Section 290 of the Income-tax Act, 2025 — Modification and Revision of Demand Notice in Insolvency (IBC) Cases

In plain language

What Section 290 actually says

Section 290 of the Income-tax Act, 2025 gives the tax department a clear, legally-backed procedure to reduce or wipe out a tax demand when an insolvency authority orders it. In plain words: if a company owed the Income-tax Department money (tax, interest, penalty, fine or any other sum) and that liability is cut down as part of an insolvency resolution under the Insolvency and Bankruptcy Code (IBC), 2016, the Assessing Officer (AO) must issue a fresh, modified notice of demand showing the new, smaller amount payable — if anything is payable at all.

• Sub-section (1) — Modification: Where a demand notice was earlier issued under Section 289, and the amount is reduced by an order of the Adjudicating Authority (this means the National Company Law Tribunal, NCLT, as defined in Section 5(1) of the IBC, 2016), the AO shall serve a modified notice of demand specifying the sum payable, if any. This modified notice is treated as a notice under Section 289, so all normal recovery and collection provisions apply to it afresh.
• Sub-section (2) — Revision: If that NCLT order is later modified by the National Company Law Appellate Tribunal (NCLAT) or the Supreme Court, the modified demand notice must be revised again to match the higher appellate order.

Who does it apply to?

This provision is almost entirely relevant to corporate debtors going through the Corporate Insolvency Resolution Process (CIRP) under the IBC — that is, companies whose debts are being restructured, and the buyers/resolution applicants who take them over. It does not apply to ordinary individual taxpayers, salaried employees, or businesses that are not in insolvency. If you are a normal taxpayer disputing a demand, your route is appeal (CIT(A) / ITAT), not Section 290.

Why this section exists

Before a matching provision was introduced in the old law (Section 156A of the Income-tax Act, 1961), there was no mechanism in the tax law to formally scale down a demand after an insolvency plan approved a haircut. This created confusion — the resolution plan said one number, but the department's records still showed the old, larger demand. Section 290 fixes that by legally aligning the tax demand with the approved resolution outcome.

Key conditions and limits

• There must be an existing demand notice under Section 289 — Section 290 modifies an existing demand; it does not create a new one.
• The reduction must flow from an order of the Adjudicating Authority (NCLT) under the IBC — not from a routine tax appeal.
• The word "reduced" has been judicially read to include reduction to NIL (Supreme Court in Mohan Wahi v. CIT). So the modified notice can show zero payable.
• The AO's role is ministerial — the AO simply gives effect to the insolvency order; the AO cannot independently re-decide the merits of the demand.
• Revision is mandatory ("shall be revised") when NCLAT or the Supreme Court changes the underlying order — in either direction.

How it interacts with related sections

• Section 289 (Notice of demand): The parent provision. Section 290's modified notice steps into the shoes of a Section 289 notice, so limitation, recovery and interest provisions apply.
• Recovery provisions: Once the modified notice is served, only the reduced amount is recoverable — any excess earlier recovered may need adjustment/refund.
• IBC, 2016: The IBC's "clean slate" principle (approved resolution plans extinguish undecided claims — Ghanashyam Mishra v. Edelweiss ARC, Supreme Court) works hand-in-hand with Section 290.

Practical implications

• For a resolution applicant buying a stressed company, Section 290 gives certainty: the tax demand on the books will legally match the approved plan, so there is no hidden legacy liability.
• For the company/assessee, no separate appeal is needed to cut the demand once NCLT has ordered it — the AO must act.
• The demand is a moving figure until appeals are exhausted: it can go down (NCLT), then up or down again (NCLAT/Supreme Court), and each time a corrected notice must issue.