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Issues:
Challenge of order under section 281 of the Income Tax Act, 1961 and sale proclamation for properties. Interpretation of section 281 and validity of order made by the Income Tax Officer. Timing of transfer in relation to pending assessment proceedings. Existence of intent to defraud the revenue in property transfers. Justification for declaring transfers void and recovery proceedings. Analysis: The petition challenged an order made under section 281 of the Income Tax Act, 1961, and a subsequent sale proclamation for specific properties. The petitioner claimed to have transferred the properties to his sons as a gift in accordance with Mohammadan law. The Income Tax Officer (ITO) issued a notice questioning the transfers, alleging an intent to defraud the revenue due to pending assessments and potential tax liabilities. However, assessments for the relevant years had been set aside, rendering the sale proclamation for tax recovery infructuous. Section 281 of the Income Tax Act declares transfers made with intent to defraud the revenue during pending proceedings as void against any tax claims arising post-proceedings completion. The section does not authorize the making of orders but outlines conditions for voiding transfers. The ITO's order was challenged on the grounds that the section does not require such orders and that pending assessments were not finalized, thus lacking a basis for declaring the transfers void. The timing of the transfer in relation to pending assessment proceedings was crucial. The petitioner argued that assessments for subsequent years were not pending at the time of transfer, questioning the validity of the ITO's conclusions. The court emphasized that transfers with intent to defraud are void only concerning claims from pending proceedings, not for other demands unrelated to the transfer's timing. The petitioner contended that there was no evidence to support an intent to defraud the revenue in the transfers. The court held that the validity of transfers would only be assessed when specific demands are raised against the properties. As the order lacked legal sanction and recovery proceedings were premature, the court quashed the order under section 281. The sale proclamation was not pursued, leading to its withdrawal without costs awarded to either party.
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