Reference to Authorities to Invoke GAAR
Introduction
The General Anti-Avoidance Rule (GAAR) allows tax authorities to declare an arrangement as an Impermissible Avoidance Arrangement (IAA). If the Assessing Officer (AO) identifies such an arrangement during assessment or reassessment, he may refer it to the Principal Commissioner (PCIT) or Commissioner (CIT). If the CIT is not satisfied with the assessee’s objections, he refers the case to the Approving Panel for final determination.
Reference to PCIT/CIT
- If the AO suspects tax avoidance through an IAA, he may refer the case to the PCIT/CIT
- Upon receiving the reference, the PCIT/CIT must issue a notice to the assessee within 60 days, stating reasons for invoking GAAR and allowing the assessee to submit objections.
- If the PCIT/CIT is satisfied with the objections, GAAR is not applied, and an order is issued to the AO.
- If the PCIT/CIT is not satisfied, he refers the matter to the Approving Panel for final determination.
Role of Approving Panel
- The Approving Panel is constituted by the Central Government and consists of:
o A High Court Judge (Chairperson).
o An IRS officer (Principal CCIT or CCIT).
o An academic/scholar specialising in taxation, accounts, or trade practices.
- The Panel’s tenure is one year, extendable up to three years.
Decision by Approving Panel
- The Approving Panel reviews the case and issues directions on whether the arrangement is an Impermissible Avoidance Arrangement.
- It specifies the applicable assessment years for its decision.
- Binding Nature of Directions:
o The assessee, CIT, and AO must comply with the Panel’s directions.
o No appeal can be filed against these directions.
o If applicable to other assessment years, the AO must apply GAAR without requiring a fresh reference.
Time Limit for Panel’s Directions
- The Approving Panel must issue its decision within 6 months from the end of the month in which the reference was received.
- Exclusions from the time limit:
o From the date the Approving Panel first directs the Principal CIT/CIT to conduct inquiries under Section 90/90A, until the information is last received or one year, whichever is earlier.
o From the date a court grants a stay on Approving Panel proceedings until the Panel receives the certified copy vacating the stay.
If the period remaining with the Approving Panel immediately after excluding the above period is less than 60 days then the same shall be extended to 60 days and the period of 6 months shall be deemed to be extended accordingly.
Powers of the Approving Panel
- The Panel has powers similar to the Authority for Advance Rulings (AAR).
- It can:
o Order further inquiries through the CIT.
o Examine records and summon documents.
o Seek evidence from the assessee.
- If members disagree, the decision is based on the majority opinion.