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CMA Final · Direct Tax Laws and International Taxation · GAAR

Which of the following is a possible consequence of an arrangement being declared an impermissible avoidance arrangement under GAAR?

Under GAAR, the tax authorities may disregard or combine steps of the arrangement, treat connected parties as one person, or recharacterise receipts and expenses. Imprisonment, PAN cancellation or forced change of residence are not prescribed consequences of an impermissible avoidance arrangement.

  1. ADisregarding or combining any step of the arrangement, or treating parties as the same personCorrect
  2. BImposition of imprisonment on the assessee as a mandatory outcome
  3. CAutomatic cancellation of the assessee's PAN
  4. DMandatory conversion of the assessee into a resident for all years

Explanation

The tax consequences include disregarding, combining or recharacterising steps, treating parties as one person, reallocating receipts or expenses, and looking through the arrangement. Imprisonment, PAN cancellation and residence conversion are not GAAR consequences.

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