Audit Reports

Direct Tax

Report No. 4 of 2023 - Subject Specific Compliance Audit on Attachment of Property of an assessee by ITD under Section 281B, Union Government Department of Revenue - Direct Taxes.

Date on which Report Tabled:
Tue 28 Mar, 2023
Date of sending the report to Government
Thu 02 Mar, 2023
Government Type
Union Department
Direct Tax
Sector Taxes and Duties


Overview and Catchwords for Report No. 4 of 2023


Provisional Attachment of properties prior to the completion of assessment is a critical tool with the Income Tax Department to facilitate recovery of tax demands from those assessees who attempt to evade tax and thwarting collection of tax demand by using unfair means and to prevent accumulation of arrears of tax demand.

There has been a steady increase (₹ 5,75,340 crore in FY 2013-14 to ₹ 11,14,182 crore in FY 2017-18) in the accumulation of arrears of tax demand during the past several years and the percentage of tax demand termed as ‘difficult to recover’ (categorised by the Department) over total arrear tax demands continued to be abnormally high ranging from 96 per cent in FY 2013-14 to 98.2 per cent in FY 2017-18. Hence, this topic was selected to assess the robustness and effectiveness of the procedures in place in the ITD with regard to provisional attachment.

The SSCA covered 350 Provisional Attachment orders issued during the Financial Years 2017-18 to 2019-20. Out of the these 350 cases, the scrutiny assessments had been completed in 291 cases as of July 2022, raising a net tax demand aggregating to ₹ 12,621.23 crore (comprising tax, interest and penalty).  Out of this, in 103 cases, an amount of ₹ 407.09 crore (3.22 per cent) had been recovered (July 2022).  The balance tax amounting to 12,214.14 crore was outstanding for various reasons viz. stay of demand, appeals etc.

There was no prescribed format for issuing Provisional Attachment orders resulting in missing essential information such as estimated tax liability, validity period and not providing assessees with the option of furnishing Bank Guarantee in lieu of the attached property etc..  Notification of Provisional Attachment orders to Registering Authorities was found to be inadequate, which eventually defeated the purpose of such notification in a few cases. 

As per available records, the AOs did not comply with the Board’s instructions of ascertaining details of all assets in the possession of assessees that could be considered for provisional attachment.  In the majority of the cases for which records were made available, the list of assets prepared by the Investigation Wing as reflected in the Appraisal Report was not shared with Audit. Therefore, Audit could not verify the role of the Investigation Wing in supplementing the efforts of the AO in selection of appropriate property for provisional attachment. Audit also noticed deficiencies in respect of list of assets provided in the Appraisal Report which resulted in incorrect attachment of a property. The process of identification of assets was found to be deficient, thereby reducing the effectiveness of the provisional attachment.  In certain cases, the savings/current bank accounts of assessees were provisionally attached by the jurisdictional AOs without establishing that they were attached only as a last resort.  The AOs did not establish evaluation of property of assessees for their ownership requirements as well as for their non-encumbrance status before considering them for provisional attachment in majority of cases.  Sufficiency of properties attached could be analysed only in certain cases, as proposals for Provisional Attachment under Section 281B did not indicate either estimated tax liability or value of the attached property or both. 

Audit also observed that the validity period of several orders under Section 281B lapsed either before the tax demands raised were fully recovered or even before completion of assessments, which was in violation of the prescribed provisions.  Audit further observed that in certain cases, the orders under Section 281B were extended with a time gap ranging between two and 166 days from the date of expiry of previous order under Section 281B. 

Audit observed that absence of enabling provisions under Section 281B to exclude periods of pendency of assessee’s application before the Settlement Commission or during a Court stay against an assessment while reckoning the validity period of order under Section 281B (as available prior to 01/10/2014) or during the assessee’s appeal, has led to a situation where the interest of revenue remain unprotected during the periods of appeal and injunction/stay granted by the Courts or when cases are pending before the Settlement Commission. 

Audit further observed that the time gap from the date of search to the date of initial order under Section 281B ranged between 208 days and 1220 days.  Absence of a prescribed time limit for issuing order of provisional attachment has an inherent risk of the assessee alienating property(ies), which are being considered for attachment, in the intervening period in case of abnormal delay in issuance of orders under Section 281B. Audit also noticed certain cases wherein the assessee was able to dispose off the attached property inspite of notification of the order under Section 281B to the concerned Registering authority.

Overall, the tax demands raised on completion of assessments continued to be in arrears and the provisional attachment of the assessee’s property did not have a significant impact on actual recovery of tax post-assessment.

Catch Words

Executive Summary

Provisional, attachment, properties, arrears, trusts/institutions, estimated, validity, Registering Authorities, possession, appraisal report, accumulation, ownership, Section 281B.

Summary of recommendations

Provisional attachment, exceptional circumstances, SOP, protect, CERSAI, SARFAESI, appropriate assets, sufficient, encumbrance, fair market value, validity period, Settlement Commission, search-related cases, ownership, Section 281B.

Chapter 1:  Introduction

Provisional attachment, property, Bombay High Court’s judgement, prescribed authority, bank guarantee, Section 281B.

Chapter 2:  Audit Approach

Provisional attachment, Jurisdiction, pandemic, Section 132, search and seizure, central circles, Exit Conference, Appraisal Reports.

Chapter 3:  Processing, Execution and Impact of Provisional Attachment orders

Provisional attachment, property, exceptional circumstances, protection of interests of revenue, evaluation, estimated tax, tax liability, revocation, validity period, unprotected,  valuation officer, fair market value, litigation, formation of opinion, thwart, Section 281B, SARFAESI, CERSAI, bank guarantee.

Chapter 4: Identification of property to be attached provisionally

provisional attachment, ownership, appraisal report, property, estimated tax liability,  assets, search assessments, National Company Law Tribunal, Insolvency, Bankruptcy,  immovable properties, protection of revenue, recovery, cumulative demand, Investigation, Section 153A, Bank Accounts.

Chapter 5: Validity, Revocation and Monitoring of Provisional Attachment

Provisional Attachment, Revocation, inherent risk, validity period, Section 281B, Tax Recovery Officer, Income Tax Settlement Commission, disposing off, Investigation Wing, Sub Registrar, monitoring.


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