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CMA Final · Direct Tax Laws and International Taxation · GAAR

An arrangement is declared an impermissible avoidance arrangement by the Assessing Officer. Which sequence correctly reflects the procedural safeguards before the GAAR consequences are applied?

The Assessing Officer refers the matter to the Principal Commissioner or Commissioner, who after hearing the assessee can refer it to the Approving Panel. The Panel's directions are binding on the Assessing Officer. GAAR cannot be applied directly without this safeguard.

  1. AAssessing Officer applies GAAR directly and the assessee appeals to the Commissioner (Appeals)
  2. BAssessing Officer refers to the Principal Commissioner or Commissioner, who after hearing issues a reference to the Approving Panel; the Panel's directions bind the Assessing OfficerCorrect
  3. CAssessing Officer refers the matter to the Tax Recovery Officer, whose view is binding on the assessee only
  4. DThe assessee must first approach the Settlement Commission, which decides on GAAR applicability

Explanation

The Assessing Officer makes a reference to the Commissioner; if the Commissioner is not satisfied with the assessee's objections he refers the matter to the Approving Panel, headed by a High Court judge, whose directions are binding on the Assessing Officer. The other options skip this mechanism.

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