Notice of Demand

Introduction

The Assessing Officer issues the demand notice to recover any tax, interest, penalty, fine or any other sum from the assessee as a result of an order passed by him under this Act. Generally, the demand raised in the notice must be paid within 30 days. However, if the demand relates to the deferred payment of tax on the perquisite value of ESOPs, it shall be payable within 14 days.

1. About

1.1 Why is a notice of demand issued?

When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Income-tax Act, the Assessing Officer shall serve upon the assessee a notice of demand specifying the sum so payable. It is only when notice of demand is served on the assessee that the tax or any other sum of money so covered by the notice becomes due to the Government.

Where any sum is found payable by the assessee at the time of processing of Income-tax return, TDS Statement, or TCS Statement, intimation issued to the assessee, deductor or collector in this regard shall be deemed as notice of demand.

Where an issue about the insolvency of a company is pending, and disputes are resolved by NCLAT or by the Supreme Court, according to which demand raised by the Income Tax Department through the notice under Section 289 is modified, the Assessing Officer is required to give effect to such modification. For this purpose, Section 290 provides that if NCLT/NCLAT/Supreme Court reduces the demand, the consequential effect shall be given by the AO by revising the demand.

1.2 Time limit to issue a demand notice

Though no time limit has been laid down in the Act to issue a demand notice, it must be served within a reasonable time.

1.3 Time limit for payment of the demand

1.3-1. In general

When a notice of demand is issued, it must be paid within 30 days, unless notice specifically allows lesser days for payment of the amount due.

1.3-2. In the case of ESOPs

Where a demand notice is issued to an employee of an eligible start-up to pay the tax in respect of the perquisites arising from ESOPs, he shall be liable to pay the tax within 14 days from the earliest of the following:

(a) Expiry of 60 months from the end of the tax year in which ESOPs are allotted,

(b) Date the assessee ceases to be the employee of the organisation, or

(c) Date of sale of shares allotted under ESOP.

1.4 Form to issue a demand notice

Rule 179 prescribes that the notice of demand for the tax liability payable on assessment shall be issued in Form No. 103, and the demand notice for payment of advance tax liability shall be issued in Form No. 151.

1.5 Is a demand notice mandatory for recovery?

The service of a demand notice constitutes the grounds for initiating recovery proceedings against the assessee, and unless the demand notice is served, neither proceedings can be instituted against a person for recovery of the amount nor the person concerned can be treated as a defaulter.

1.6 Consequences of non-compliance

If the assessee fails to make payment within the time limit prescribed in the notice of demand, he shall be treated as an assessee in default. Consequently, interest and penalty under Section 411 and Section 412, respectively, shall be levied.

1.7 Faceless Proceedings

Section 532 empowers the Central government to make a scheme for any purpose of the Act so as to impart greater efficiency, transparency and accountability by:

(a) Eliminating the interface with the assessee or any other person to the extent technologically feasible.

(b) Optimising utilisation of the resources through economies of scale and functional specialisation.

This provision also provides that where a scheme has been notified under the Income-tax Act 1961, the Central Government may amend or modify the said scheme. This indicates that the schemes notified under the ITA 1961 will continue to apply, which is also in line with the repeal and saving provision of Section 536(2)(j) that provides that any scheme issued under any provision of the repealed Income-tax Act shall, so far as it is not inconsistent with the corresponding provisions of this Act, be deemed to have been issued under the corresponding provision of this Act and shall continue in force accordingly.

Under the ITA 1961, the CBDT has not notified any scheme for issuing a notice of demand in a faceless manner.

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.