The ITD, while conducting search, has the power of passing attachment orders, whereby the tax authorities recover the amount due directly from the bank account of the tax payer. One such provision that allows the tax authorities to issue attachment orders, namely Section 132(9B) of the ITA, was introduced by the Finance Act, 2017, to ensure that the Revenue Department’s claim over the assessee’s assets is not unfairly misappropriated. Such orders, however, can also be potentially invasive and may have severe consequences on the business and reputation of the tax payer.

The Section provides that during the course of a search or seizure, or within a period of 60 days from the date on which the last of the approvals for search were executed, the authorised officer, on being satisfied that for protecting the interest of the Revenue Department, it is necessary so to do, may attach provisionally any property belonging to the assessee. It has also been provided that such provisional attachment will cease to have effect after the expiry of six months from the date of order of such attachment. The provisions of Section 132 of the ITA can be invoked by the ITD in case any person is in possession of any money, bullion, jewellery or other valuable article or thing, and such money, bullion, jewellery or other valuable article or thing, which represents income, has not been disclosed by such person as income under the provisions of ITA.

Recently the ITD has issued a Press Release^[1], wherein the ITD has shared information regarding search operations being conducted on various businesses and consequential provisional attachment in terms of Section 132 of the ITA. Any indiscriminate exercise or arbitrary or unreasonable exercise of power may have negative impact on the taxpayer’s ability to conduct its business. Considering the wide scope for misuse of such powers, the provision must be strictly followed. The provision mandates a prior approval of the Principal Director General or, Director General or, Principal Director, or Director by way of an order in writing. In case the conditions provided under the Section are not followed, the assessee has the option of approaching the High Court invoking its writ jurisdiction to get such order for attachment quashed or stayed, inter alia, on the following grounds:

i.     lack of power of the officer to issue such directs or attachment order;

ii.    no prior approval of authorities;

iii.   in case the alleges undisclosed income was actually disclosed by the tax payer; or

iv.    the officer has not recorded any cogent reason to invoke the provisions of Section 132(9B) of the ITA.

In a recent Order^[2] the Delhi High Court, after considering the facts and legal position, stayed attachment order issued under Section 132(9B) of the ITA. The main contentions of the assessee before the Delhi High Court were that the two-fold conditions i.e., existence of ‘reasons’ and ‘necessity’ to undertake the attachment for the purpose of ‘protecting the interest of revenue’ were not satisfied and the fact that there was no demand against the assessee. The Court also took into consideration hardship caused due to the attachment in the regular functioning of the business of the assessee.

Thus, tax payers are advised that they should evaluate the merits of any such attachment orders passed by the ITD since Courts are likely to provide protection to the taxpayer in similar circumstances, particularly where it can be demonstrated that the ITD has used these powers arbitrarily and beyond the scope of the Section itself.

[1]  Press Release dated February 24, 2022 and March 24, 2022.

[2]  Order of the Hon’ble Delhi High Court dated April 22, 2022 in the case of M/s Huawei Telecommunications India Company Ltd. in WPC 6352/2022 (Delhi High Court).