To protect the interest of revenue, during the pendency of any proceeding for the assessment or reassessment, the Assessing Officer is empowered to make a provisional attachment of any property of the assessee (even though there is no demand outstanding against the assessee). In order to invoke this provision, the Assessing Officer should be of the opinion that it is necessary to do so. The order of the provisional attachment will be made under Section 281-B. It is to be made only after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director,

The Taxation Laws (Amendment) Act, 1975, with effect from 01.10.1975 has inserted a section 281B with a view to empowering the Assessing Officer to make a provisional attachment of any property of the assessee during the pendency of any proceeding for assessment or reassessment of any income (even though there is no demand outstanding against the assessee), if he is of the opinion that it is necessary to do so to protect the interests of the revenue.It was stated that this new provision has been made in order to protect the interests of the revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee, may thwart the ultimate collection of that demand.

Section 281B of the Income Tax Act, 1961 provides that the Assessing Officer may provisionally attach any property of the assessee during the pendency of assessment or reassessment proceedings, for a period of six months with the prior approval of the income- tax authorities specified therein, if he is of the opinion that it is necessary to do so for the purpose of protecting the interests of the revenue.Such attachment of property is extendable to a maximum period of two years or sixty days after the date of assessment order, whichever is later.

Text of Section 281B

[1][PROVISIONAL ATTACHMENT TO PROTECT REVENUE IN CERTAIN CASES.

281B. (1) Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment [2][or for imposition of penalty under section 271AAD where the amount or aggregate of amounts of penalty likely to be imposed under the said section exceeds two crore rupees], the [3][Assessing] Officer is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, he may, with the previous approval of the [4][ [5][Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or] Commissioner, [5][Principal Director General or] Director General or [5][Principal Director or] Director], by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule.

Explanation.—[Omitted by the Finance Act, 2016, with effect from 01.06.2016]

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under sub-section (1) :

PROVIDED that the [6][[7][Principal Chief Commissioner or] Chief Commissioner, [8][Principal Commissioner or Commissioner, Principal Director General or Director General or [8][Principal Director or] Director] may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years [8][or sixty days after the date of order of assessment or reassessment, whichever is later].]

[9][(3) Where the assessee furnishes a guarantee from a scheduled bank for an amount not less than the fair market value of the property provisionally attached under sub-section (1), the Assessing Officer shall, by an order in writing, revoke such attachment:

PROVIDED that where the Assessing Officer is satisfied that a guarantee from a scheduled bank for an amount lower than the fair market value of the property is sufficient to protect the interests of the revenue, he may accept such guarantee and revoke the attachment.

(4) The Assessing Officer may, for the purposes of determining the value of the property provisionally attached under sub-section (1), make a reference to the Valuation Officer referred to in section 142A, who shall estimate the fair market value of the property in the manner provided under that section and submit a report of the estimate to the Assessing Officer within a period of thirty days from the date of receipt of such reference.

(5) An order revoking the provisional attachment under sub-section (3) shall be made—

(i)  within forty-five days from the date of receipt of the guarantee, where a reference to the Valuation Officer has been made under sub-section (4); or

(ii)  within fifteen days from the date of receipt of guarantee in any other case.

(6) Where a notice of demand specifying a sum payable is served upon the assessee and the assessee fails to pay that sum within the time specified in the notice of demand, the Assessing Officer may invoke the guarantee furnished under sub-section (3), wholly or in part, to recover the amount.

(7) The Assessing Officer shall, in the interests of the revenue, invoke the bank guarantee, if the assessee fails to renew the guarantee referred to in sub-section (3), or fails to furnish a new guarantee from a scheduled bank for an equal amount, fifteen days before the expiry of the guarantee referred to in sub-section (3).

(8) The amount realised by invoking the guarantee referred to in sub-section (3) shall be adjusted against the existing demand which is payable by the assessee and the balance amount, if any, shall be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the branch of the Reserve Bank of India or the State Bank of India or of its subsidiaries or any bank as may be appointed by the Reserve Bank of India as its agent under the provisions of sub-section (1) of section 45 of the Reserve Bank of India Act, 1934 (2 of 1934) at the place where the office of the Principal Commissioner or Commissioner is situate.

(9) Where the Assessing Officer is satisfied that the guarantee referred to in sub-section (3) is not required any more to protect the interests of the revenue, he shall release that guarantee forthwith.

Explanation. – For the purposes of this section, the expression “scheduled bank” shall mean a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934).]

KEY NOTE

1. Inserted by the Taxation Laws (Amendment) Act, 1975, with effect from 01.10.1975.

2. Inserted by the Finance Act, 2021, with effect from 01.04.2021.

3. Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, with effect from 01.04.1988.

4. Substituted for “Chief Commissioner or Commissioner” by the Finance Act, 1997, with retrospective effect from 01.10.1996.

5. Inserted by the Finance (No. 2) Act, 2014, with effect from 01.06.2016.

6. Substituted for “Chief Commissioner or Commissioner” by the Finance Act, 1997, with retrospective effect from 01.10.1996.

7. Inserted by the Finance (No. 2) Act, 2014, with retrospective effect from 01.06.2013.

8 Inserted, ibid., with effect from 01.10.2014.

9. Sub-section (3) to (9) inserted by the Finance Act, 2016, with effect from 01.06.2016.

Clause 108 of Finance Bill 2016

Clause 108 of the Bill seeks to amend section 281B of the Income-tax Act relating to provisional attachment to protect revenue in certain cases.

The aforesaid section provides that the Assessing Officer has the power to provisionally attach any property of the assessee during the pendency of assessment or reassessment proceedings, for a period of six months, with the prior approval of the income-tax authorities specified therein, if he is of the opinion that it is necessary to do so for the purpose of protecting the interests of the revenue.Such attachment of property is extendable by the said income-tax authorities to a maximum period of two years or sixty days after the date of assessment order, whichever is later.

Explanation to sub-section (1) of section 281 B provides that proceedings under sub-section (5) of section 132 shall be deemed to be proceedings for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment. Sub-section (5) of section 132 stands omitted from 1st June, 2002. Therefore, it is proposed to omit the said Explanation.

In order to help the Assessing Officer to determine the fair market value of the property, the Assessing Officer may, make a reference to the Valuation Officer, who may be required to submit the report of the estimate of the property to the Assessing Officer within a period of thirty days from the date of receipt of such reference.

In order to ensure the revocation of attachment of property in lieu of bank guarantee in a time bound manner, it is provide that an order revoking the attachment be made by the Assessing Officer within fifteen days of receipt of such guarantee, and in a case where a reference is made to the Valuation Officer, within forty-five days from the date of receipt of such guarantee.

