CMA Final · Direct Tax Laws and International Taxation · GAAR
Which statement about the onus and the consequences once GAAR is invoked is correct?
Where GAAR is invoked, the arrangement is presumed to have been entered into mainly for obtaining a tax benefit, and the taxpayer must prove otherwise. The declaration is not made by the Assessing Officer alone, and the consequences are broader than disallowing one expense.
- AThe taxpayer must prove the arrangement was not entered into mainly to obtain a tax benefit, as the arrangement is presumed to be for tax benefitCorrect
- BThe Assessing Officer alone, without any reference, declares the arrangement impermissible and denies the benefit
- CThe consequences are limited to disallowing the expense claimed
- DGAAR applies only where the arrangement has already been upheld by a court
Explanation
Once the authorities invoke GAAR, the burden of proof is that the main purpose of the arrangement was not to obtain a tax benefit rests on the taxpayer, by presumption. The Assessing Officer must refer the matter to the Approving Panel, so the second option is wrong. Consequences are wide, such as disregarding entities, reallocating income or recharacterising, not limited to disallowance.
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