s.156A — Modification of demand after an insolvency order

Currently operative

Income-tax Act, 1961

s.156A

Income-tax Act, 2025

s.290

In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.

In short

Section 156A of the Income-tax Act, 1961, inserted by the Finance Act 2022 with effect from 1 April 2022, provides that where any tax, interest, penalty, fine or other sum in respect of which a notice of demand has been issued under section 156 is reduced as a result of an order of the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016, the Assessing Officer shall modify the demand payable in conformity with that order and shall thereafter serve a fresh notice of demand specifying the sum payable, if any, which is deemed to be a notice under section 156. Sub-section (2) requires the modified notice to be revised where the order is modified by the National Company Law Appellate Tribunal or the Supreme Court. The section is consequential machinery and not the source of the relief: the extinguishment is worked by section 31(1) of the Code as construed in Ghanashyam Mishra and Sons Pvt Ltd v. Edelweiss Asset Reconstruction Co Ltd (2021) 9 SCC 657, and the Supreme Court decided Vaibhav Goel v. DCIT on income tax demands without citing section 156A at all. The successor is section 290 of the Income-tax Act, 2025, which drops the express command to modify the demand and requires only that a modified notice be served.

What the provision does

Tells the Assessing Officer to bring his demand register into line with an order of the Adjudicating Authority under the insolvency code, and deems the fresh notice to be a notice under section 156 so that the recovery, interest and appeal machinery attaches to it. It does not extinguish anything, does not apply to a scheme of amalgamation or demerger sanctioned under the Companies Act, and carries no form, rule, timeline or appeal.

Threshold questions

Is there an order of the Adjudicating Authority under the insolvency code, as distinct from a scheme sanction
Was a notice of demand under section 156 issued for the sum in question
Has the sum been reduced by that order, or extinguished in full
Was the demand for a period before the insolvency commencement date, and was it lodged as a claim
If the order has been carried in appeal, was it modified by the Appellate Tribunal or the Supreme Court

The recurring disputes.

Reduced is not extinguished

The section is triggered where a sum is reduced. The clean slate line holds that claims outside the plan stand extinguished, which is a wiping out and not a reduction, so on a literal reading the section would not reach the commonest case. No decision has tested this.

No form, no timeline, no appeal

No rule in the Income-tax Rules, 1962 and no form has been prescribed for a modification under section 156A, there is no period within which the Assessing Officer must act and nothing appealable if he does not. CBDT Circular No. 23/2022 lists the section in its table of amendments and says nothing about it in the body. Every reported case is a writ petition.

Whether the Assessing Officer may refuse

No decided authority. The text is mandatory twice over and confers no power to verify the plan. The Bombay High Court described the section as imposing a duty in Reliance Projects (14 October 2025) and Alok Industries (20 March 2024), but was not asked to rule on a refusal. Continuing recovery after the law is pointed out can be contempt: JSW Steel (27 March 2025), a case about State commercial tax officers decided on section 31(1) of the Code.

Rainbow Papers and the 2026 amendment

State Tax Officer v. Rainbow Papers Ltd (2023) 9 SCC 545 survived review in Sanjay Kumar Agarwal (31 October 2023) but was confined to its facts by a coordinate bench in Paschimanchal Vidyut Vitran Nigam v. Raman Ispat (17 July 2023). Its reasoning rests on a statutory first charge under the Gujarat VAT Act, which the Income-tax Act has no counterpart to. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 inserted an Explanation in section 3(31) excluding a security interest created merely by operation of law, in force 26 May 2026. No transitional provision attaches to it and whether it reaches earlier plans is open.

Refunds

Unsettled. Ultra Tech Cement (Calcutta High Court, 18 September 2026) and Shaifali Steels (Gujarat High Court, 27 April 2026) required refunds wrongly adjusted to be returned. The Orissa High Court dismissed a writ petition in Sree Metaliks (6 February 2025), holding a refund for a pre-plan year properly adjusted, and the Supreme Court issued notice on 17 November 2025. A different bench of the same High Court had ordered the same refund released in March 2024.

Frequently asked.

Does section 156A apply to a scheme of amalgamation?

No. Section 156A is confined to an order of the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016, which is the National Company Law Tribunal exercising insolvency jurisdiction. It does not apply to an order of a High Court or of the Tribunal sanctioning a scheme of amalgamation or demerger under sections 230 to 232 of the Companies Act, 2013. Where a scheme reduces the liability for a year in which a demand is outstanding, the route is the modifying order under section 170A(2)(a) followed by consequential rectification.

Does the moratorium stop an assessment?

On Supreme Court authority it stops recovery but not quantification. In Sundaresh Bhatt, Liquidator of ABG Shipyard v. CBIC (26 August 2022) the Court held that once a moratorium is imposed the authority has only a limited jurisdiction to assess or determine the quantum, and no power to initiate recovery by sale or confiscation, after which it must lodge its claim within the Code timelines. There is a contrary NCLAT strand, so the proposition that section 14 bars assessment should not be advanced as settled.