It is further provided that where a notice of demand specifying a sum payable is served upon the assessee and the assessee fails to pay such sum within the time specified in the notice, the Assessing Officer may invoke the bank guarantee, wholly or partly, to recover the said amount.

In a case where the assessee fails to renew the bank guarantee or fails to furnish a new guarantee from a scheduled bank for an equal amount fifteen days before the expiry of such guarantee, the Assessing Officer may in the interests of the revenue, invoke the bank guarantee. The amount realised by invoking the bank guarantee shall be adjusted against the existing demand which is payable and the balance amount, if any, be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the branch of Reserve Bank of India or the State Bank of India or of its subsidiaries or any bank as may be appointed by the Reserve Bank of India as its agent under the provisions of sub-section (1) of section 45 of the Reserve Bank of India Act, 1934 at the place where the office of the Principal Commissioner or Commissioner is situated.

It is also provided that in a case where the Assessing Officer is satisfied that the bank guarantee is not required anymore to protect the interests of the revenue, he shall release that guarantee forthwith.

Section 281B of the Act allows the Assessing Officer to attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule. Legally “attachment” would mean imposing restriction upon some kind of property by the Court or some other competent, statutory authority. The order of “attachment” as such tells the owner of the property, the custodian of the property and the world at large not to deal with the property attached.

The important phrases used in the section are the following:

(i) during the pendency of any proceeding for the assessment or reassessment of any income (or any income escaping assessment)

(ii) Assessing Officer is of the opinion that in the interest of revenue, it is necessary

(iii) the prior approval of Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director and other officers of equivalent rank

(iv) order in writing

(v) any property belonging to the assessee

(vi) in the manner provided in Second Schedule

When power under section281B is to be resorted to

Provisions of section281B should be resorted to only in cases where there is a reasonable likelihood of the recovery becoming difficult due to inadequacy of assets. Where there are sufficient assets to cover the demand, the provisions of section281B should not be resorted to, except under exceptional circumstances warranting the same, and after strictly complying with the conditions incorporated in section281B.Thus, we can summarize that power under section281B shall be resorted to only when there are exceptional circumstances which warrant immediate action to protect the interests of the revenue.

Nature of order under section281B: Administrative

It is settled position that the Assessing Officer exercises quasi judicial functions and other authorities cannot control or affect his judgment in the matter of assessment. Therefore, in any case before him he has to apply his own mind to the facts of the case and cannot pass a mechanical order under the dictate of someone.

Only property of the assessee to be attached

Section 281B of the Act provides for the provisional attachment of the property “belonging to the assessee” for a period of six months from the date of such attachment, unless extended but excluding the period of stay of assessment proceedings, if any. The language of the above provision is plain and simple. It provides for the attachment of the property of the assessee only and of no one else. The golden rule of interpretation of statute is that the Statute has to be construed according to its plain, literal and grammatical meaning, unless its leads to absurdity. The plain language of the said provision shows that such an order can be passed only in respect of the property of the assessee and not of any other person.

Requirements for invoking section281B

There are mainly following requirements under section281B before passing an order of attachment:

[1] Assessing Officer should have the opinion ‘that for the purposes of protecting the interest of revenue it is necessary so to do’

For action under section 281B, the first requirement is that the Assessing Officer should have the opinion ‘that for the purposes of protecting the interest of revenue it is necessary so to do’. The conditions, as these appear in the Code of Civil Procedure, that ‘the Court must be satisfied that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him or is about to dispose of the whole or any part of the property or is about to remove the same from the local limits of the Court’s jurisdiction’ are not specifically stated in section281B but that the underlying object that the ends of the justice should not be defeated is implicit in section281B

The word ‘opinion’ is not defined under the Act and, therefore, the meaning assigned to it in common parlance may be seen. Chamber’s Twentieth Century Dictionary defines it as – what seems to one to be probably true, judgment, estimation, etc. According to Concise Oxford English Dictionary, it means – Judgment or belief based on grounds short of proof.

‘Opinion’ should, therefore, be based on reliable material and not on mere gossip

The powers vested in the Assessing Officer under section 281B are extra-ordinary powers and should be exercised with extreme care and caution. It is, with this view, that the Legislature has provided several safeguards – one of which is formation of opinion on the basis of some information and material on record which should be sufficient to justify the opinion formed by the Assessing Officer. It is trite law that statutory power should be exercised bona fide, reasonably and without negligence and for the purpose for which these are conferred. The ‘opinion’ should, therefore, be based on reliable material and not on mere gossip.

The opinion must be formed by the officer himself on such reasons and grounds as seem good to him – [VLS Finance Ltd. v. CIT (2000) 246 ITR 707 : 112 Taxman 295 (Del.)].

It was held ‘that there must be some material on record to show that the assessing authority had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interest of revenue’. – [Society for Integrated Development in Urban & Rural Areas v. CIT (2001) 119 Taxman 289 (AP)]

Existence of an opinion that the interest of the revenue may be thwarted

Section 281B of the Act gives very wide powers to the Assessing Officer enabling him to provisionally attach any property belonging to the assessee with the previous approval of the Commissioner of Income-tax, if the Assessing Officer is of the opinion that for the purpose of protecting the interest of Revenue it is necessary to do so. In the case of VLS Finance Ltd. v. CIT (2000) 112 Taxman 295 (Delhi), it was observed as follows :

“For the operation of section 281B; the existence of opinion of the Assessing Officer that for the purpose of protecting the interest of revenue, it is necessary to provisionally attach any property belonging to the assessee in the manner provided in the Second Schedule.”

‘Opinion’ means something more than mere gossip or hearsay, it means judgment or belief or conviction resulting from what one thinks on a question –[DolgobindaParicha v. NamiCharanMisra AIR 1959 SC 914].

Instances where the opinion is said to exist so as to invoke section 281B

A large number of incriminating documents and evidences regarding bogus credit entries are gathered and huge demand is likely to be raised under sections 153A and 153C of the Act. The Dy. Director has expressed the apprehension that just to defer the payments of tax, the assessee may transfer the properties and therefore, has requested the AO to attach the mentioned immovable properties to safeguard the interest of the Revenue and such an action has been held to be valid by the Court. – [Nimitya Properties Ltd. v. CIT (2010) 194 Taxman 135 (Delhi)].

[2] Approval of Senior Authority

The second requirement is that the Assessing Officer cannot provisionally attach property without obtaining the approval of Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director,. Although section281B does not say so in clear terms that the Assessing Officer should record reasons for initiating action but, since, he has to obtain approval of higher authority, there must be some report on the basis of which the authority giving his approval will decide, not mechanically but after due application of his mind. The action is also open to challenge under article 226. The evidence, material and the opinion formed therefrom must be available to the Court for scrutiny.

