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Power of Provisional Attachment to AO in Penalty Cases u/s 271AAD: Budget 2021

power-of-provisional-attachment-to-ao-in-penalty-cases-us-271aad-budget-2021

In order to protect the revenue, it is proposed to provide that the penalty proceedings initiated under section 271AAD for fake invoice/ sham transactions of more than Rs. 2 crore shall also be eligible for provisional attachment of assets under section 281 of the Income Tax Act, 1961 (“Act”).


Provisional attachment in Fake Invoice cases: Section 281B of the  Act contains provisions which provide that in cases of assessment or reassessment the Assessing Officer may provisionally attach any property of the assessee, if necessary, in order to protect the interest of revenue. 



This can be done only with prior approval of Pr. Chief Commissioner or Pr Director General or Chief Commissioner or Director General or Principal Commissioner or Principal Director or Commissioner or Director, of Income-tax.  Such provisional attachment is valid for a period of 6 months. 


Further, the said section allows the assessee to furnish a bank guarantee of the value of the property so attached for revocation of the provisional attachment.  The above bank guarantee shall be invoked if the assessee fails to pay his tax demand on time. The powers under this section can only be exercised by the Assessing Officer.


Section 271AAD of the Act was inserted vide the Finance Act, 2020 to impose penalty on a person or a person who causes such person to make a false entry or omit an entry from his books of accounts. It is an anti-abuse provision. Upon initiation of such penalty proceedings, it is highly likely that the taxpayer may also evade the payment of such penalty if imposed. Hence, in order to  protect the interest of revenue, it is proposed to amend the provision of section 281B of the Act to enable the Assessing Officer to exercise the powers under this section during the pendency of proceedings for imposition of penalty under section 271AAD of the Act, if the amount or aggregate of amounts of penalty imposable is likely to exceed two crore rupees.



This amendment will take effect from 1st April, 2021.


In order to give effect, an amendment to section 281B vide Clause 79 of the Finance Bill, 2021 is proposed in the following manner-


Amendment of section 281B.


79. In section 281B of the Income-tax Act, in sub-section (1), after the words “escaped assessment”, the words, figures and letters “or for imposition of penalty under section 271AAD where the  amount  or  aggregate  of  amounts  of  penalty  likely  to  be imposed under the said section exceeds two crore rupees” shall be inserted. 


Clause 79 of the Bill seeks to amend section 281B of the Income-tax Act relating to the provisional attachment to protect revenue in certain cases. 


The said section provides for the provisional attachment of any property belonging to the assessee by the Assessing Officer, with the prior approval of the authorities specified therein, in case of pending assessment or reassessment proceedings so as to protect the interest of revenue. 

 

It is proposed to amend sub-section (1) of the said section so as to provide that the aforesaid provisional attachment of a property of the assessee may also be made during the pendency of proceedings for imposition of penalty under section 271AAD where the amount or aggregate of amounts of penalty likely to be imposed under that section exceeds two crore rupees. 


This amendment will take effect from 1st April, 2021.



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