Section 281B: Provisional Attachment to Protect Revenue

Section 281B of the Income Tax Act, 1961, deals with the Provisional Attachment of Property to Protect Government Revenue during the pendency of certain income tax proceedings. It allows the Assessing Officer (AO), with the approval of a higher authority like the Principal Commissioner or Commissioner, to provisionally attach an assessee’s property to prevent the risk of disposal or dissipation of assets, which might jeopardize the recovery of tax dues.

1. Objective

Section 281B empowers tax authorities to provisionally attach assets (property, bank accounts, shares, etc.) during pending assessments or investigations if they believe the assessee may alienate assets to evade tax liability.

2. When Can Attachment Be Made?

• Duringincome tax proceedings (assessment, reassessment, search, etc.)
• Beforefinal tax demand is raised
• Only if the Principal Commissioner/Commissioneris satisfied that attachment is necessary to protect revenue interests

3. Types of Assets That Can Be Attached

• Immovable property (land, buildings)
• Bank accounts
• Shares, mutual funds
• Jewelry, vehicles, other valuables

4. Duration of Attachment

• Initial Period: 6 months from the date of the order
• Extension: Can be extended up to 2 yearswith approval from higher authorities
• Automatic Release: Attachment lapses if not confirmed within the stipulated period

5. Procedure for Attachment

1. Order by Tax Authority: Must be in writing, specifying reasons
2. Intimation to Assessee: Copy of the order must be provided
3. Implementation:

• • For bank accounts: Notice to the bank to freeze funds
  • For property: Prohibition on transfer/creation of third-party rights

6. Assessee’s Rights

• Can objectto the attachment by filing a representation
• Can request early releaseby providing alternative security (bank guarantee, etc.)
• Can challenge the order before CIT(A) or High Courtin case of malafide action

7. Consequences of Violation

• Any transaction violating the attachment is voidagainst tax claims
• Penalties may apply for deliberate non-compliance

8. Judicial Safeguards

• Authorities must record detailed reasonsjustifying the attachment
• Attachment cannot be arbitrary or excessive(must be proportionate to estimated tax liability)
• Courts can intervene if the action is mala fide or without jurisdiction

9. Comparison with GST Provisional Attachment (Section 83 CGST Act)

Illustrative Example

Imagine Mr. Sharma, a businessman, is undergoing an income tax assessment because the revenue authorities suspect underreporting of income. The AO, fearing Mr. Sharma might sell or transfer his commercial property to evade tax payment, seeks approval from the Principal Commissioner to provisionally attach this property.

Mr. Sharma is informed that the attachment is provisional and will last for six months unless extended. If he offers a bank guarantee matching the property’s market value, the AO may revoke the attachment. If Mr. Sharma fails to pay the tax demand post-assessment, the bank guarantee or attached property can be used to recover the payment.

Thus, Section 281B acts as a safeguard ensuring tax recovery by restraining the assessee from disposing assets during the tax proceedings and providing a recourse through bank guarantees.