Demand Notice

It is not like that but some times in an appeal court may direct to deposit sum percentage of  tax demanded.No  you have to pay whatever demandd

No, there is no mandatory requirement of payment of demand or any part thereof befor filing of appeal.

However, filing of appeal suo motto does not stay recovery proceedings. After filing appeal the assessee may file an application u/s 220(6) of Act before the AO for stay of demand. The AO may grant stay pending appeal with such conditions as he may deem fit including part payment of demand.

Once the assessee is in default in respect of payment of demand (irrespective of appeal or not), AO may impose penalty u/s 221 of the Act upto an amount equal to arrears of demand.

 Please clarify. What happens when appeal is rejected? Does he have to pay any other sum other than what is specified in the demand notice?

If the demand is not paid within due time (Appeal or no appeal), interest u/s 220(2) of the Act is payable from the date of issue of notice till date of payment. The payment of interest is mandatory irrespective of stay, appeal etc and chargeable on the final demand after giving effect to appeal order.

In addition as already mentioned, AO may impose penalty u/s 221 of the Act upto the actual demand amount after allowing assessee an opprotunity of being heard.

It is better to pay all demand before filing appeal against any order.  There is no provision of any % of demand to pay before filing appeal.   If not paid the demand the consequences are :

1. Liable to pay interest u/s 220(2) @ 1% p.m. from the date following the 30 days of service of notice to the completion of order of effect to appeal order.  It is better to avioid this interest by paying the demand. 

2.If the appeal order will be in favour of assessee, then the assesee will get back such money from income tax department with interest u/s 244A @ 0.5% p.m. from date of payment ot daye of issue of refund.

3If failed to pay demand the Assessing offficer may impose penalty u/s 221.

4. However you may apply for instalment payment to the Addl.Commissioner of Income tax who is the higher auhority of Assessing Officer and competent to grnat such instalment payment as you desire.

5.The AO may relax the period of payment on basis of fact and circumstances of case but this is only depends on mercy of AO. 

 The rate of interest is now 1.5% per month.

Dear Mr Pkpworld,

It is not always desirable to pay the demand as it strains liquidity. Many a times demands are raised on repetitive issues which are covered in favour of assessee but the additions are made to protect interest of revenue. In such cases, stay is invariably granted.

Further, it is not necessary to approach Addl CIT or range head for grant of instalments. The AO has inherent powers to do so and in fact instalment orders are passed by AO only though administratively it might be granted by Addl CIT or CIT.

Anil Sir, rate of interest u/s 220(2) is 1% pm.

 I reproduce this para from a recent Demand Notice:

If you do not pay the amount within the period specified above, you shall be liable to pay simple interest at one and one-half percent for every month or part of a month from the date commencing after end of the period aforesaid in accordance with section 220(2).

It might be due to use of old printed stationary without application of mind.

As per law, the rate of interest is 1% pm w.e.f. 8-9-2003. Earlier it was 1.25% pm wef  1-6-2001 prior to which it was 1.5% pm.

 Thanks Mr. Vineet. I stand corrected/