The Bengaluru Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Income Tax Department cannot create a fresh tax demand through a computation sheet or notice of demand when the assessment order itself accepts the returned income without making any additions or disallowances. 

The bench of  Keshav Dubey (Judicial Member) and Balakrishnan S. (Accountant Member) directed the Assessing Officer (AO) to delete the tax demand of ₹24.90 lakh raised against the assessee, holding that such a demand was legally unsustainable. 

The appeal arose from the assessment of an individual taxpayer for Assessment Year (AY) 2018-19. The assessee had initially filed her income tax return on August 17, 2018, and subsequently filed a revised return on March 29, 2019, declaring a total income of ₹145.29 crore. The revised return included income chargeable at special rates, such as long-term capital gains, short-term capital gains and dividend income taxable under Section 115BBDA. The tax liability was computed accordingly, and taxes were duly discharged. 

Buy Now: 80+ Income Tax Judgments | E-Magazine July 2026

The revised return was processed under Section 143(1), and while the Centralised Processing Centre (CPC) accepted the returned income, it raised a minor demand of ₹43,880 owing to differences in the computation of interest under Sections 234B and 234C. The assessee paid the demand in June 2019. 

Subsequently, the case was selected for scrutiny under the e-assessment scheme on the issue of deductions claimed under Chapter VI-A. After considering the taxpayer’s submissions, the Assessing Officer completed the scrutiny assessment under Section 143(3) read with Sections 143(3A) and 143(3B) on January 1, 2021, accepting the income returned by the assessee without making any additions or modifications. 

Although the assessment order accepted the returned income in its entirety, the accompanying computation sheet and notice of demand under Section 156 unexpectedly reflected a fresh tax demand of ₹24.90 lakh.

The additional demand consisted of ₹14,806 towards differences in tax, surcharge and cess on special income and ₹24.75 lakh arising primarily from enhanced interest under Sections 234A and 234B.

According to the assessee, neither the assessment order nor its reasoning explained the basis for this additional liability. The taxpayer argued that the computation sheet introduced fresh tax and interest demands without any corresponding findings in the assessment order itself. 

The assessee challenged the demand before the Commissioner of Income Tax (Appeals) through the National Faceless Appeal Centre (NFAC). However, the CIT(A) dismissed the appeal without examining the merits after recording that the assessee had failed to respond to multiple hearing notices. 

The assessee thereafter approached the ITAT.

Before the Tribunal, the assessee contended that the additional tax computation represented an error apparent on record. It was argued that the assessment order accepted the returned income entirely and therefore did not justify any additional tax demand. The extra tax, surcharge and cess of ₹14,806 had no explanation in the assessment order. Interest under Section 234A was wrongly levied despite the original return having been filed within the prescribed due date. Additional interest under Section 234B also lacked legal justification since the same had already been correctly computed in the earlier intimation issued under Section 143(1). 

The Tribunal carefully examined the assessment records and noted that both the CPC while processing the return under Section 143(1) and the Assessing Officer during scrutiny had accepted the income declared by the assessee.

The Bench observed that despite this, the Assessing Officer mechanically raised a demand of ₹24.90 lakh through the computation sheet and notice of demand, even though the assessment order itself contained no additions, disallowances or findings giving rise to any further tax liability. 

The Tribunal emphasized that a computation sheet is merely a consequential working document and cannot independently create tax liability. It cannot introduce fresh additions, disallowances or enhanced tax where the substantive assessment order does not contain any such findings.

According to the Tribunal, the assessment order remains the foundational document determining the taxpayer’s liability, while the computation sheet and demand notice must strictly follow and implement the conclusions recorded in that order. 

Interpreting Section 156 of the Income Tax Act, the ITAT held that a notice of demand is only a machinery provision meant to recover sums that become payable “in consequence of” an assessment order.

The Bench observed that the statutory expression “in consequence of any order passed under this Act” clearly means that the demand notice cannot independently create a tax liability or introduce findings that are absent from the assessment order.

Where an assessment order accepts the returned income without making any additions or adjustments, any subsequent demand raised solely through the computation sheet lacks legal foundation and is therefore unsustainable. 

The Tribunal also made an important observation regarding the levy of statutory interest under Sections 234A, 234B and 234C.

It held that interest cannot be demanded through a computation sheet or notice of demand unless the assessment order itself specifically directs its levy. Mere general observations such as “charge interest as per rules” would not be sufficient to impose interest liability where the assessment order otherwise remains silent. 

Holding that the impugned demand had no support from the assessment order, the ITAT ruled that the computation sheet and notice of demand were contrary to law.

The Tribunal directed the Assessing Officer to delete the entire demand raised through the computation sheet and notice issued under Section 156, and allowed the assessee’s appeal.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Import Duty Payable on Actual Reduced Price Despite Higher Price at Time of Import: CESTAT