It is one of the essential requirements of section281B that, before making provisional attachment, the Assessing Officer must obtain the approval of higher authority and order granting such approval must be in writing. If the facts of the case show that approval had been taken by an authority other than the Assessing Officer and after obtaining approval, the Assessing Officer was directed to make provisional attachment, the provisional attachment is liable to be set aside – [Ritesh Oil Industries v. CTO (1996) 101 STC 215 (AP). There can also be no ipso facto sanction, i.e., sanction of the higher authority after provisional attachment.

[3] Pendency of proceedings

The third requirement is that provisional attachment can be made only during the pendency of proceedings which are: (i) pendency of any proceeding for the assessment of any income or (ii) pendency of proceedings for the reassessment of any income that has escaped assessment. These are extraordinary powers required to be exercised only under the above two situations.

Order under section 281B is operative for limited period

The order of provisional attachment under section281B is operative for a limited period of time, i.e., for six months in the first instance and by further extension for two years. There can be no provisional attachment as contemplated by the first proviso to section281B(2) if it has not been extended by the higher authority, the period of attachment will expire with efflux of time. In such cases, there can be no valid order of attachment after the expiry of prescribed period of six months.

Periods of Limitation

Such provisional attachment will ordinarily cease to have effect after the expiry of six months. In appropriate cases, however, the Pr. Commissioner may, for reasons to be recorded by him in writing, extend this period from time to time. However, the total period of such extension shall not, exceed two years. In a case where an application for settlement is made under Section 245C, the period between the date on which such application is made and the date on which the order is made under Section 245D(1) shall be excluded from the period specified above.

Section Nature of compliance Limitation of time
281B(2) Provisional attachment of assets of assessee Attachment shall cease to have effect after expiry of six months (extendable up to 2 years or 60 days after date of order of assessment or reassessment, whichever is later) from date of order
281B(4) Submitting valuation report by the Valuation Officer estimating fair market value of property provisionally attached Within 30 days from the date of receipt of such reference [Applicable from 01.06.2016]
281B(5) Revoking provisional attachment order under section 281B(3) Within 45 days of receipt of guarantee [where reference is made to Valuation Officer under section 281B(4)] or within 15 days of receipt of guarantee [in any other case] [Applicable from 01.06.2016]
281B(7) Invoking bank guarantee if assessee fails to renew guarantee referred to in section 281B(3) Within 15 days before the expiry of guarantee referred to in section 281B(3) [Applicable from 01.06.2016]

Properties which cannot be attached

As per Rule 10(1) of the second Schedule of the Income tax Act, all such property as is mentioned by the Code of Civil Procedure, 1908, (section-60 exemption from attachment and sale in execution of a decree of a Civil Court) shall be exempt from attachment and sale under the said schedule.

Text of Rule 10(1) of Second Schedule, Income-tax Act, 1961

PROPERTY EXEMPT FROM ATTACHMENT.

(1) All such property as is by the Code of Civil Procedure, 1908 (5 of 1908), exempted from attachment and sale in execution of a decree of a civil court shall be exempt from attachment and sale under this Schedule.

(2) The Tax Recovery Officer’s decision as to what property is so entitled to exemption shall be conclusive.

Only remedy against the provisional attachment is to file a writ petition under Article 226 of the Constitution of India.

The power of attachment gets more draconian as there is no provision for appeal against the order of attachment, unlike other orders like assessment order, which can be challenged before the CIT(A) and ITAT. The only remedy for the taxpayer is resort to writ petition before the High Courts.

Specimen of order under section 281B of the Income Tax Act, 1961

Subject : Order Under Section 281B of the Income Tax Act, 1961

In exercise of the power conferred upon me under section 281 B of the Income Tax Act, 1961 the Farm Hose No………., New Delhi, held by M/S ………….. are hereby attached with the immediate effect. You are hereby required not to pat with or transfer or alienate deal with above mentioned property till further order.

CBDT’s Instruction No. 1884, dated 07.06.1991 — reference under section 226, 220, 281B — Provisional attachment of property under section 281B of the Income-tax Act, 1961.

Subject : Provisional attachment of property under section 281B of the Income-tax Act, 1961-regarding

Section 281B was inserted in the Income-tax Act, 1961 with effect from 01.10.1975 in order to protect the interest of revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee may thwart the ultimate collection of demand.

2. This section provides that where, during the pendency of any proceeding for assessment or reassessment of any income including the proceedings under section 132(5) of Income-tax Act, the Assessing Officer is of the opinion that for the purpose of protecting the interest of the revenue it is necessary so to do, he may, with the previous approval of the Chief Commissioner/Commissioner of Income-tax, by an order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule. The attachment is valid for 6 months from the date of order of attachment. This period of 6 months can be extended by the Chief Commissioner/Commissioner by a maximum period of 2 years.

3. The Board desire that the Assessing Officers should always bear in mind the provisions of the aforesaid section and resort to provisional attachment in all suitable cases.

4. These instructions may be brought to the notice of all officers in your region. [F. No. 396/21/90 – ITCC dated 07.06.1991 from CBDT]

Once assessment is complete, provisional attachment under section 281B cannot continue –

Recovery of tax – Over 21% of demand already collected – Assessments concluded – No justification to continue with provisional attachment under section 281B

Assessing Officer attached all assets and bank accounts of petitioner by passing provisional attachment order which continued notwithstanding completion of assessment for relevant assessment years.

Allowing the petition the Court held that once the assessment was complete there would be no justification for continuing with the order under section 281B. Over 21% of demand already collected. Assessment is concluded hence no justification to continue with provisional attachment. Referred Instruction F. No. 404/22/2004-ITCC, and Circular No. 179, dated 30.09.1975 (1976) 102 ITR 9 (St). [In favour of assessee](Related Assessment years : 2005-06 to 2016-17) –  [Dabur Invest Corp. v. ACIT (2019) 416 ITR 282 : 310 CTR 591 : 266 Taxman 207 181 DTR 328 : 109 taxmann.com 339(Del.)]

Reasoned order – When earlier assessment years Tribunal has suspended the recoveries arising out of demands made on similar issues – Order of provisional attachment under section 281B is set aside

Allowing the petition the Court held that, power under section 281B are drastic powers permitting the Assessing Officer to attach any property of an assessee even before completion of assessment or reassessment. These powers are thus in the nature of attachment before judgement. They have provisionally applicability and terms and limited life. Such powers must be exercised in appropriate cases for proper reasons. Such powers cannot be exercised merely by repeating the phraseology used in the section and recording the opinion of the officer passing such order that he was satisfied for the purpose of protecting the interest of revenue, it was necessary so to do. On facts when earlier assessment years Tribunal has suspended the recoveries arising out of demands made on similar issues. Order of provisional attachment is set aside. (Related Assessment year : 2016-17) – [Vodafone Idea Ltd v. DCIT (2019) 311 CTR 210 : 182 DTR 177 (Bom.)]

