TaxTMI 
TaxTMI 
Power to provisionally attach property during tax proceedings : Clause 500 of the Income Tax Bill, 2025 Vs. Section 281B of the Income-tax Act, 1961
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....gime u/s 281B of the Income-tax Act, 1961 ("Section 281B"). The proposed changes reflect legislative intent to balance the protection of revenue with procedural safeguards for taxpayers. This commentary provides a comprehensive analysis of Clause 500, examining its structure, objectives, operational mechanics, and practical implications, followed by a detailed comparative analysis with the extant Section 281B. Objective and Purpose The primary objective of Clause 500, as with Section 281B, is to empower the Assessing Officer (AO) to provisionally attach the property of an assessee during the pendency of certain proceedings, thereby preventing the potential frustration of tax recovery efforts. The rationale is rooted in the need to ensure ....
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....s where significant revenue interests are at stake. The inclusion of penalty proceedings (with a monetary threshold) prevents the misuse of this power in trivial matters. 2. Duration of Attachment (Sub-sections 2 and 3) Under Clause 500(2), any provisional attachment ceases to have effect after six months from the date of the order. However, Clause 500(3) empowers the Competent Authority, for recorded reasons, to extend this period. The total extension cannot exceed two years or sixty days after the order of assessment/reassessment, whichever is later. These time limits are designed to prevent indefinite attachment of property, which could otherwise amount to a de facto confiscation. The requirement for written reasons for extension intr....
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....ntee in other cases. This ensures expeditious relief to the assessee upon compliance with the guarantee requirement. 6. Invocation of Guarantee and Recovery (Sub-sections 8 and 9) If the assessee fails to pay the demand specified in the notice, Clause 500(8) empowers the AO to invoke the bank guarantee, wholly or in part. Clause 500(9) further mandates invocation if the assessee fails to renew or replace the guarantee at least fifteen days before its expiry. These provisions ensure that the guarantee remains a live security for the revenue and cannot lapse due to inaction or oversight by the assessee. 7. Application of Amount Realized (Sub-section 10) The amount realized by invoking the guarantee is first adjusted against the existing....
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....al difference is that Clause 500 explicitly requires the attachment to be made "in the manner prescribed in section 413," whereas Section 281B refers to the "Second Schedule." This reflects a shift in the procedural framework, possibly to align with updated processes under the new Bill. 3. Duration and Extension Both provisions provide that the attachment ceases after six months, extendable by up to two years or sixty days after the assessment/reassessment order, whichever is later. The requirement for recording reasons for extension is present in both, ensuring accountability. 4. Bank Guarantee Mechanism Both allow the assessee to substitute a bank guarantee for the attachment, with the AO having discretion to accept a lower amount if ....
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....n of Section 281B. The cross-references to internal sections (e.g., Section 413 for procedure, Section 269 for valuation) indicate a streamlining of the legislative framework in the new Bill. Certain explanatory notes and exceptions present in Section 281B (e.g., those relating to settlement proceedings or stay orders) are omitted in Clause 500, possibly as part of a broader overhaul or because such matters are addressed elsewhere in the new Bill. Comparative Table Feature Clause 500 of the Income Tax Bill, 2025 Section 281B of the Income-tax Act, 1961 Observations Scope Assessment, reassessment, penalty under section 444 (>2 cr) Assessment, reassessment, penalty under section 271AAD (>2 cr) Substantially similar; penalty ....
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....other recovery or enforcement provisions in the new Bill may require further clarification, especially regarding priority of claims and handling of third-party interests. * Bank Guarantee Terms: The terms and conditions of bank guarantees, including invocation and renewal, may generate disputes if not standardized or if the AO's discretion is exercised inconsistently. Practical Implications For Tax Authorities Clause 500 preserves and streamlines the powers of tax authorities to secure the government's interests. The requirement for prior approval by a senior authority and the need to record reasons in writing serve as checks against arbitrary or capricious use of power. The option to substitute attachment with a bank guarantee....