Raj HC quashes provisional attachment of company property under Income Tax Act, says power under Section 281B must be exercised with caution

Jaipur: The Rajasthan High Court has set aside a provisional attachment order passed by the Income Tax Department against the property of a Jaipur-based company, holding that the power under Section 281B of the Income Tax Act, 1961 must be exercised with great caution and only when there is tangible material indicating that revenue interests are at risk.

A Division Bench comprising Acting Chief Justice Sanjeev Prakash Sharma and Justice Sangeeta Sharma delivered the ruling while deciding D.B. Civil Writ Petition No. 1217/2026, ARL Infratech Limited vs Deputy Commissioner of Income Tax, Central Circle-2, Jaipur. it

The writ petition challenged the order dated January 1, 2026 by which the Deputy Commissioner of Income Tax provisionally attached the petitioner company’s industrial property under Section 281B of the Income Tax Act.

The petitioner company, engaged in manufacturing building materials such as cement sheets, cement pipes, AAC blocks and quartz slabs, contended that it had been a regular income tax assessee and had paid substantial tax over the years. The company also pointed out that it had deposited income tax of more than ₹45 crore for assessment years 2021-22 to 2026-27. it

It was further submitted that the company had obtained credit facilities from HDFC Bank and its industrial plot located at Bagru Industrial Area in Jaipur, along with plant and machinery, was already mortgaged with the bank and valued at over ₹31 crore.

According to the petitioner, a search had earlier been conducted under Sections 132 and 133A of the Income Tax Act and an assessment order dated March 27, 2025 had resulted in a minor addition of ₹4,40,120 without creation of any demand. An appeal against the said assessment order was already pending.

The petitioner argued that despite this, the Jurisdictional Assessing Officer issued notices under Section 148 for certain assessment years and passed the impugned provisional attachment order based on an apprehension that a tax demand of about ₹1.30 crore might arise.

The company contended that the action was arbitrary and contrary to the CBDT Office Memorandums dated February 29, 2016 and July 31, 2017, which provide that ordinarily only 15% to 20% of the disputed demand is required to be deposited for obtaining a stay of recovery.

It was argued that even if the disputed demand were assumed to exist, the petitioner could have deposited approximately ₹26 lakh, whereas property worth several crores had been attached without justification.

The Income Tax Department defended the action by submitting that the power under Section 281B allows provisional attachment of property to safeguard government revenue and does not require issuance of prior show cause notice. The department also stated that out of the petitioner’s five immovable properties, the least valued property had been attached as a preventive measure.

After hearing the parties, the High Court noted that the petitioner had been a regular taxpayer and that even after the search proceedings only a minor addition had been made and no tax demand had been created.

The Court observed that the provisional attachment had been ordered merely on an apprehension that a demand might arise in the future, which could not justify invocation of such a drastic power.

Referring to the Supreme Court decision in Radha Krishan Industries vs State of Himachal Pradesh, the Court reiterated that provisional attachment of property is a draconian power and must be exercised strictly in accordance with statutory conditions and only when there is tangible material showing that the assessee is likely to defeat the demand. it

The Bench further observed that authorities must examine whether the assessee is a regular taxpayer before invoking Section 281B, and mere fact that a business has taken bank loans cannot justify attachment of its property.

The Court also emphasized that such attachments can seriously affect the reputation of businesses and create apprehension among banks providing financial assistance to industrial units.

Noting that even in cases where demand is raised, the assessee ordinarily has the remedy of filing an appeal and depositing up to 20% of the disputed demand to obtain stay of recovery, the Court held that the provisional attachment in the present case was wholly unjustified.

Consequently, the High Court quashed the attachment order dated January 1, 2026.

However, the Court directed the petitioner company to deposit 20% of the provisionally assessed demand within one week. It further clarified that if the demand is ultimately reduced or found unjustified, the deposited amount shall be refunded with interest.

Case Title
ARL Infratech Limited vs Deputy Commissioner of Income Tax, Central Circle-2, Jaipur

Case Number
D.B. Civil Writ Petition No. 1217/2026

Court
High Court of Judicature for Rajasthan, Bench at Jaipur

Bench
Hon’ble Acting Chief Justice Sanjeev Prakash Sharma
Hon’ble Justice Sangeeta Sharma

Date of Order
06 March 2026

Advocates
For the Petitioner:
Mr. Siddharth Ranka

For the Respondent:
Mr. Siddharth Bapna with Ms. Tanushka Saxena

Judgments / Legal Principles Relied Upon
Provisional attachment under Section 281B of the Income Tax Act is a drastic power and must be exercised only when tangible material shows that attachment is necessary to protect government revenue; mere apprehension of possible tax demand is insufficient.