There are numerous instances in which the Income-tax Department freezes or attaches an assessee’s bank account. In many such cases, the assessee is unaware of the exact legal basis of the action and is uncertain about the correct procedure to get the account unfrozen. This creates severe hardship- both for individuals and for businesses- because once the bank account is frozen, routine payments (salary, statutory dues, vendor payments, EMIs, and day-to-day operating expenses) cannot be made, which can bring normal operations to a standstill.
To address this practical problem, we will examine, systematically and in detail, the legal provisions, typical circumstances, procedural safeguards, and the most effective remedies for unfreezing/withdrawing the attachment of bank accounts.
At the outset, it is important to clarify that unfreezing a bank account is not an automatic or routine process. It is not sufficient to merely submit a simple letter to the Assessing Officer and expect the bank account to be released.
To secure de-attachment/unfreezing, the assessee must file a proper and detailed application before the Assessing Officer, duly supported by the relevant documents (as discussed in this article). Further, along with filing the application, the assessee must simultaneously take immediate substantive steps to address the underlying cause- i.e., remove, reduce, or neutralise the outstanding demand or the specific action that triggered the attachment- so that the issue is resolved at its root and the bank account can be restored for normal operations.
First, we understand what freezing means in the Income-tax recovery practice?
In most cases, a "freeze" is functionally a debit restriction imposed by the bank because it has received (i) a garnishee/attachment notice, (ii) a provisional attachment order, or (iii) a restraint order under search/investigation. Operationally, banks typically act only when the Department issues the attachment/restraint communication and they unfreeze only when the bank receives a written revocation/modification letter (or a court order).
In what situations can the Income-tax Department freeze/attach a bank account?
This article is intended to cover the issue comprehensively; however, it may not be an exhaustive list of every possible scenario or remedy. If any point relevant to your case has not been covered, or if you require clarification on any aspect, please feel free to contact me using the contact details provided at the end of this article.
A. Recovery of outstanding demand (most common) - Section 226(3) (garnishee notice to bank)
When used: Where a demand is outstanding and there is no effective stay, the AO/TRO can require the bank (as a person "holding money" for the assessee) to remit amounts to the Government- this is the classic bank attachment route.
What can be attached (including FDs): Savings/current balances; and FDs can also be enforced even before maturity (department "steps into the shoes" of assessee for premature encashment), as upheld by Karnataka HC in Vysya Bank Ltd. v. JCIT (2000) 241 ITR 178 (Kar).
Notice to assessee- prior service not mandatory: Delhi HC in GECAS Services India Pvt. Ltd. v. ITO (Delhi HC, order dated 11.07.2017) held there is no illegality if the Department does not issue the copy to assessee before / simultaneously with bank notice; the statutory requirement is that a copy be forwarded to assessee (not necessarily pre-served).
Administrative control/approval: CBDT has clarified that prior approval of Pr. CIT/Pr. DIT/CIT/DIT is required before issuing notice u/s 226(3) (and requisition u/s 226(2)).
B. Provisional attachment during pending assessment/reassessment - Section 281B
When used: During pending assessment/reassessment, if AO forms an opinion that attachment is necessary to protect revenue, AO may provisionally attach "property" (including bank accounts), subject to approvals and statutory safeguards.
Time limits/safeguards:
- Initial attachment is up to 6 months, extendable as per statute (overall statutory outer limits apply).
- Assessee-friendly substitution: on furnishing bank guarantee, AO shall revoke attachment; revocation is time-bound- within 15 days, or within 45 days where valuation reference is made.
C. Search / investigation restraint order - Section 132(3) read with Section 132(8A) (hard 60-day cap)
When used: During/after search, where seizure is "not practicable", authorised officer can issue a restraint order u/s 132(3) directing that the asset not be dealt with banks often implement this as a debit freeze.
Hard statutory cap: Section 132(8A) provides the restraint order u/s 132(3) shall not remain in force for more than 60 days from the date of the order.
Delhi HC reinforcement: M/s Pooja Trading Co. & Anr. v. DDIT (Inv), Delhi HC (08.05.2024) holds such restraint/freeze cannot be continued beyond the statutory window; if continuation is needed, Department must shift to another lawful mechanism (e.g., 281B, if conditions satisfied).
D. Attachment through Tax Recovery Officer (TRO) machinery - Section 222 + Second Schedule
Where recovery is routed through the TRO (after recovery certificate), attachment is carried out under the Second Schedule framework. In practice, bank still receives attachment/remittance directions, but the legal "engine" is the TRO/Second Schedule procedure. (Also, CBDT/Departmental manuals emphasize procedural discipline for TRO actions.)
"Way out": How to unfreeze / de-attach the bank account (fastest practical route)
First Identify the exact legal trigger (non-negotiable)
Ask the bank for the exact communication received (usually mentions 226(3) / 281B / 132(3) / TRO reference). Your remedy and timelines depend entirely on this.
If the account is attached due to outstanding demand - Section 226(3): all practical de-freeze options (including partial payment)
Core operational point: Bank unfreezes only after revocation/modification is issued to the bank
The AO/TRO has express power to amend / revoke the garnishee notice: Section 226(3)(vii). Practically, your application must specifically request issuance of revocation/modification letter to the bank.
Option A - Stay of demand / treat assessee "not in default" - Section 220(6) (best for "pay part and contest rest")
If appeal is pending (typically CIT(A)), file/press stay u/s 220(6) and pray for withdrawal of bank attachment.
