REGARDING INTEREST ACCRUED ON OUTSTANDING DEMAND

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Suresh S. Tejwani (Querist)
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14 October 2025 Interest on outstanding demand effected in accordance with rectified order u/s 154 then whether the interest accrued on demand shall be counted from original assessment order or rectified order?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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14 October 2025 Interest on an outstanding tax demand, when changed due to a rectified order under section 154, is generally calculated from the date of the original assessment order and not from the date of the rectified order. This is because the notice of demand issued alongside the assessment order forms an integral part of the assessment, and if rectification increases the demand, interest accrual starts from the date on which the original assessment order's demand fell due, unless the rectified order creates a new demand for the first time.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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14 October 2025 The Patna ITAT and Supreme Court have affirmed that the notice of demand is an essential part of the assessment order, so rectification relates back unless it introduces a demand for the first time.

If the original assessment order specified "Nil" demand due to an error, and the rectified order under section 154 later specifies a tax payable, then interest under section 220(2) accrues only from the date the rectified order was served — because payment was never demanded in the first place. If, instead, a demand was correctly raised in the initial order, and the rectification simply modifies (increases/decreases) the sum, interest runs from the due date of the original demand.

Judicial precedents underscore that rectified demand normally relates back to the date of the original order unless the demand itself was created for the first time by the rectification.

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