Provisional attachment under section 281B-Pendency of appeal – Stay -Directed the revenue authorities not to enforce the order until a decision is taken by the appellate Authority on stay application filed by the assessee

Assessee-company was engaged in business of development of immovable properties. Before passing of assessment order on 28.12.2018, an order dated 27.12.2018 was passed under section 281B attaching properties belonging to assessee in order to protect interest of revenue during assessment proceedings. Assessee filed petition contending that order under section 281B was a non-speaking order and thus void ab initio and also additions made in the assessment order. Court held that factual aspects of the assessment cannot be examined in the writ petition.  The order passed by the Assessing Officer under Section 281B of the Act has been ceased to have effect after the expiry of six months from the date of the order of the assessment. However provisional attachment was concerned, authorities were to be directed that order passed under section 281B would not be enforced until a decision was taken by appellate authority on stay application filed by assessee. Accordingly the  matter remanded. (Related Assessment Year : 2016-17) – [Duo Meadows (P) Ltd. v. ITO (2019) 265 Taxman 221 (Karn.)]

Provisional attachment under section 281B – Search -Attachment of bank accounts and two immoveable properties – Tax, interest penalties were unlikely to exceed attached two immoveable properties – Directed to lift provisional attachment on bank accounts

Pursuant to search action in order to protect interest of revenue, assessee’s bank accounts and two immovable properties had been put under provisional attachment. On writ the Assessee submitted that he being 65 years of age, such action of Department which had virtually prevented him from accessing his own funds in bank accounts would cause great difficulty in meeting his day-to-day expenses, to meet with special requirements for medical attention for himself and his aged mother.

Further, attachment on movable properties being enough to cover all possible tax, interest and penalty which may arise even if all defences of assessee were negative, attachment of back accounts be lifted. Court held that in view of fact that assessee’s tax, interest and possible penalty liabilities were unlikely to exceed valuation of aforesaid two immovable properties; provisional attachment of his bank accounts was to be lifted without disturbing attachment of immovable properties till litigation with respect to alleged undisclosed foreign income was over. The petitioner is prevented from selling, transferring, creating any charge or encumbrances on the said two immovable properties till the present litigation is over or without leave of the Court. – [Darius Sammotashaw v. DIT (inv.) (2019) 265 Taxman 8 (Mag.)(Bom)]

Power should be exercised by the Assessing officer only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment

The High Court relied on ‘Halbury’s Laws of India (Direct Tax – II, Vol. 32) 2nd Edition, Halsbury’s Laws of India (Direct Tax – II, Vol. 32) 2nd edition, 7. Miscellaneous, which says that section 281B relating to making an attachment before judgment is legal if assessing authority is of opinion that it is necessary to protect the interests of revenue and the same is supported by supervening factor. It gives guidelines for making provisional attachment. The power, conferred upon the Assessing Officer is a very drastic far reaching power and that power has to be used sparingly and only on substantive weighty grounds and reasons. To ensure that this power is not misused, a number of safeguards have been provided in this section. This power should be exercised by the Assessing officer only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution. This power is to be exercised only if there is sufficient material on record to justify satisfaction that the assessee is about to dispose of whole or any part of his property with a view to thwarting ultimate collection of demand and in order to achieve said objective, attachment should be of properties and to extent it is required to achieve this object. It should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. – [Valerius Industries v. Union of India – Date of Judgement : 28.08.2019 (Guj.)]

 Letters of Credit issued by Indian Bank on behalf of a resident party dealing with a foreign party to secure payment of dues from resident are ‘assets’ which can be provisionally attached under section281B during pendency of proceedings to protect interests of revenue in respect of tax payable by foreign party in respect of amount receivable under those Letters of Credit

Provisional attachment to protect revenue in certain cases (In case of non-residents) – Letters of Credit issued by Indian Bank on behalf of a resident party dealing with a foreign party to secure payment of dues from resident are ‘assets’ which can be provisionally attached under section281B during pendency of proceedings to protect interests of revenue in respect of tax payable by foreign party in respect of amount receivable under those Letters of Credit. In such cases, foreign party can not circumvent tax laws in India and escape paying tax dues in India by invoking Letter of Credit and claiming full amount without deduction of tax at source under section 195. However, if foreign party seeks to circumvent tax laws by invoking Letters of Credit, banks confirming said Letters of Credit abroad can pay foreign party and Letters of Credit issuing bank can reimburse foreign confirming banks only after foreign party remits amount sufficient to cover tax dues and same is deposited in Court till proceedings are concluded. [Matter remanded] – [Royal Bank of Scotland PLC v. Axis Bank Ltd. (2017) 250 Taxman 392 :85 taxmann.com 73 (SC)]

Attachment in any case should not be made so as to cause irreversible detrimental effect to the business of the assessee

The Assessing Officer passed orders under section 281B(1) not only attaching the petitioner’s plant, machinery, furniture and fixtures and fixed deposit lying with various banks but also its trade receivables. Assessee filed writ petition against the order. Held: The sine qua non to exercise power under section 281B is that Assessing Officer must be of the opinion that for the purpose of protecting the interest of Revenue, it was necessary to provisionally attach assessee’s property during pendency of any proceedings. No such recording of opinion by Assessing Officer was found in his order. Power of attachment has to be exercised with care and caution. Attachment in any case should not be made so as to cause irreversible detrimental effect to the business of the assessee. Moreover, attachment of trading assets and bank accounts should be only resorted to as a last resort. These guidelines were ignored. Orders were to be vacated. (Related Assessment year : 2011-12) – [Supermax Personal Care (P) Ltd. v. ACIT &Ors. (2016) TaxPub (DT)2314 (Bom.)]

In absence of a notice as per Rule 51 of Second Schedule Part III to pay arrears, there could not be any provisional attachment of property of assessee under section281B without there being a notice to pay arrears as per Rule 51 of Second Schedule, Part-III

A combined reading of the above said provisions of law would show that even to make a provisional attachment of the property of the assessee, there should be a notice to pay the arrears as per rule 51 of the Second Schedule, Part III, of the Income-tax Act. Without any notice to the assessee, the provisional attachment cannot be made under section281B of the Act. Therefore, the submission made by the learned counsel for the respondents in this regard cannot be accepted. In fact, in the judgment reported in KDH Properties (P) Ltd.’s case (supra), relied upon by the learned counsel for the respondent itself, it has been held that the provisional attachment made in terms of section281B should stand the test of reasonableness and avoid arbitrariness. In the instant case, this court finds that without any notice of demand to pay arrears, the respondent has passed an order for provisional attachment in arbitrary manner.Hence, the impugned orders are liable to be quashed.[In favour of assessee] (Related Assessment years : 2010-11 to 2013-14)  – [T. Senthil Kumar v. CIT (2014) 369 ITR 101 : (2015) 57 taxmann.com 177 (Mad.)]

