Income Tax 2025

Appearance

Modification and revision of notice in certain cases. ​

290(1) ​

The Assesssing Officer shall serve on the assessee a modified notice of demand specifying the sum payable, if any, and such notice shall be treated as a notice under section 289 and the provisions of this Act shall accordingly, apply in relation to such notice, where—

  • (a) any tax, interest, penalty, fine or any other sum in respect of which a notice of demand has been issued earlier under section 289; and
  • (b) such tax, interest, penalty, fine or any other sum is reduced as a result of an order of the Adjudicating Authority as defined in section 5(1) of the Insolvency and Bankruptcy Code, 2016.

290(2) ​

The modified notice of demand as referred to in sub- section (1) shall be revised where the order referred to in sub-section (1)(b) is modified by the National Company Law Appellate Tribunal or the Supreme Court.

Explanation

Section Summary: ​

Section 290 of the new income tax law deals with the modification and revision of tax demand notices in specific cases. It applies when the amount of tax, interest, penalty, or any other sum demanded earlier under Section 289 is reduced due to an order by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. The Assessing Officer is required to issue a modified notice of demand reflecting the reduced amount. If the order is further modified by the National Company Law Appellate Tribunal (NCLAT) or the Supreme Court, the notice must be revised again.

Key Changes: ​

  1. Introduction of Modified Notices: This section introduces the concept of issuing a modified notice of demand when the original demand is reduced due to an insolvency-related order.
  2. Revision of Notices: If the order reducing the demand is later modified by the NCLAT or the Supreme Court, the notice must be revised accordingly.
  3. Link to Insolvency Proceedings: This section explicitly ties tax demand modifications to orders under the Insolvency and Bankruptcy Code, 2016, which was not explicitly addressed in prior tax laws.

Practical Implications: ​

  1. For Taxpayers: Taxpayers undergoing insolvency proceedings may benefit from reduced tax demands, and the modified notice ensures clarity on the revised amount payable.
  2. For Assessing Officers: Officers must stay updated on insolvency-related orders and issue revised notices promptly to reflect changes in tax liabilities.
  3. For Businesses in Insolvency: Companies under insolvency proceedings can expect their tax liabilities to be adjusted based on orders from the Adjudicating Authority, NCLAT, or the Supreme Court.

Critical Concepts: ​

  1. Adjudicating Authority: Defined under Section 5(1) of the Insolvency and Bankruptcy Code, 2016, this authority handles insolvency proceedings and can issue orders affecting tax liabilities.
  2. Modified Notice of Demand: A revised notice issued by the Assessing Officer reflecting the updated tax liability after an insolvency-related order.
  3. Interaction with Other Laws: This section interacts with the Insolvency and Bankruptcy Code, 2016, and ensures tax demands align with insolvency proceedings.

Compliance Steps: ​

  1. For Assessing Officers:
    • Monitor insolvency-related orders affecting taxpayers.
    • Issue a modified notice of demand promptly after receiving an order reducing the tax liability.
    • Revise the notice again if the order is modified by the NCLAT or the Supreme Court.
  2. For Taxpayers:
    • Ensure that the modified notice reflects the correct reduced liability.
    • Keep track of any further revisions if the order is modified by higher authorities.

Examples: ​

  1. Scenario 1: A company undergoing insolvency has an original tax demand of ₹10 lakh under Section 289. The Adjudicating Authority reduces this to ₹6 lakh. The Assessing Officer issues a modified notice of demand for ₹6 lakh.
  2. Scenario 2: If the NCLAT later modifies the order and reduces the liability further to ₹4 lakh, the Assessing Officer must revise the notice to reflect this new amount.

This section ensures that tax demands are aligned with insolvency proceedings, providing clarity and fairness to taxpayers and businesses in financial distress.