Section 281B Attachment Without Demand and Hearing Unjustified

Case Details: ARL Infratech Ltd. vs. Deputy Commissioner of Income-tax [2026] 185 taxmann.com 240 (Rajasthan)

Judiciary and Counsel Details

Sanjeev Prakash Sharma, ACTG. CJ. & Mrs Sangeeta Sharma, J.
Siddharth Ranka for the Petitioner.
Siddharth Bapna & Ms Tanushka Saxena for the Respondent.

Facts of the Case

The assessee, engaged in the manufacture of building materials, was a regular taxpayer and had reported aggregate tax payments of about Rs. 45.44 crores for the assessment years 2021–22 to 2026–27. It had availed credit facilities from HDFC Bank, and its industrial plot, along with plant and machinery, stood mortgaged. A search under sections 132/133A was conducted, and an assessment order was passed, based on which the Jurisdictional Assessing Officer (AO) issued notices under section 148 for three assessment years.

Based on the said assessment order, the AO passed a provisional attachment order under section 281B attaching the assessee’s mortgaged industrial plot. Assessee contended that the attachment was contrary to CBDT Office Memorandums prescribing a benchmark of 15–20 per cent deposit and violated principles of natural justice. The matter reached the Rajasthan High Court.

High Court Held

The High Court held that the assessee was a regular taxpayer and had paid taxes regularly. Merely based on an apprehension that a demand may be created for a sum of Rs. 1.30 crore, a provisional attachment order was passed. Even in the search, a petty amount of Rs. 4.40 lakh was attached for the assessment year 2023-24, and no demand was created for the assessment years 2022-23 and 2024-25. Such attachment, even if provisional, creates apprehension and fear among bankers who are lending to the concerned units for their businesses. Their public reputation is seriously hampered.

Therefore, invoking such a provision has to be done by exercising great caution and care so as not to harm the reputation of an honest income taxpayer. While section 281B gives unequivocal power to the authority to put the properties under attachment, the Apex Court has time and again held that such power has to be exercised by taking into consideration all the aspects and the contentions prescribed in the statute must be strictly fulfilled. Once such a provision has to be treated as draconian in nature, in the opinion of this Court, the minimum requirement is to allow the concerned assessee to make the payment or part of it as required in the Office Memorandum issued by the CBDT.

It cannot be presumed that the assessee would not make the payment. Principles of natural justice would, to that extent, be inherent, as civil rights are likely to be harmed if action is taken under section 281B. Therefore, the order of attachment was set aside with a direction to the assessee to deposit 20 per cent of the provisionally assessed demand within one week.

List of Cases Referred to

Radha Krishan Industries v. State of Himachal Pradesh & Ors. [2021] 127 taxmann.com 26 (SC) (para 9)
Saravana Selvarathnam Retail (P.) Ltd. v. Pr. CIT [2025] 174 taxmann.com 62/482 ITR 121 (Madras) (para 10)
Abul Kalam v. Asstt. CIT [2020] 117 taxmann.com 717/[2021] 431 ITR 395/[2020] 272 Taxman 467 (Calcutta) (para 10)
Xiaomi Technology India (P.) Ltd. v. Dy. CIT [2022] 145 taxmann.com 501/[2023] 451 ITR 58/291 Taxman 315 (Karnataka) (para 10)
Indian Minerals and Granite Co. v. Dy. CIT [2022] 137 taxmann.com 119/440 ITR 292 (Karnataka) (para 10)
Vodafone Idea Ltd. v. Dy. CIT [2020] 119 taxmann.com 337/274 Taxman 233 (Bombay) (para 10)
Raghunandan Enterprise v. Asstt. CIT [2022] 139 taxmann.com 51/442 ITR 460 (Gujarat) (para 10).