Statutory provision of section281B does not contain requirement of hearing before passing order of provisional attachment of assessee’s bank account

During assessment, the Assessing Officer made certain queries related with creditworthiness, genuineness and identity of the investors of society but assessee was not co-operating in furnishing the requisite information. Malpractice was said to have been adopted by the petitioner. In regular assessment, it was found that total income of the petitioner was to be assessed at Rs. 1100 crores and tentative tax liability was of Rs. 445 crores.In order to protect the interests of revenue, the Assessing Officer provisionally attached the bank accounts of the assessee after proposed action was approved in writing by the Commissioner.

Statutory provision of section281B does not contain requirement of hearing before passing order under section281B to assessee. Where in view of huge tax liability arising in assessment and non-cooperating attitude of assessee, Assessing Officer sought prior approval from Commissioner for provisional attachment of bank accounts of assessee and his action was approved by Commissioner, consequent attachment of bank account was just since Assessing Officer had duly discharged its obligation under statute while passing order under section281B. [In favour of revenue] (Related Assessment year :2011-12)–[Sahara Credit Cooperative Society Ltd. v. CIT, Lucknow (2014) 270 CTR 91 :46 taxmann.com 315 (All.)]

Delhi High Court allows transfer of assets (under provisional attachment) to Microsoft subject to foreign parent’s liability to pay tax dues of Nokia India to the extent of dividend received from Nokia India even when tax disputes were pending and provisional attachment of assets was under challenge in writ petition

Certain transfer to be void [Exceptions] – Nokia India was subsidiary of Nokia Finland and was engaged in manufacture and sale of mobile devices/ phones – A survey was conducted at factory of Nokia India whereafter demand of Rs. 1912 crores was raised on basis of default – Order under section281B was issued whereby assets, properties and bank accounts of Nokia India stood provisionally attached – Interim order was also passed where Nokia India was restrained to surrender lease hold rights or transfer ownership rights in respect of immovable assets or fixed assets to any third person.Further, Nokia India could not transfer, sell or alienate movable plant or machinery located in immovable properties. While so, an agreement was concluded between Nokia Finland and Microsoft International for sale of Nokia Finland’s substantial portion of devices and services business at global scale to Microsoft. Microsoft International was interested in purchasing assets; thereby employees of Nokia India would become employees of Microsoft International. To meet liabilities of Income tax department, Nokia India/Nokia Finland and Microsoft International agreed to deposit of Rs. 2250 crores in an escrow account. Further Nokia Finland was ready and willing to furnish guarantee. Permission to sale of assets by Nokia India to Microsoft/Microsoft International was to be granted subject to necessary guarantee by all concerned for taking appropriate steps securing payment of demand [Partly in favour of assessee]. – [Nokia India (P) Ltd. v. Addl. CIT (2014) 221 Taxman 205 : (2013) 40 taxmann.com 200 (Del.)]

Where property, which is subject matter of provisional attachment, is sufficient to satisfy tax liability and safeguard interest of revenue, petitioner can seek release of provisional attachment in respect of other properties and amounts due from debtors and depositors

Assuming that the approximate tax liability will be Rs. 6.70 crores for the assessment year 2011-12, the value of the land and building at Chennai should be considered sufficient for the purpose of safeguarding the interest of the Revenue insofar as the claim against the assessee. In this regard, it is to be noticed that the value of the property, according to the assessee’s statement, is about Rs. 22 crores and that can be verified. As per the petitioner’s working, even if the stock value as determined by the department is accepted, the tax effect would be around Rs. 2.2 crores and as per the department it would be around Rs. 6.70 Crores. If the property, which is the subject matter of provisional attachment, is sufficient to satisfy the tax liability and safeguard the interest of the Revenue, then the assessee will be justified in seeking release of provisional attachment in respect of other debts and security deposit due from third parties.[In favour of assessee] – [KDH Properties (P.) Ltd. v. ACIT (2013) 356 ITR 1 :33 taxmann.com 54 (Mad.)]

Attachment order was to be limited to plot owner by person against whom order was passed and not extended to plots owned by others in residential area

Petitioners purchased lands and developed residential area – Some plots were purchased by company SIMS – Petitioner still continued to retain in possession of various others plots which petitioners proposed to alienate. However, it was informed by sub-registrar that attachment order passed by Income-tax authorities under section281B was in effect barring alienation – Since attachment order was passed only against company SIMS in respect of its assets, it would have to be limited to plots owned by SIMS only and could not be extended to plots owned by others including petitioners. [In favour of assessee – [MuttaVenkataRamana v. ITO (2013) 40 taxmann.com 531 (AP)]

Extension of attachment and extension of uppermost time limit for attachment are two different aspects; at no stage department is precluded from extending attachment if it is open to do in law

Department sought recall of High Court’s order contending that in said order High Court recorded that order of attachment of bank account of assessee had not been extended and, therefore, same had lapsed whereas because of stay of assessment proceeding by Court, concerned officer could not move to Commissioner for extension of period of attachment order. Extension of attachment and extension of uppermost time limit for attachment are vastly two different aspects and at no stage, department was precluded from extending attachment if it was otherwise open to do so in law. Therefore, department’s application for recall was to be rejected. [In favour of assessee]. – [ACIT v. Soham Securities Ltd. (2013) 36 taxmann.com 582 (Guj.)]

Revenue cannot attach entire amount standing to credit of assessee, in excess of demand raised on completion of assessment

The argument raised by the assessee is meritorious. The bank accounts of an assesseeare provisionally attached to secure the interest of the revenue pending assessment proceedings to meet the eventuality of demand of tax to be raised against such assessee. Once the assessment has been completed, the revenue would be justified to attach the account to the extent of demand raised against an assessee and not the entire amount standing to the credit of the assessee. The action of the revenue in extending the period of attachment in respect of all the bank accounts of the assessee is wholly unjustified and illegal.

