Facts of the Case

The Petitioner, M/s Dabur Invest Corp, a partnership firm, entered into a joint venture agreement with a foreign company for promoting Aviva Life Insurance Company India Ltd. The agreement involved receipt of refundable option money linked with shareholding rights.

Over several assessment years, the Petitioner disclosed transactions including option money and capital gains from sale of shares. However, the Income Tax Authorities treated such receipts as business income instead of capital gains and initiated reassessment proceedings, raising substantial tax demands.

During pendency of assessments, the Assessing Officer passed an order under Section 281B attaching all assets of the Petitioner, including bank accounts and investments. This continued even after completion of assessments, severely affecting the Petitioner’s business operations.

Issues Involved

  1. Whether provisional attachment under Section 281B can continue after completion of assessment.
  2. Whether the Assessing Officer validly exercised power without recording necessity for protecting revenue.
  3. Whether attachment of entire assets including bank accounts was justified.

Petitioner’s Arguments

  • The attachment was illegal as it continued even after assessment was completed.
  • Section 281B is applicable only during pendency of assessment proceedings.
  • The Revenue had already recovered a substantial portion of the demand.
  • The action was excessive and crippled business operations.
  • Relied on judicial precedent holding that attachment cannot continue post-assessment.

Respondent’s Arguments

  • The attachment was necessary to safeguard revenue interests.
  • The demand raised was substantial and recovery needed protection.
  • Partial relief had already been granted by defreezing some accounts.

Court’s Findings / Order

  • The Court held that Section 281B requires formation of opinion that attachment is necessary to protect revenue, which was absent in this case.
  • The provision is intended only during pendency of assessment proceedings, not after completion.
  • Once assessment is completed and demand crystallized, continuation of provisional attachment is unjustified.
  • The Revenue had already recovered significant amounts, reducing justification for continued attachment.
  • The Court relied on precedent including Motorola Solutions India Pvt. Ltd. v. CIT.

Important Clarification by Court

  • Section 281B is a protective and temporary measure, not a recovery tool.
  • It cannot be used indiscriminately or after assessment completion.
  • Authorities must demonstrate real risk to revenue recovery before invoking it.
  • Adequate safeguards already exist in the Act for recovery post-assessment.

Sections Involved

  • Section 281B – Provisional Attachment to Protect Revenue
  • Section 147 – Income Escaping Assessment
  • Section 148 – Issue of Notice
  • Section 143(3) – Assessment
  • Section 263 – Revision by Principal Commissioner
  • Section 220(6) – Stay of Demand
  • Section 226(3) – Recovery from Bank Accounts

 Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:3723-DB/SMD31072019CW79092019.pdf

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