Section 281 — Income Tax Asset Attachment and Certificate Requirement

Section 281 of the Income Tax Act protects the Revenue's interest in tax recovery by making certain transfers of assets void if made during a period of pending tax proceedings — unless prior permission is obtained from the Assessing Officer (AO). This provision directly impacts property buyers and business asset purchasers. Here is the complete guide.

What Section 281 Says

• A transfer (sale, mortgage, gift, exchange, or any other mode) of any asset by an assessee is void against the Income Tax Department if:
• The transfer is made during: (a) the period after any income tax notice or assessment order is served on the assessee, OR (b) during any proceedings for recovery of tax
• Exception: Transfer is valid if made with prior written permission of the AO, or if the transfer is to a bona fide purchaser for adequate consideration without notice of the pending proceedings

Practical Impact — Property Sale During Tax Proceedings

• If a taxpayer sells property while an income tax assessment/demand is pending — the IT Department can attach and recover from that property even after it is sold
• The buyer loses the property to the IT Department's recovery proceedings if they had notice or constructive notice of the pending proceedings
• Key risk for buyers: Even a registered sale deed does not protect against Section 281 void transfer if the seller had pending tax proceedings

AO Certificate — NOC Before Sale

• A taxpayer must apply to the AO for a certificate confirming that the proposed transfer will not be void under Section 281
• AO issues the certificate (NOC) within 30 days of application
• If the AO refuses to grant NOC — the taxpayer can appeal to the Commissioner
• The certificate is essential for property buyers to insist upon when buying from sellers with large tax demands

When Is Section 281 Triggered?

• After service of a notice under Section 142, 143(2), 148, 153A etc. — assessment proceedings have commenced
• After a demand notice under Section 156 — recovery proceedings are live
• Attachment order under Section 281B — provisional attachment during assessment

Conclusion

Section 281 is a critical provision for both taxpayers facing assessment and asset buyers — a void transfer under Section 281 can result in the buyer losing the purchased asset to IT recovery. SPOTON provides income tax due diligence for asset transactions, Section 281 certificate advisory and income tax dispute representation in Kerala. Contact us for expert tax advisory services.