Section 290 Income Tax Act 2025: When Must a Tax Demand Notice Be Revised?

What does Section 290 provide?

Section 290 addresses the situation where a notice of demand has already been issued under Section 289, but an order made by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (IBC) reduces the relevant tax, interest, penalty, fine or other amount. The Assessing Officer must serve a modified notice specifying the sum, if any, that remains payable.

The provision connects income-tax demand administration with binding orders made in insolvency proceedings. It does not, by itself, extinguish every tax demand merely because insolvency proceedings have commenced.

Section 290(1): When is a modified demand notice mandatory?

Two statutory conditions must be met:

1. A notice of demand under Section 289 has already been issued for tax, interest, penalty, fine or another sum.
2. That sum is reduced as a result of an order of the Adjudicating Authority as defined in Section 5(1) of the IBC.

When both conditions exist, the Assessing Officer shall serve a modified demand notice stating the amount payable, if any. The modified notice is treated as a notice under Section 289, and the applicable provisions of the Income-tax Act operate accordingly.

Section 290(2): What if NCLAT or the Supreme Court changes the order?

If the Adjudicating Authority's order referred to in Section 290(1)(b) is subsequently modified by the National Company Law Appellate Tribunal (NCLAT) or the Supreme Court, the modified demand notice must be revised to reflect that change.

The final payable amount depends on the operative terms of the relevant order. Section 290 does not independently prescribe a fixed numerical reduction or a separate time limit for issuing the revised notice.

Relevant statutory definitions and legal terms

Illustration: Reduction of an existing tax demand

Suppose a company receives a Section 289 demand notice for Rs. 25 lakh. In its insolvency proceedings, the competent Adjudicating Authority makes an order whose operative effect reduces the amount payable under that demand to Rs. 8 lakh.

Subject to the actual terms and legal effect of the order, the Assessing Officer must issue a modified notice showing Rs. 8 lakh. If the NCLAT later modifies the underlying order so that Rs. 10 lakh is payable, the notice must be revised accordingly.

This is an illustration only. Whether a particular resolution plan or judicial order reduces an income-tax demand depends on its terms and the governing insolvency law.

Practical steps for taxpayers and insolvency professionals

1. Identify the original demand notice issued under Section 289 and its outstanding amount.
2. Obtain the operative NCLT order and any approved resolution plan or other relevant documents.
3. Determine whether the order actually reduces the specific demand, including its component amounts.
4. Provide the relevant order and demand details to the jurisdictional Assessing Officer and request implementation of Section 290.
5. Check the modified notice against the operative order and reconcile the demand shown in tax records.
6. Track any subsequent NCLAT or Supreme Court modification and request a corresponding revision when required.

A taxpayer should not assume that a demand has been modified in the income-tax system merely because an insolvency order has been pronounced.

Relationship with the Income-tax Act, 1961

Section 290 of the Income-tax Act, 2025 broadly corresponds to Section 156A of the Income-tax Act, 1961, which addressed modification and revision of demand notices in specified insolvency cases. It should not be confused with Section 290 of the 1961 Act, which dealt with indemnity.

Frequently asked questions

Does Section 290 apply to every tax demand?

No. It applies where an earlier Section 289 demand is reduced by an order of the Adjudicating Authority referred to in Section 290(1)(b).

Is a modified notice optional for the Assessing Officer?

No. Once the statutory conditions are satisfied, Section 290(1) uses mandatory language requiring the Assessing Officer to serve a modified demand notice.

What happens if the NCLAT changes the NCLT order?

The modified demand notice must be revised in accordance with Section 290(2), subject to the effect of the appellate order.

Can the Supreme Court's modification affect the demand?

Yes. Section 290(2) expressly covers modification of the underlying order by the Supreme Court.

Does Section 290 automatically waive all tax liabilities in insolvency?

No. The extent of reduction depends on the operative insolvency order and applicable law. Section 290 provides the mechanism to reflect a qualifying reduction in the demand notice.

What is the corresponding provision under the 1961 Act?

Section 156A of the Income-tax Act, 1961.

Official legal sources

Read Section 290 together with Section 289 of the Income-tax Act, 2025 and Sections 5(1) and other applicable provisions of the Insolvency and Bankruptcy Code, 2016.