Consequently, the present writ petition is allowed and the respondents are directed to release provisional attachment except to the extent of tax demand raised against the assessee. Such tax demand shall not be realized till such time, the appeal filed by the assessee is not decided by the competent authority. – [Nirmal Singh v. Union of India (2013) 36 taxmann.com 341 (P&H)]

Fixed deposit of third parties attachment is held not to be not valid – Section 281B provides for attachment of property of the assessee only and of no one else

Assesseewas searched and articles were seized. Articles were released on bank guarantee on basis of fixed deposits receipts of third parties. Department issued garnishee proceedings against bank and attached the fixed deposits under section 226(3). Department passed the provisional attachment under section 281B. Department invoking the bank guarantee en cashed the fixed deposit. The Assessee challenged the order by way of the Writ, the Court held that the encashment of the fixed deposit was unjustified. The Court held that the fixed deposits did not belong to assessee hence attachment of fixed deposit receipts were not valid. – [Gopal Das Khandelwal v. Union of India (2012) 340 ITR 235 (All)

Where revenue is adequately protected by provisional attachment levied under section281B, there is no justification in directing assessee to deposit entire demand of tax within seven days of assessment order

Under the provisions of section 220(1) it has been stipulated that any amount other than by way of advance tax specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of a notice. The proviso to sub-section (1) stipulates that where the Assessing Officer has any reason to believe that it would be detrimental to the interests of the revenue if the full period of 30 days is allowed, he may direct, with the previous approval of the Joint Commissioner, that the sums specified in the notice of demand shall be paid within a period of less than 30 days. The proviso to sub-section (1) of section 220 is in the nature of an exception to the general requirement under the substantive part that an amount, which is required to be paid in pursuance of a notice of demand, has to be paid within 30 days of the service of notice. The exception, which has been carved out by the Parliament, comes into operation if the Assessing Officer has reason to believe that it would be detrimental to the interests of the revenue if a full period of 30 days is allowed. This exception has been structured by a further requirement of the previous approval of the Joint Commissioner. The exercise of the power to reduce the period under the proviso to sub-section (1) cannot be exercised casually and without due application of mind. The question as to whether it would be detrimental to the interests of the revenue to allow the full period of 30 days has to be addressed. The Assessing Officer must, in the first instance, have reason to believe that the interests of the revenue would be detrimentally affected by allowing a period of 30 days as stipulated in the statute. The Joint Commissioner, whose approval is sought before the Assessing Officer reduces the period, must similarly apply his mind to the issue of detriment to the revenue. While granting his approval, the Joint Commissioner must record reasons. Those reasons as well as the approval which has been granted by the Joint Commissioner must be made available to the assessee where a copy of the reasons is sought from the Assessing Officer.

In the instant case, a provisional attachment has already been levied on 07.10.2011 under section281B by which the amount which was invested by the assessee in mutual funds of SBI Mutual Funds was attached. The attachment was to the extent of Rs.36.54 crores. That being the position, evidently there would have been no basis for forming a reason to believe that if the period of 30 days was to be observed under section 220(1), that would be detrimental to the revenue. Merely because the end of the financial year is approaching, that cannot constitute a detriment to the revenue. The detriment to the revenue must be akin to a situation where the demand of the revenue is liable to be defeated by an abuse of process by the assessee. This is, of course, illustrative, for what is detrimental to the revenue has to be determined on the facts of each case and an exhaustive catalogue of circumstances cannot be laid down. Consequently, there is absolutely no justification for the Assessing Officer for making an order of demand directing the assessee to deposit the entire demand in seven days.

The revenue is adequately protected by the attachment which has been levied under section281B. Hence, it is directed that the provisional attachment under section281B shall continue to remain in force pending the disposal of the appeal before the Commissioner (Appeals). In order to enable the assessee to adopt the remedy which may be available in law against the final order of the Commissioner (Appeals), it is also directed that the attachment shall continue to remain in force for a period of eight weeks after disposal of the appeal by the Commissioner (Appeals). On the aforesaid condition, no further coercive steps shall be taken against the assessee for recovery of the demand, pending the appeal.[In favour of assessee]Firoz Tin Factory v. ACIT (2012) 209 Taxman 458 :24 taxmann.com 125 (Bom.)]

There is no provision in statute which gives preferential rights to dues of State under Income-tax Act

A company availed loan from petitioner and mortgaged certain property to secure loan advanced to it – Since said company defaulted in making payments of loan, petitioner initiated proceedings under section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Thereupon, petitioner took possession over property and put it on sale – Impugned property had been provisionally attached under section281B with prior approval of Commissioner and, it was on said basis, revenue claimed preferential right to realize its dues being crown debt. There is no provision in statute which gives preferential rights to dues of State under Act. Therefore, petitioner as secured creditor had preference over dues of department in respect of secured assets. In view of aforesaid, instant writ petition was to be disposed of with a direction to petitioner to remit any excess amount, after adjusting its dues, to revenue being preferential creditor amongst unsecured creditors. [In favour of assessee] – [Axis Bank Ltd. v. CIT, Ludhiana (2012) 17 taxmann.com 139 (P&H)]

Such proceedings, which are to be necessarily commenced as a result of search, are to be treated as ‘proceedings’ within meaning of section281B(1) – Therefore, an order passed under section281B could not be questioned on ground that no assessment proceedings were pending on date of passing of such order

Pursuant to a search operation conducted at office premises of assessee, an order under section281B was passed by Assessing Officer attaching certain property – Assessee challenged said order contending that same was passed by Assessing Officer on dictates of DDIT without considering issue independently by applying his own mind – When search operation was conducted by DDIT, only he could bring fact of said search to notice of Assessing Officer and when Assessing Officer, after noticing those facts, exercised his discretion finding it to be a fit case for attachment of property in question, it could not be said that he was simply carried away by suggestion mooted by DDIT and did not apply his own mind

A search and seizure operation was conducted at the office premises of the assessee on 06.11.2008 and some documents were seized. It was followed by an order dated 06.02.2009 issued under section281B by the ITO attaching certain property. On being asked to provide reason for attachment, the department informed the assessee that attachment order had been passed on the basis of proposal received from the Dy. Director of Income-tax (DDIT) informing that a large number of incriminating documents were seized and huge demand was likely to be raised under sections 153A and 153C and there was an apprehension that the assessee might transfer the properties just to defer the payment of taxes and, therefore, the DDIT had requested that to safeguard the interest of the revenue, the said property be attached under section281B pending assessment for the assessment year 2007-08. Thereafter, an order dated 03.08.2009 was passed under section281B extending the time of attachment of the properties. The assessee filed writ petition contending that such an order could not have been passed inasmuch as assessment for the assessment years 2005-06 and 2006-07 had been completed under section 143(3) and no proceedings for assessment or reassessment were pending at the time of passing of the orders. As regards the assessment year 2007-08, the assessee contended that assessment stood abated on the date of initiation of search as per second proviso to section 153A(1) and, thus, assessment in respect of the assessment year 2007-08 was also not pending. The assessee’s further contention was that the Assessing Officer passed impugned order at the dictates of other authority, viz., the DDIT without considering the issue independently by applying his own mind. Insofar as order dated03.08.2009 extending the attachment was concerned, the assessee’s submission was that the said order was passed by the Assessing Officer who was not the competent authority, as such an extension order could be passed only by the Commissioner.

