Income Tax Query 14: Assessment of Partnership Firm after Dissolution

Scenario

M/s ABC & Co. is a Partnership Firm which was dissolved on 31.03.2024. Subsequent to the dissolution, the following events took place:

1. Date of Dissolution: 31.03.2024.
2. Surrender of PAN: An application for surrender of the Firm’s PAN was filed with the Assessing Officer on 31 July 2024 after filing of the ITR for AY 2024-25.
3. Reopening of Assessment: On 10.03.2025, notices/order were issued for reopening of assessment under Section 148A(d) of the Income Tax Act, 1961 for AY 2021-22.
4. Compliance with Reassessment Proceedings: The Firm filed its Income Tax Returns in response to notices under Section 148 and also furnished responses to notices issued under Sections 147/143(3), as applicable from the Firm PAN Registered Account on ITD Portal even after the date of dissolution.
5. Deactivation of PAN Login: The Firm’s PAN login on the Income Tax Department Portal has now been deactivated on account of the earlier application for surrender of PAN.

Query

In view of the dissolution of the Partnership Firm and subsequent surrender of its PAN:

1. After Dissolution of Firm & Deactivation of PAN / ITD Portal Registration / Login how to access the ITD Portal for filing ITR or response to Notices, Appeals etc?
2. Whether the assessment/reassessment proceedings can continue against the dissolved Firm?
3. What is the liability of erstwhile partners for the tax, penalty or other sums payable by the Firm?

Response

(1) Accessing the Income Tax Portal on behalf of a Dissolved Firm

When a Partnership Firm is dissolved, or a company is under liquidation or is dissolved, the erstwhile partner / liquidator and / or Director can register himself as a representative on behalf of the firm or company as the case may be.

The following procedure may be followed:

1. Login to the Income Tax e-Filing Portal using the PAN credentials of the erstwhile Partner / Director.
2. Navigate to Authorised Partners.
3. Select Register to Act on Behalf of Another Person.
4. Select the category Discontinued or Closed Business.
5. Enter the PAN of the dissolved Partnership Firm and the date of dissolution.
6. Furnish the required supporting documents – Copy of Deed of Dissolution & Intimation to Registrar of Firms of Dissolution and submit the request.

As per the Income Tax Department’s FAQs on Representative Assessee, a partner or member of a Firm or AOP at the time of discontinuation of business is eligible to register to act on behalf of such discontinued or closed business.

Upon approval of the request, the erstwhile partner can access the relevant services and carry out the necessary income tax compliances on behalf of the dissolved Firm through his own Income Tax Portal login.

The procedure is similar in concept to the registration of a legal heir for a deceased assessee, wherein the relevant tax affairs of the assessee are handled through the representative’s Income Tax Portal profile.

(2) Assessment / Reassessment Proceedings after Dissolution

Dissolution of a Partnership Firm does not bring an end to its income tax assessment proceedings or its liability under the Income Tax Act, 1961.

Section 189(1) of the Income tax Act, 1961 specifically provides that where a firm is dissolved or its business is discontinued, the Assessing Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place.

Accordingly, even after dissolution of the Partnership Firm, the Income Tax Department can initiate and complete assessment or reassessment proceedings in respect of the Firm for the relevant assessment years.

In the given case, the dissolution of the Firm on 31.03.2024 does not prevent the Assessing Officer from proceeding with the reassessment for AY 2021-22 and AY 2022-23.

(3) Liability of Partners

Section 189(3) of the Income tax Act, 1961 provides that every person who was a partner of the Firm at the time of its dissolution shall be jointly and severally liable for the amount of tax, penalty or other sum payable by the Firm.

Further Section 189(4) of the Income tax Act, 1961 provides that where dissolution or discontinuance takes place after commencement of assessment proceedings, such proceedings may be continued against the persons referred to in Section 189(3), from the stage at which the proceedings stood at the time of dissolution or discontinuance.

Reference:

1. Section 189(1) of the Income Tax Act, 1961:

Where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Assessing Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place, and all the provisions of this Act, including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act, shall apply, so far as may be, to such assessment.

2. Section 189(3) of the Income Tax Act, 1961:

Every person who was at the time of such discontinuance or dissolution a partner of the firm, and the legal representative of any such person who is deceased, shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum.

3. Section 189(4) of the Income Tax Act, 1961:

Where such discontinuance or dissolution takes place after any proceedings in respect of an assessment year have commenced, the proceedings may be continued against the person referred to in sub-section (3) from the stage at which the proceedings stood at the time of such discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply accordingly.

4. Income Tax Department – FAQs on Representative Assessee:

FAQ 7 and FAQ 8 deal with registration to act on behalf of another person, including cases of discontinued or closed businesses. (https://www.incometax.gov.in/iec/foportal/sites/default/files/2023-11/FAQs_Reprsentative%20Assessee_231123_Updated.pdf)