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Direct Tax Laws and International Taxation · GAAR

GAAR Procedure and Approving Panel Under Section 274

Updated 11 October 2026 · Fact-checked

Under section 274 of the Income-tax Act, 2025, the Assessing Officer refers a case to the Principal Commissioner or Commissioner. If Chapter XI looks fit to invoke, a notice goes to the assessee. If the assessee objects and is not satisfied, the matter goes to a three-member Approving Panel, whose directions bind the assessee and the department.

Understand GAAR Procedure and Approving Panel

GAAR lets the tax department deny a tax benefit when an arrangement is an impermissible avoidance arrangement. Because the power is strong, the Act does not let the Assessing Officer (AO) decide alone. Section 274 sets a step-by-step process with safeguards for the assessee.

The AO starts it. At any stage of assessment or reassessment, the AO may refer the matter to the Principal Commissioner or Commissioner (PCIT/CIT). The AO must consider it necessary, on the material available, to declare an arrangement an impermissible avoidance arrangement and to determine its consequences under Chapter XI.

The PCIT/CIT then forms an opinion. If Chapter XI needs to be invoked, he issues a notice to the assessee stating the reasons and basis. The assessee can file objections and gets a hearing within the period in the notice, which cannot exceed sixty days.

Three outcomes follow. If the assessee gives no objection in time, the PCIT/CIT issues directions as he deems fit on declaring the arrangement. If the assessee objects and the PCIT/CIT is still not satisfied, he refers the matter to the Approving Panel. If he is satisfied that Chapter XI should not be invoked, he passes a written order and sends it to the AO with a copy to the assessee.

The Approving Panel has three members: a Chairperson who is or has been a High Court judge, an Indian Revenue Service member not below the rank of Principal Chief Commissioner or Chief Commissioner, and an academic or scholar with special knowledge of direct taxes, business accounts and international trade practices. Its directions bind the assessee and the department, and no appeal lies against them under the Act.

Key rules to remember

Who makes the reference
AO → PCIT/CIT (section 274(1))
Can be made at any stage of assessment or reassessment proceedings.
Objection period in the notice
Not exceeding 60 days (section 274(2)(b))
The PCIT/CIT sets the period in the notice, subject to this ceiling.
Reference to Approving Panel
Assessee objects + PCIT/CIT not satisfied → Approving Panel (section 274(4))
If the assessee does not object, the PCIT/CIT gives directions himself under section 274(3).
Time limit for panel directions
Within 6 months from the end of the month in which the reference was received (section 274(13))
Certain periods are excluded and a 60-day minimum applies, as in section 274(14) and (15).
Minimum remaining period
If remaining period after exclusions < 60 days, it is extended to 60 days (section 274(15))
The six-month period is deemed extended accordingly.
Excluded periods
(a) inquiry through the competent authority under an agreement under section 159, limited to one year or the actual period if less; (b) period of a court stay
Stay period runs from the stay to receipt of the certified copy of the vacating order.
Panel composition
3 members: Chairperson (High Court judge, sitting or former) + IRS member + academic/scholar
Term is ordinarily one year, extendable from time to time up to three years.
Approval of assessment order
Prior approval of PCIT/CIT if Chapter XI tax consequences are in the order (section 274(12))
Applies to assessment or reassessment orders.

How to solve GAAR Procedure and Approving Panel questions

Treat every GAAR procedure question as a flow chart. Find where the case stands, then apply the rule for that stage.

  1. 1Identify the stage: AO's reference, PCIT/CIT notice, assessee's response, Approving Panel, or the AO's final order.
  2. 2Check who holds the power at that stage. The AO refers, the PCIT/CIT issues the notice, and the panel gives directions.
  3. 3Check the assessee's response. No objection in time leads to PCIT/CIT directions. Objection with the PCIT/CIT still dissatisfied leads to the Approving Panel. If the PCIT/CIT is satisfied, he passes a written order and Chapter XI is not invoked.
  4. 4If the panel is involved, apply its rules: composition, hearing opportunity, majority decision, tax year specification, binding effect and no appeal.
  5. 5Compute the time limit: six months from the end of the month of receipt. Then add the excluded periods and check the 60-day minimum.
  6. 6Close with the AO's duty: complete the proceedings as per the directions, and obtain PCIT/CIT approval if Chapter XI consequences are in the order.
  7. 7State your conclusion in one line, citing the section and sub-section.

Quickest way: Stage-by-stage memory chain

When to use it: Use it for MCQs and short case questions that ask who does what, or within what time.