Sub-section (1) of section281B authorizes the Assessing Officer to pass provisional order of attachment of property belonging to the assessee during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment. This has to be done with the previous approval of the Chief Commissioner, the Commissioner, the Director General or the Director. The Explanation to sub-section (1) gives the scope of proceedings and categorically provides that proceedings under sub-section (5) of section 132 shall be deemed to be proceedings for the assessment of any income, etc. Section 132 deals with search and seizure. In the instant case, such search and seizure had taken place under the said provision and provisional assessment order was the consequence of that search and seizure. Therefore, the Explanation, wherein reference to provisions of section 132 is made, became applicable to the instant case. Sub-section (5) of section 132 provides for making an order estimating the undisclosed income in a summary manner and calculating the amount of tax on income where any money, bullion, jewellery or other valuable article or thing is seized under that provision. This sub-section has been omitted by the Finance Act, 2002, with effect from 01.06.2002 and, therefore, was no more available on the date of search in the cases of the assessee. However, what is relevant fact is in the Explanation 2 to section 132.

The ambit and scope of the word ‘proceeding’ is expanded by the Explanation to include not only those proceedings which are pending on the date of attachment of the property, when the search is authorized under section 132, but also proceedings which may have been completed on or before such date and includes all proceedings under the Act, which may be commenced after such date in respect of any year. No doubt, in the instant case, proceedings in respect of the assessment year 2007-08 stood abated because of the search. However, it was also a fact that the proceedings for that assessment year would have to be initiated under section 153A or 153C. Such proceedings, which are to be necessarily commenced as a result of the search, are to be treated as proceedings under the Act. By virtue of the Explanation to section281B, these are to be treated as the proceedings within the meaning of sub-section (1) of section281B.

In view thereof, the contention of the assessee that no such order under section281B could be passed as no assessment proceedings were pending on that date, could not be accepted.

So far as the contention that the Assessing Officer had not applied his mind was concerned, the DDIT had informed the Assessing Officer that the search and seizure operation was conducted on 06.11.2008 wherein a large number of incriminating documents and evidence regarding bogus credit entries were gathered and huge demand was likely to be raised under sections 153A and 153C. The Dy. Director had expressed the apprehension that just to defer the payment of tax, the assessee might transfer the properties and therefore, requested the Assessing Officer to attach the mentioned immovable properties to safeguard the interest of the revenue. After the Assessing Officer received that letter, he passed the impugned attachment orders. However, at the same time, one could not overlook the fact that search operation was conducted by the DDIT and, therefore, only he could bring the fact of the said search and was also apprised of the fact that various incriminating documents and evidence regarding purported bogus entries were gathered, which could result in huge demand against the assessee. In that context, the suggestion was mooted by the DDIT for attachment of the property to protect the interest of the revenue. Thus, when those facts were brought to the notice of the Assessing Officer, it was he who alone exercised his discretion finding it to be a fit case for attachment of the property in question. Therefore, it could not be said that he was simply carried away by the suggestion mooted by the DDIT and did not apply his own mind.

The last contention relating to the order dated 03.08.2009 was also found to be factually incorrect and militated against the record. It was found that the Asstt. Commissioner had addressed a letter dated 24.07.2009 to the Commissioner pointing out that the attachment order dated 26-2-2009 was passed by the Assessing Officer with prior approval of the Commissioner. It was further mentioned in that communication that in many of the group cases, the orders under section 127 were yet to be passed, the case records were also to be received, further notices to be issued, inquiries, investigation to be made and only thereafter assessment orders could be passed. The request was, therefore, made for extension to the provisional attachment. On that request, the Commissioner gave his approval.

After the aforesaid approval was given on the file, letter was written by the Dy. Commissioner to the Asstt. Commissioner informing him about the approval. That led to passing of the order dated 3-8-2009 and in that order also, it was specifically mentioned that the same was issued after taking approval from the Commissioner. The upshot of the aforesaid discussion was that the provisional order of attachment originally passed on 06.02.2009 and extension of that order vide order dated 03.08.2009 were without blemish, valid and legal. – [Nimitya Properties Ltd. v. CIT (2010) 322 ITR 668 : 194 Taxman 135 (Del.)]

Provisional attachment under section 281B can be levied even where proceedings are yet to be initiated. Accordingly, the fact that notice under section 153A and the order under section 281B were issued on the same date did not affect the validity of the provisional attachment. – [Genom Biotech (P) Ltd. v. DIT-I (Investigation) (2009) 180 Taxman 395 (Bom.)]

Power under Order XXXVIII Rule 5 is a drastic and extraordinary power and should be used sparingly and should not be exercised mechanically or merely for the asking

The Hon’ble Apex Court has in the case of Raman Tech. & Process Engg. Co. and another v. Solanki Traders, inter alia held as under:

“4. … It is well settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of attachment before judgment, unless he also establishes that the defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed. Equally well settled is the position that even where the defendant is removing or disposing his assets, an attachment before judgment will not be issued, if the plaintiff is not able to satisfy that he has a prima facie case.

5. The power under Order 38 Rule 5 CPC is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly in accordance with the Rule. The purpose of Order 38 Rule 5 is not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilise the provisions of Order 38 Rule 5 as a leverage for coercing the defendant to settle the suit claim should be discouraged. … ….

6. A plaintiff should show, prima facie, that his claim is bona fide and valid and also satisfy the court that the defendant is about to remove or dispose of the whole or part of his property, with the intention of obstructing or delaying the execution of any decree that may be passed against him, before power is exercised under Order 38 Rule 5 CPC. Courts should also keep in view the principles relating to grant of attachment before judgment. (See PremrajMundra v. Md. ManechGazi AIR 1951 Cal 156 for a clear summary of the principles)”. [Raman Tech. & Process Engg. Co. and another v. Solanki Traders, (2008) 2 SCC 302 : ALL SCR 1216 (SC)]

It was held that the foremost legal requirement is that the power under a statute has to be exercised for the purpose of the statute in a judicious manner. It is also settled that the powers vested with any authority under various provisions of law can be exercised only for the stated purpose and for no other purpose. The principle laid down in this case, given in the context of Section 281B of the Income Tax Act, is very much valid for Section 73C of the Finance Act 1994, as well. – [RaghuramGrah (P) Ltd and Another v. ITO and Others (2006) 281 ITR 147 (All)]

