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February 6, 2021

Budget 2021 enables Provisional Income Tax attachment in Fake Invoice cases

by CA Shivam Jaiswal in Budget, Income Tax

Budget 2021 enables Provisional Income Tax attachment in Fake Invoice cases

Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the declining economy amid the Covid-19 pandemic and boost spending across sectors. Budget 2021 focused on the seven pillars for reviving the economy – Health and Wellbeing, Physical and Financial Capital and Infrastructure, Inclusive Development for Aspirational India, Reinvigorating Human Capital, Innovation and R&D, and Minimum Government Maximum Governance. Several direct taxes and indirect taxes amendments were also proposed.

Presently, section 281B provides for provisional attachment by AO of any property of the assesse in order to protect the interest of revenue in the cases of assessment or reassessment.

Clause 79 of the Bill seeks to amend the section 281B of the Income-tax Act relating to provisional attachment to protect revenue in certain cases. In order to protect the revenue, The Finance Bill, 2021 proposes that Assessing Officer is empowered to provisionally attach the property of assessee during the pendency of proceedings under Section 271AAD (Penalty for Fake Invoices) if the amount or aggregate of amounts of penalty imposable is likely to exceed Rs. 2 crores.

What are the provisions of Section 271AAD?

As per 271AAD if during any proceeding, it is found that in the books of account maintained by any person there is a false entry, or an omission of any entry relevant for evading tax liability, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to the aggregate amount of such false or omitted entry.

The Assessing Officer may also direct that any other person who causes to make a false entry or omits or causes to omit any entry, shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.

False entry includes use or intention to use forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or by invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods or services or both, or invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist.

What do you mean by provisional attachment of property?

Any litigation under various tax laws, might take a considerable amount of time. The pendency of any proceedings could potentially delay the earning of revenue by the government.

Further, the taxpayer may transfer his property to another person before the end of the proceedings. In order to protect the interests of the revenue during the pendency of any proceedings, the government has the power to provisionally attach the properties of the taxpayer.

Where, during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment, the Assessing Officer is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, he may, with the previous approval of the Chief Commissioner, Commissioner, Director General or Director, by order in writing, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule.

Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made

However, the Chief Commissioner, Commissioner, Director General or Director may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit, so, however, that the total period of extension shall not in any case exceed two years.

Therefore, it is now important for assessee’s to also remember that their properties could also be provisionally attached if any proceedings are pending under Section 271AAD. This amendment will take effect from 1st April, 2021.

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