  1. Remember the chain: AO → PCIT/CIT → notice (up to 60 days) → Panel (3 members) → directions (6 months) → AO completes.
  2. For time limits, take the end of the month of receipt, add six months, then adjust for exclusions.
  3. For the panel, recall the three members: High Court judge Chairperson, IRS member, academic.
  4. For appeals, remember that none lie against panel directions under the Act.

Common mistakes in GAAR Procedure and Approving Panel

  • Saying the AO sends the case directly to the Approving Panel.

    Students skip the PCIT/CIT stage.

    Fix: The AO refers to the PCIT/CIT. Only the PCIT/CIT refers to the panel, and only when the assessee objects and he is not satisfied.

  • Counting the six months from the date of receipt of the reference.

    The words 'end of the month' are overlooked.

    Fix: Count six months from the end of the month in which the reference was received.

  • Treating the 60 days as a fixed period for objections.

    Students remember the number but not the wording.

    Fix: The period is specified in the notice and must not exceed sixty days.

  • Claiming the assessee can appeal against the panel's directions.

    Mixing up with ordinary assessment orders.

    Fix: No appeal lies under the Act against the panel's directions. They bind the assessee, the PCIT/CIT and subordinate authorities.

  • Forgetting the exclusions and the 60-day floor in the time limit.

    Only the six-month rule is memorised.

    Fix: Exclude inquiry time under a section 159 agreement (capped at one year) and court stay time. If the remaining period is under 60 days, it becomes 60 days.

  • Assuming the panel can only decide for the year under assessment.

    Procedure is read as year-specific.

    Fix: The panel specifies the tax year or years to which the declaration applies. The AO then need not seek fresh directions for those other years.

Worked examples

Example 1

An AO refers a case to the Principal Commissioner on 12 August 2027. The Approving Panel receives the Commissioner's reference under section 274(4) on 20 September 2027. No period is excluded. By which date must the panel issue its directions?

Show the solution
  1. The reference to the panel is received in September 2027.
  2. The period runs from the end of that month, 30 September 2027.
  3. Add six months: the period ends on 31 March 2028.
  4. No exclusion applies, so no adjustment is needed.

Answer: The Approving Panel must issue directions by 31 March 2028 under section 274(13). The AO's reference date of 12 August 2027 does not matter for this limit.

Example 2

After the AO's reference, the Commissioner issues a notice to Shree Textiles Ltd under section 274(2) giving 30 days to object. The company files no objection. What happens next, and does the company have a right of appeal?

Show the solution
  1. The notice period is valid because it does not exceed sixty days.
  2. The company did not object within the time specified.
  3. Under section 274(3) the Commissioner issues such directions as he deems fit on declaring the arrangement an impermissible avoidance arrangement.
  4. The reference to the Approving Panel under section 274(4) arises only when the assessee objects, so it does not apply here.
  5. Under section 274(10) the AO completes the proceedings as per these directions and Chapter XI. If tax consequences are determined in the order, section 274(12) requires prior approval of the Commissioner.

Answer: The Commissioner gives directions himself and the case does not go to the Approving Panel. The AO completes the assessment as per the directions, with the Commissioner's prior approval if Chapter XI consequences are included.

Exam tips

  • Draw the flow chart first in a descriptive answer, then explain each stage with the sub-section number.
  • In MCQs, watch the wording: 'not exceeding sixty days', 'end of the month' and 'three members'.
  • Use the rule on the 60-day minimum and the exclusions in numerical questions on the panel's time limit.
  • For case-based answers, state the stage, the authority, the law and the conclusion in that order.
  • Mention section 283 only for a revised assessment: notice under section 280 may be issued to give effect to the panel's directions, subject to the time-bar rules in that section.

Practice questions from GAAR

GAAR Procedure and Approving Panel in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

GAAR Procedure and Approving Panel: frequently asked questions

Who can refer a case to the Approving Panel?

Only the Principal Commissioner or Commissioner can refer it, under section 274(4). He does so when the assessee objects to the proposed action and he is not satisfied with the explanation after hearing the assessee.

Who sits on the GAAR Approving Panel?

It has three members including a Chairperson. The Chairperson is or has been a High Court judge. One member is from the Indian Revenue Service not below the rank of Principal Chief Commissioner or Chief Commissioner. The third is an academic or scholar with special knowledge of direct taxes, business accounts and international trade practices.

Can the assessee appeal against the panel's directions?

No appeal under the Act lies against directions issued under section 274(6). The directions bind the assessee, the Commissioner and subordinate income-tax authorities.

How long does the Approving Panel have to issue directions?

It must issue directions within six months from the end of the month in which the reference was received. Time for a section 159 agreement inquiry (up to one year) and any court stay is excluded. If the remaining period is under sixty days, it is extended to sixty days.