Basis of opinion and past defaults: In the absence of any material or circumstances on the basis of which requisite opinion could be formed under section 281B and in the absence of any history of past defaults of the petitioner, the impugned order passed under section 281B provisionally attaching the bank accounts of the petitioner and extension thereof by the CIT was wholly illegal and unwarranted. – [Raghu Ram Grah (P) Ltd. v. ITO &Ors. (2006) 281 ITR 147 (All)]

A property was transferred to transferee and the transferee had paid full consideration and possession was taken by transferee – Assessee became the deemed owner of those flats even if the deed of conveyance were not executed in the name of assessee – The proceedings under section 281B cannot be initiated by attaching the property. Registration is not relevant to Income-tax Act

In the case of Electro Zavod (India) Pvt. Ltd. v. CIT, the issue was that the assessee had entered into an agreement for purchase of two flats on 29.04.1997. As per agreement the consideration of these flats was Rs. 21,50,500/-. The assessee paid the entire consideration to the seller of the property and the possession was taken on 07.05.1997. However, the conveyance deed was not executed in favour of assessee. In the mean time due to certain tax demand by the Income Tax Department on seller of the property, the flats purchased by the assessee were attached under section 281B of the Act. The said action was challenged by the assessee on the ground that it was the owner of the flats as the entire consideration has been paid to the seller and that the possession of the flats was also taken by him. However, the Departments view was that the assessee M/s. ElectrroZavod (India) Pvt. Ltd. was not the legal owner of the property because the deed of conveyance was not executed by the seller in the name of assessee. The Department was of the view that still the seller of the property was the legal owner of those flats. In a writ petition filed by the assessee, it was held by his lordship of Calcutta High Court that since the assessee has paid entire consideration and has also taken possession of flats, for the purpose of Section 2(47) of the Act, the transfer of property is completed and within the terms of Clause (iiia) of Section 27 of the Act, the assessee became the deemed owner of those flats even if the deed of conveyance were not executed in the name of assessee. It was held by the Hon’ble court that aforesaid properties cannot be attached under section 281B of the Act against the tax liability of the seller of the property. – [Electro Zavod (India) Pvt. Ltd v. CIT (2005) 278 ITR 187 (Cal.)]

In case of jointly owned property, only undivided share of assessee can be attached provisionally and not entire property

It was held that where the property is coowned by the assessee, in case of arrears to tax in the hands of the individual, the assessee’s share in the HUF property can be attached to the extent of his possession / share in the joint property under section 281B of the Income tax Act. Fixed deposit in the name of HUF, only share of assessee can be attached and not entire fixed deposit. Provisional attachment was held to be invalid.[S. Subramanian v. CIT (2004)186 CTR 286 : 136 Taxman 653 (Mad)

Fixed deposit in the name of HUF, only share of assessee can be attached and not entire fixed deposit. Provisional attachment was held to be invalid. – [Satyabir Singh v. CIT (2001) 248 ITR 785 (P&H)]

Stock Exchange Membership cannot be Attached – Membership card of a member of Ahmedabad Stock Exchange, who had been declared as a deemed defaulter and whose right vested in stock exchange, could not be said to be property of that assessee so as to be attached under section 281B 

The stock exchange rules, bye-laws and regulations have been approved by the Government of India under the Securities Contracts (Regulation) Act, 1956. On a plain and combined reading of the rules, it is clear that the right of membership is merely a personal privilege granted to a member, and it is non-transferable and incapable of alienation by the member or his legal representative and heirs except to the limited extent as provided in the rules on fulfilment of conditions provided therein. The membership right in question is not the property of the assessee, and therefore it could not be attached under section 281B of the Act – [Stock Exchange, Ahmedabad v. ACIT (2001) 248 ITR 209 : 15 Taxman 471 (SC)].

Provisional attachment order should be in writing and spell out the reasons in the order and must be passed with the approval of the higher authority

It is prime importance that order for provisional attachment must be speaking based on facts of the case, in case of the mechanical order without any reasons are liable to be quashed. – [Gaurav Goel v. CIT (2000) 245 ITR 169 : 164 CTR 358 (Cal)]

Provisional attachment of FDs and bank accounts were invalid where immovable property of assessee attached earlier was sufficient to cover tax demand of assessee – The attachment of bank accounts and trading assets should be resorted to only as a last resort because, the attachment of the bank accounts of the assessee would paralyse the functions and business of the assessee

In the instant case, attachment has been made by the assessing officer under section 281B to ensure the recovery of the anticipated demand which is estimated at Rs. 2.68 crores. There is no demand outstanding. Because the anticipated demand was estimated at Rs. 2.68 crores and book value of the two immovable properties, which was the subject-matter of attachment, was only Rs.4.27 lakhs, the bank accounts and fixed deposits were attached. The contention of the assessee was that the two immovable properties attached by the assessing officer were worth Rs. 5.83 crores as per the valuation of the approved valuer as against the estimated tax liability of Rs. 2.68 crores. That being so, there was no justification for attaching the bank accounts and the FDs. of the assessee which has very seriously affected the day-to-day business of the assessee. The two properties of the assessee, which have been attached under section 281B having been valued by the Departmental Valuer at Rs. 2.66 crores against the anticipated liability of Rs. 2.68 crores, there was no justification whatsoever for allowing the continuation of attachment on the bank accounts and FDs. Therefore, it is directed that respondents should forthwith lift the attachment on the bank accounts and FDRs. Attachment of the two immovable properties would, however, continue until further orders. – [Gandhi Trading v. ACIT (1999) 239 ITR 337 : (2000) 158 CTR 512 (Bom.)]

Constitutional Validity

The constitutional validity of this section was challenged in Dar International v. Asstt. Director of Income-taxon the ground that no guidelines have been given for resorting to the drastic measure of provisional attachment of property. The Court felt that there were enough safeguards to prevent misuse of the powers inasmuch as, firstly, the Assessing Officer has to from his opinion about the fitness of case, for taking this extreme measure and, secondly, before taking such action, he has to take approval of the Chief Commissioner or the Commissioner and also because in case of arbitrary action, the aggrieved party can reach the High Court under article 226. [Now the approval can also be given by Principal Chief Commissioner, Principal Commissioner, Principal Director General or Director General or Principal Director or Director]. – [Dar International v. Asstt. Director of Income-tax (1993) 114 CTR 172 (Del.)]

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Born on 27 June, 1958 in Narnaul, Haryana joined Income-tax Department in the year 1983 and retired as Income Tax Officer on 30.06.2018. Have so far author of 21 books on Income Tax and also writer of his own blog https://ramduttsharma.blogspot.com/. Previlliged to be recipient of first-ever Finance View Full Profile

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