The GAAR reference process involves a structured, multi-stage procedure designed to ensure that anti-avoidance provisions are invoked only after careful consideration. Understanding this process is essential for taxpayers facing GAAR scrutiny.
Stage 1: Assessing Officer Reference
When the Assessing Officer Can Refer
The Assessing Officer may make a reference to the Principal Commissioner or Commissioner at any stage of the assessment or reassessment proceedings before him, if, having regard to the material and evidence available, he considers it necessary to:
- Declare an arrangement as an impermissible avoidance arrangement
- Determine the consequence of such an arrangement
Form 62
The reference by the Assessing Officer to the Commissioner under Section 274(1) shall be in Form No. 62 .
Stage 2: Commissioner's Review
Notice to Assessee
On receipt of a reference, if the Commissioner is of the opinion that GAAR provisions are required to be invoked, he shall:
- Issue a notice to the assessee setting out the reasons and basis for such opinion
- Provide an opportunity of being heard within a period not exceeding sixty days
Assessee's Response
If the assessee fails to furnish any objection within the specified time, the Commissioner shall issue directions declaring the arrangement to be an impermissible avoidance arrangement .
Satisfaction or Reference
If the Commissioner is satisfied that GAAR is not to be invoked, he shall communicate the same in writing .
If not satisfied with the assessee's explanation, the Commissioner shall make a reference to the Approving Panel . The reference must be made in Form No. 64 with all documents submitted in four sets .
Stage 3: Approving Panel Proceedings
Constitution of Approving Panel
The Approving Panel consists of three members including a Chairperson. The Chairperson is a person who is or has been a judge of a High Court. One member shall be a member of Indian Revenue Service not below the rank of Principal Chief Commissioner or Chief Commissioner. One member shall be an academic or scholar having special knowledge of direct taxes, business accounts, and international trade practices.
Procedure Before the Panel
Upon receipt of a reference, the Chairperson shall:
- Circulate the reference among other members within seven days
- Issue notices to both the Assessing Officer and the assessee, affording an opportunity of being heard
Panel's Powers
The Approving Panel may:
- Direct further inquiry
- Call for and examine records
- Require the assessee to furnish documents and evidence
Decision
If members differ, the majority opinion prevails . The Panel shall issue directions specifying the tax year or years to which the declaration applies . The Panel must issue its decision within six months from the end of the month in which the reference was received .
Stage 4: Assessment
The Assessing Officer, on receipt of directions, shall proceed to complete the proceedings as per such directions . No assessment order shall be passed without prior approval of the Commissioner if tax consequences have been determined under GAAR.
Time Limits
Rule 130 prescribes strict timelines:
- Directions under Section 274(3): within one month from the end of the month in which compliance falls
- Reference to Approving Panel: within two months from the end of the month in which final submission is received
- Directions to Assessing Officer: within one month where reference received, or two months where final submission received
Expert Legal Guidance
Understanding the GAAR reference process is essential for taxpayers facing anti-avoidance scrutiny. Anuj Desai & Associates provides expert advisory services on GAAR compliance, helping taxpayers navigate the reference process and protect their interests.