Provisional attachment to protect revenue in certain cases.
500(1)
Where, during the pendency of any proceeding for—
- (a) the assessment of any income or for the assessment or reassessment of any income, which has escaped assessment; or
- (b) imposition of penalty under section 444, where the amount or aggregate of amounts of penalty likely to be imposed under the said section exceeds two crore rupees, the Assessing Officer is of the opinion that for protecting the interests of the revenue it is necessary so to do, he may, with the previous approval of the Competent Authority by order in writing, attach provisionally any property belonging to the assessee in the manner prescribed in section 413.
500(2)
Every provisional attachment under sub-section (1) shall cease to have effect after the expiry of six months from the date of the order made under the said sub-section.
500(3)
The Competent Authority may, for reasons to be recorded in writing, extend the period referred to in sub-section (2) and the total period of such extension shall not exceed two years or sixty days after the date of order of assessment or reassessment, whichever is later.
500(4)
Where the assessee furnishes a guarantee from a scheduled bank for an amount not less than the fair market value of the property provisionally attached under sub-section (1), the Assessing Officer shall, by an order in writing, revoke such attachment.
500(5)
For the purposes of sub-section (4), where the Assessing Officer is satisfied that a guarantee from a scheduled bank for an amount lower than the fair market value of the property is sufficient to protect the interests of the revenue, he may accept such guarantee and revoke the attachment.
500(6)
The Assessing Officer may, for determining the value of the property provisionally attached under sub-section (1), make a reference to the Valuation Officer, who shall estimate the fair market value of the property in the manner provided under section 269(3) to (8), and submit a report of such estimate to the Assessing Officer within thirty days from the date of receipt of the reference.
500(7)
An order revoking the provisional attachment under sub-section (4) or (5) shall be made—
- (a) within forty-five days from the date of receipt of the guarantee, where a reference to the Valuation Officer has been made under sub-section (6); or
- (b) within fifteen days from the date of receipt of guarantee, in any other case.
500(8)
Where a notice of demand specifying a sum payable is served upon the assessee and the assessee fails to pay that sum within the time specified, the Assessing Officer may invoke the guarantee furnished under sub-section (4) or (5), wholly or in part, to recover the amount.
500(9)
The Assessing Officer shall, in the interests of revenue, invoke the bank guarantee, if the assessee fails to renew the guarantee referred to in sub-section (4) or (5), or fails to furnish a new guarantee from a scheduled bank for an equal amount, before fifteen days of its expiry.
500(10)
The amount realised by invoking the guarantee referred to in sub-section (4) or (5) shall be adjusted against––
- (a) the existing demand which is payable by the assesse; and
- (b) the balance amount, if any, shall be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the branch of the Reserve Bank of India or the State Bank of India or any bank as may be appointed by the Reserve Bank of India as its agent under section 45(1) of the Reserve Bank of India Act, 1934 at the place where the office of the Principal Commissioner or Commissioner is situated.
500(11)
Where the Assessing Officer is satisfied that the guarantee referred to in sub-section (4) or (5) is not required any more to protect the interests of the revenue, he shall release that guarantee forthwith.
500(12)
In this section, “Competent Authority” means the Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or Commissioner, Principal Director General or Director General or Principal Director or Director.
Section Summary:
Section 500 of the new income tax law allows the Assessing Officer (AO) to provisionally attach a taxpayer's property during ongoing proceedings (e.g., assessment, reassessment, or penalty imposition) if there is a risk to the revenue. This is done to ensure that the government can recover potential tax liabilities. The attachment is temporary and can be revoked if the taxpayer provides a bank guarantee. The section also outlines the process for valuing the property, extending the attachment period, and handling the bank guarantee.
Key Changes:
- Provisional Attachment Scope: The section explicitly allows provisional attachment during penalty proceedings if the penalty amount exceeds ₹2 crore, which is a new threshold.
- Extension of Attachment Period: The attachment can now be extended up to two years or 60 days after the assessment/reassessment order, whichever is later. Previously, such extensions were not clearly defined.
- Bank Guarantee Flexibility: The AO can accept a bank guarantee for an amount lower than the property's fair market value if it sufficiently protects the revenue's interests.
- Valuation Process: A formal process for determining the fair market value of the property is introduced, involving a Valuation Officer.
- Timelines for Revocation: Specific timelines are set for revoking the attachment after receiving a bank guarantee (15 or 45 days, depending on whether a valuation is required).
Practical Implications:
- For Taxpayers: Taxpayers facing provisional attachment must act quickly to provide a bank guarantee to release their property. Failure to renew or replace the guarantee can lead to its invocation.
- For Businesses: Businesses with high-value penalties or disputed tax liabilities may face property attachments, impacting their liquidity and operations.
- For the Revenue Department: The section strengthens the department's ability to secure revenue by allowing temporary property attachments and ensuring timely recovery through bank guarantees.
Critical Concepts:
- Provisional Attachment: A temporary measure to secure potential tax liabilities by attaching a taxpayer's property.
- Competent Authority: Senior tax officials (e.g., Principal Commissioner, Commissioner) who must approve the attachment.
- Fair Market Value (FMV): The estimated value of the property, determined by a Valuation Officer using methods outlined in Section 269(3)-(8).
- Bank Guarantee: A promise from a scheduled bank to pay a specified amount if the taxpayer fails to meet their obligations.
Compliance Steps:
- For Taxpayers:
- If property is attached, provide a bank guarantee equal to or lower than the property's FMV (as accepted by the AO).
- Ensure the guarantee is renewed or replaced before expiry to avoid invocation.
- For the AO:
- Obtain prior approval from the Competent Authority before attaching property.
- Refer to a Valuation Officer for FMV determination if necessary.
- Revoke the attachment within 15 or 45 days after receiving the bank guarantee.
- Invoke the guarantee if the taxpayer fails to pay the demand or renew the guarantee.
Examples:
- Scenario 1: A taxpayer is under reassessment, and the AO believes there is a risk of tax evasion. The AO attaches the taxpayer's property worth ₹5 crore. The taxpayer provides a bank guarantee for ₹4 crore, which the AO accepts. The attachment is revoked within 15 days.
- Scenario 2: A business faces a penalty of ₹2.5 crore. The AO attaches its office property. The taxpayer fails to renew the bank guarantee, and the AO invokes it to recover the penalty amount.
This section ensures a balance between protecting the revenue's interests and providing taxpayers with a mechanism to release their property through guarantees.