CBDT stay framework (first appeal stage): CBDT OM 29.02.2016 (and subsequent modifications) provides the administrative framework- classically 15% of disputed demand for stay (with later modifications including 20% in certain revisions).
High-value leverage for urgent de-freeze: Bombay HC in Khandelwal Laboratories (P) Ltd. v. Dy. CIT (2016) 383 ITR 485 (Bom) held coercive recovery / attachment u/s 226(3) is not permissible until the stay application u/s 220(6) is disposed of, and granted relief where garnishee was issued during pendency of stay. This is directly usable when attachment is done without deciding stay.
Result: Once stay is granted (often with a reasonable deposit/security), seek immediate revocation/modification u/s 226(3)(vii) to lift freeze.
Option B - Instalments / extension of time - Section 220(3) (structured payment → seek lift/relaxation)
If immediate full payment is not possible, apply u/s 220(3) for instalments and request that attachment be lifted/relaxed subject to compliance. (Practically, many AOs relax after first instalment + written undertaking.)
Option C - Security instead of cash (negotiated de-freeze) - use stay conditions + 226(3)(vii)
Offer revenue-protective security (commonly accepted in practice):
- Bank guarantee; or
- FD lien/marking; or
- other acceptable security/charge
Once revenue is secured, insist on revocation/modification to the bank under 226(3)(vii).
Option D - Refund set-off to reduce demand - Section 245
If refund is due/expected, request set-off u/s 245 (after statutory intimation procedure) and then seek lifting of the attachment to that extent. CBDT Instruction No. 12/2013 is commonly cited on the mandatory "intimation + response" discipline for 245 adjustments.
Option E - Fix wrong/duplicate demand quickly (portal + rectification) - Section 154 + "Response to Outstanding Demand"
Where attachment is due to incorrect/duplicated/already paid demand:
- File rectification u/s 154 (where applicable);
- File "Response to Outstanding Demand" on portal with proofs; and
- Simultaneously seek recovery kept in abeyance and request 226(3)(vii) revocation pending verification.
Option F - Partial release / partial operation request (salary/statutory dues/threshold model)
Along with stay/instalment/security request, seek partial relaxation (example prayers):
- permit transactions for salaries, statutory dues, GST/TDS, essential business expenses; or
- allow account operation up to a threshold; remit only surplus over threshold.
Legally, this is implemented only if AO issues a modified direction to the bank (again, via 226(3)(vii) ).
My preferred options for getting the bank account unfrozen are:
1. Obtaining a stay of demand and having the assessee treated as "not in default", and/or
2. Filing the appropriate appeal before the Income-tax Department.
In either case, the process must be supported by a formal written communication to the Assessing Officer, clearly setting out the facts, legal grounds, and the hardship caused by the attachment, and specifically requesting the AO to issue the requisite withdrawal/modification instruction to the bank so that the bank account is unfrozen and normal operations are restored.
If the bank account is attached under Section 281B (provisional attachment): fastest de-freeze
Offer bank guarantee (statutory substitution) - Section 281B(5)
On furnishing bank guarantee, AO shall revoke attachment; revocation is time-bound (15 days / 45 days).
Also verify: whether the attachment is within statutory time limits and valid approvals/continuations.
If the freeze is linked to search/investigation restraint - 132(3) / 132(8A) (60-day cap)
Compute 60 days from the restraint order date; if beyond 60 days with no lawful substitute mechanism, press statutory cap u/s 132(8A) and rely on Pooja Trading (Delhi HC, 08.05.2024) for de-freeze.
Escalation remedies where AO/TRO does not respond
- CIT(A) / appellate authority interim protection: Some courts have recognised incidental/ancillary powers to make appeal effective (jurisdictional position varies). Example: Paulsons Litho Works v. ITO (1992) 208 ITR 676 (Mad) discusses appellate authority powers in stay context.
- ITAT stay power (where appeal at ITAT): SC in ITO v. M.K. Mohammed Kunhi recognised incidental powers of ITAT to grant stay to make appellate jurisdiction effective.
- Writ (High Court): Where there is arbitrariness/violation of stay procedure/harsh attachment, writ is often the fastest lever; Khandelwal Laboratories (Bom) is a strong authority when attachment is done despite pending stay petition.
Conclusion
Freezing/attachment of a bank account by the Income-tax Department is a serious and often sudden action that can bring an assessee’s personal finances or business operations to an immediate standstill. As explained above, such action typically arises under one of the recognised statutory routes- recovery for outstanding demand (Section 226(3)) , provisional attachment during pending proceedings (Section 281B) , search/investigation restraint (Section 132(3) read with Section 132(8A), subject to a strict 60-day cap) , or TRO recovery machinery (Section 222 read with the Second Schedule) . The most important practical takeaway is that unfreezing is not automatic and cannot be achieved through a mere informal request; it requires a proper, evidence-backed application aligned to the exact legal trigger, along with immediate steps to neutralise the underlying cause - such as filing an appeal, seeking stay of demand under Section 220(6) , requesting instalments under Section 220(3) , offering security, pursuing rectification for incorrect demand, or seeking refund adjustment under Section 245 , as the facts permit. Equally, from an operational standpoint, the account is typically restored only when the bank receives a written withdrawal/modification direction from the AO/TRO (often invoked through Section 226(3)(vii) ) or a competent judicial order. Therefore, timely identification of the applicable provision, prompt filing of the correct remedy, and a coordinated strategy combining procedural compliance and substantive demand management are the most effective way to secure early de-attachment and restore normal banking operations.
The author can also be reached at varunmukeshgupta96@gmail.com
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