Section 500: provisional attachment of property to protect revenue

Introduction

A provisional attachment protects the revenue while specified assessment, reassessment or high-value section 444 penalty proceedings are pending. The Assessing Officer needs the Competent Authority’s previous approval and must issue a written order.

The attachment normally ends after six months. The provision also sets rules for extension, valuation, substitution with a scheduled-bank guarantee, and release of a guarantee when it is no longer needed.

Key takeaways

When provisional attachment can be ordered

During the pendency of a proceeding for (a) assessment of income, or assessment/reassessment of income that has escaped assessment, or (b) imposition of a penalty under section 444 where the amount or aggregate amount of penalty likely to be imposed exceeds ₹2 crore, the Assessing Officer - if of the opinion it is necessary to protect the interests of revenue - may, with the previous approval of the Competent Authority, by order in writing, provisionally attach any property belonging to the assessee, in the manner prescribed in section 413.

How long the attachment lasts

A provisional attachment ceases to have effect after six months from the date of the order, unless extended.

The Competent Authority may, for reasons recorded in writing, extend this period, but the total extension cannot exceed two years, or sixty days after the date of the assessment or reassessment order, whichever is later.

Release against a bank guarantee

Where the assessee furnishes a guarantee from a scheduled bank for an amount not less than the fair market value of the attached property, the Assessing Officer must revoke the attachment by an order in writing.

If the Assessing Officer is satisfied that a lower-value guarantee is sufficient to protect revenue, they may accept it and revoke the attachment on that basis.

Valuation and timelines for revoking attachment

The Assessing Officer may refer the property to a Valuation Officer to determine its fair market value under section 269(3) to (7); the Valuation Officer must submit an estimate within thirty days of receiving the reference.

An order revoking the attachment must be made within forty-five days of receiving the guarantee where a valuation reference was made, or within fifteen days of receiving the guarantee in any other case.

Invoking the guarantee

Where a notice of demand is served on the assessee and they fail to pay within the specified time, the Assessing Officer may invoke the guarantee, wholly or in part, to recover the amount.

The Assessing Officer must, in the interests of revenue, invoke the bank guarantee if the assessee fails to renew it, or fails to furnish a fresh guarantee for an equal amount, before fifteen days of its expiry.

The amount realised by invoking the guarantee is adjusted against the assessee's existing demand, with any balance deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner at a Reserve Bank of India or State Bank of India branch, or a bank appointed as the Reserve Bank's agent under section 45(1) of the Reserve Bank of India Act, 1934.

Where the Assessing Officer is satisfied the guarantee is no longer needed to protect revenue, it must be released forthwith.

"Competent Authority"

For 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.

Attachment and release path

1. 1

   Is a qualifying assessment, reassessment or section 444 penalty proceeding pending?

   For the penalty route, the likely penalty must exceed ₹2 crore.

2. 2

   Has the Assessing Officer recorded the need to protect revenue and obtained previous Competent Authority approval?

   The provisional attachment is made by a written order.

3. 3

   Has the assessee furnished a sufficient scheduled-bank guarantee?

   The Assessing Officer must revoke the attachment in writing, subject to the section’s valuation and timing rules.

4. 4

   Has the attachment expired or been validly extended?

   The default period is six months; a Competent Authority extension needs written reasons and follows the statutory cap.

Practical checklist

Glossary

Provisional attachment

A temporary attachment of the assessee’s property to protect revenue during the pending proceeding described in section 500.

Competent Authority

The senior tax authorities specifically listed in section 500(12) whose previous approval is required.

Frequently asked questions