Provisional Attachment Can’t Be Exercised Merely On Apprehension Of Future Tax Demand: Rajasthan High Court

The Rajasthan High Court has held that the power of provisional attachment is a drastic power and cannot be exercised merely on apprehension of a possible future tax demand. The Bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Sangeeta Sharma has observed that in the search proceedings only a minor addition of Rs. 4.40 lakh was made and no demand had been raised for certain relevant assessment years. The provisional attachment, however, was imposed merely on the apprehension that a demand might arise in the future. The petitioner company, ARL Infratech Limited, is engaged in the manufacturing of construction materials such as cement sheets, cement pipes, AAC blocks, metal sheets, and quartz slabs. The company approached the High Court after the tax authorities provisionally attached its industrial plot located in Bagru Extension, Jaipur. According to the company, the property—along with plant and machinery—had already been mortgaged to a bank for credit facilities and was valued at over ₹31.58 crore. During the proceedings, the petitioner submitted that it had been a regular taxpayer and had paid income tax amounting to approximately ₹45.43 crore for the assessment years 2021-22 to 2026-27. A search had earlier been conducted under Sections 132 and 133A of the Income Tax Act, after which an assessment order dated March 27, 2025 recorded an addition of only ₹4.40 lakh. Notably, no tax demand was raised based on that addition. The company also informed the court that appeals against the assessment were already pending. Despite the limited tax addition and absence of substantial demand, the jurisdictional assessing officer issued reassessment notices under Section 148 for certain assessment years and subsequently passed a provisional attachment order under Section 281B. The attachment covered an industrial property acquired for approximately ₹5.21 crore, based on an apprehension that a tax demand of about ₹1.30 crore might arise for assessment years 2022-23 and 2024-25. Counsel for the petitioner argued that the action violated Central Board of Direct Taxes (CBDT) guidelines issued in 2016 and 2017. These guidelines generally provide that when an assessee files an appeal against a demand, the authorities should consider granting a stay upon payment of 15–20% of the disputed amount. The petitioner contended that even if the maximum 20% deposit rule were applied, the company would only be required to deposit about ₹26 lakh—far less than the value of the attached property. The attachment of a high-value asset was therefore arbitrary and disproportionate. The Income Tax Department defended its action, arguing that Section 281B empowers authorities to provisionally attach property to safeguard revenue interests and does not require prior issuance of a show-cause notice. The department further claimed that the company possessed multiple immovable properties and that the attached property was the least valuable among them, indicating that the power had been exercised judiciously. After examining the record, the High Court observed that the petitioner had consistently complied with its tax obligations and had paid substantial income tax over several years. Referring to the Supreme Court’s ruling in Radha Krishan Industries v. State of Himachal Pradesh, the High Court reiterated that provisional attachment powers are “draconian in nature” and must be exercised strictly in accordance with statutory safeguards. The court emphasized that such measures should be invoked only when there is credible material indicating a real risk to the recovery of tax dues. Mere speculation about a possible future demand cannot justify the attachment of valuable assets. Case Details Case Title: ARL Infratech Limited Versus DCIT Citation: JURISHOUR-319-HC-2026(RAJ) Case No.: D.B. Civil Writ Petition No. 1217/2026 Date: 06/03/2026 Counsel For Petitioner: Siddharth Ranka Counsel For Respondent: Siddharth Bapna Click Here To Read Order Read More: Declaring Inflated Stock to Bank for Higher Cash Credit Is ‘Commercial Immorality’: J&K and Ladakh High Court Upholds Income Tax Addition

Provisional Attachment Can’t Be Exercised Merely On Apprehension Of Future Tax Demand: Rajasthan High Court

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