A receives any payments after July 15, 2023, that were due for the business operations before the discontinuation, such sums will be taxable in the year of receipt, as per Section 176(3A).

Furthermore, if the tax department needs to assess Mr. A's income due to the discontinuation, they can issue a notice under Section 176(5) with the same requirements as a notice under Section 142(1)(i).