Solution 1:

Start notification as:

private void startNotification(){
    String ns = Context.NOTIFICATION_SERVICE;
    NotificationManager notificationManager = 
            (NotificationManager) getSystemService(ns);

    Notification notification = new Notification(R.drawable.ic_launcher, null, 
            System.currentTimeMillis());

    RemoteViews notificationView = new RemoteViews(getPackageName(),
            R.layout.mynotification);

    //the intent that is started when the notification is clicked (works)
    Intent notificationIntent = new Intent(this, FlashLight.class);
    PendingIntent pendingNotificationIntent = PendingIntent.getActivity(this, 0, 
            notificationIntent, 0);

    notification.contentView = notificationView;
    notification.contentIntent = pendingNotificationIntent;
    notification.flags |= Notification.FLAG_NO_CLEAR;

    //this is the intent that is supposed to be called when the 
    //button is clicked
    Intent switchIntent = new Intent(this, switchButtonListener.class);
    PendingIntent pendingSwitchIntent = PendingIntent.getBroadcast(this, 0, 
            switchIntent, 0);

    notificationView.setOnClickPendingIntent(R.id.closeOnFlash, 
            pendingSwitchIntent);

    notificationManager.notify(1, notification);
}


public static class switchButtonListener extends BroadcastReceiver {
    @Override
    public void onReceive(Context context, Intent intent) {
        Log.d("Here", "I am here");
        FlashOnOff flashLight;
        flashLight = new FlashOnOff();
        flashLight.flashLightOff();
        flashLight.releaseCamera();         
    }
}

xml used:

<?xml version="1.0" encoding="UTF-8"?>
<LinearLayout xmlns:android="http://schemas.android.com/apk/res/android"
android:layout_width="fill_parent"
android:layout_height="fill_parent"
android:gravity="center"
android:orientation="horizontal"
android:weightSum="100" >

<ImageView
    android:id="@+id/notifiation_image"
    android:layout_width="0dp"
    android:layout_height="wrap_content"
    android:layout_weight="30"
    android:contentDescription="@string/appImage"
    android:src="@drawable/ic_launcher" />

<TextView
    android:id="@+id/appName"
    android:layout_width="wrap_content"
    android:layout_height="wrap_content"
    android:layout_weight="50"
    android:gravity="center"
    android:text="@string/flashLightOn"
    android:textAppearance="?android:attr/textAppearanceMedium" />

<Button
    android:id="@+id/closeOnFlash"
    android:layout_width="wrap_content"
    android:layout_height="wrap_content"
    android:layout_weight="20"
    android:text="@string/close" />

In manifest under Application tag:

<receiver android:name="FlashLight$switchButtonListener" />