Section 281 of ITA, 1961 : Section 281: Certain Transfers To Be Void

Explanation using Example

Imagine Mr. Sharma is a business owner and has been undergoing an income tax audit for the past few months. The Income Tax Department suspects that there may be some unpaid taxes. During this period, Mr. Sharma decides to transfer a piece of land worth ₹15,00,000 to his brother, Mr. Verma, without receiving any payment in return.

Under Section 281 of The Income-tax Act, 1961, if the Income Tax Department concludes that Mr. Sharma owes taxes of ₹6,00,000, the transfer of the land to his brother will be considered void against the tax claim. This is because the transfer occurred while tax proceedings were pending, and the value of the asset transferred is more than ₹10,000.

However, if Mr. Sharma had sold the land to an unrelated third party for adequate consideration and the buyer had no knowledge of the pending tax proceedings, the sale would likely be deemed valid. Similarly, if Mr. Sharma had sought and received prior permission from the Assessing Officer before transferring the land, the transfer could also be considered valid.