This article examines the legal implications of notices for demand issued under Section 156 of the Income Tax Act, outlining the procedural requirements, payment obligations, and dispute resolution mechanisms applicable to taxpayers facing tax demands. Gain insights into the rights and remedies available to taxpayers in addressing tax liabilities and challenging demand notices issued by tax authorities.

In the Indian taxation system, compliance and timely response to tax notices are crucial to avoid penalties and interest charges. One such important notice is the Income Tax Demand Notice under Section 156 of the Income Tax Act. This notice is issued when the Assessing Officer (A.O.) determines that an assesses owes any tax, interest, penalty, fine, or other sums as a result of an assessment or reassessment. Understanding how to respond to this notice appropriately can save taxpayers from further legal complications and financial burdens Demand under Section 156.

What is Section 156?

Section 156 of the Income Tax Act empowers the Assessing Officer to issue a notice of demand to an assesses, requiring payment of any tax, interest, penalty, or any other sum due. The notice specifies the amount due and the due date, which is typically within 30 days from the date of service of the notice. The intent behind this provision is to inform the taxpayer of their liabilities clearly and ensure that they settle any dues promptly to avoid further complications.

Notice for Sum Payable

Notices issued under Section 143(1), 200A(1), and 206CB(1) are also deemed to be demand notices under Section 156. This means that when an assesses receives a notice under these sections indicating a sum payable, it serves as a notice of demand under Section 156, and the same response mechanisms apply.

How to Respond to an Outstanding Demand Notice?

Responding to an income tax demand notice involves logging into the income tax e-filing portal and navigating through a series of steps to either confirm or contest the demand. Here are the detailed steps to follow:

1. Login to the Income Tax e-Filing Portal: Use your user ID and password to access your account.
2. Select the Appropriate Option: Navigate to Pending Actions -> Response to Outstanding Tax Demand.
3. Submit Response: Click on ‘Submit Response’ to proceed.

Available Options for Response

There are four options available for a taxpayer to respond to an outstanding demand notice:

1. Demand is Correct: The taxpayer agrees with the demand.
2. Demand is Partially Correct: The taxpayer agrees with part of the demand.
3. Disagree with Demand: The taxpayer contests the entire demand.
4. Demand is Not Correct but Agrees to Adjustment: The taxpayer acknowledges an error but agrees to an adjustment rather than payment.

Scenario 1: Affirming the Accuracy of the Tax Liability and Accepting Demand is Correct

If you agree with the demand, you need to follow these steps:

1. Select ‘Demand is Correct’: Choose this option if you accept the demand.
2. Payment Process:

•    If the demand is not yet paid, select ‘Not paid yet’ and click ‘Pay Now’ to proceed to the e-Pay Tax page for payment. 
•    If the demand has already been paid, select ‘Yes, Already paid’ and provide the Challan Identification Number (CIN), BSR code, serial number, date of payment, and upload a copy of the challan.

3. Submission: After entering the payment details, submit your response. A success message and Transaction ID will be displayed for future reference.

Scenario 2: Disagree with the Demand

If you disagree with the demand, either fully or partially, follow these steps:

1. Select ‘Disagree with Demand’: Choose this option to contest the demand.
2. Add Reasons for Disagreement:

   Demand has already been paid: Provide details such as CIN, BSR code, date of payment, serial number of the challan, and amount.

• Demand has been reduced by rectification/revision: Provide details of the rectification order.
• Demand reduced by appellate order but not reflected: Provide appellate order details.
• An appeal has been filed: Mention the status of the appeal and any stay petitions filed.
• Rectification/revised return filed at CPC: Provide additional details of the revised return.
• Others: Any other reason not covered above, provide appropriate comments.

3. Submit Details: After entering the relevant details, click ‘Submit’. A success message and Transaction ID will be displayed for future reference.

Sample Notice under Section 156

A typical notice under Section 156 will include the following details:

• Name and address of the assesses
• PAN number
• Assessment year
• Details of the tax demand (amount and breakdown)
• Due date for payment
• Instructions on how to pay the demand
• Contact information for queries

Time Limit to Respond to the Demand

The notice will specify that the amount should be paid within 30 days from the date of service. However, the Assessing Officer, with prior approval from the Joint Commissioner of Income Tax (JCIT), can shorten this period if deemed necessary for the interests of the Income Tax Department. Demand under Section 156

In exceptional cases, an assesses can apply for an extension of the payment period or request to pay in installments. This application must be made before the expiry of the initial 30-day period.

Consequences of Delay / Penalty for Delay

Failure to pay the demanded amount within the stipulated time can result in additional penalties and interest:

• Interest under Section 220(2)

Interest at the rate of 1% per month or part of a month is charged on the unpaid amount after the expiry of the 30-day period. This interest accrues until the amount is paid in full, even if an extension or installment plan is approved.

• Penalty under Section 221

The Assessing Officer may impose a penalty up to the amount of the demand if the assesses fails to pay within the stipulated period. However, the assesses must be given a reasonable opportunity to be heard before such a penalty is levied. No penalty will be imposed if the assesses can prove that the default was due to reasonable and sufficient causes. Demand under Section 156

Conclusion

Receiving an income tax demand notice under Section 156 can be daunting, but understanding the process and knowing how to respond can significantly mitigate potential complications. By following the steps outlined above, taxpayers can ensure timely and appropriate responses, whether by paying the demanded amount or contesting it. This proactive approach helps in maintaining compliance and avoiding additional penalties and interest charges.

FAQs

When does an assessee receive notice u/s Section 156 from the tax authorities?

An assessee receives a notice under Section 156 when the Assessing Officer determines that a tax, interest, penalty, or any other sum is payable following an assessment or reassessment.

What types of dues are covered in a Section 156 notice?

The notice can cover various dues, including tax, interest, penalties, fines, or any other sums payable under the provisions of the Income Tax Act.

How do I pay my demand notice from income tax?

You can pay your demand notice through the income tax e-filing portal by selecting the 'Pay Now' option after acknowledging the demand. Payments can be made using net banking, debit cards, or other online payment methods

Can income tax demand be paid in installments?

Yes, an assesses can apply to the Assessing Officer for permission to pay the demand in installments. This request should be made before the expiry of the 30-day period specified in the notice.

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