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CMA Intermediate · Direct and Indirect Taxation · Deductions, Rebate and Relief

Which of the following is NOT a consequence that section 181 of the Income-tax Act, 2025 states may be applied to an impermissible avoidance arrangement?

Reducing total income by the tax benefit denied is not a listed consequence; denying the benefit works in the opposite direction. Section 181(2) does list disregarding accommodating parties, reallocating expenditure, deduction, relief or rebate, and treating the situs of an asset at another place.

  1. AReducing the assessee's total income by the amount of the tax benefit deniedCorrect
  2. BDisregarding any accommodating party or treating it and another party as the same person
  3. CReallocating any expenditure, deduction, relief or rebate among the parties
  4. DTreating the situs of an asset at a place other than that provided under the arrangement

Explanation

Section 181(2) lists disregarding accommodating parties (c), reallocating expenditure, deduction, relief or rebate (e), and treating situs at another place (f). Reducing total income by the tax benefit denied is not listed and is contrary to denying the benefit.

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