TaxTMI 
TaxTMI 
Procedures and Legal Safeguards of "impermissible avoidance arrangements" (IAAs) : Clause 274 of the Income Tax Bill, 2025 Vs. Section 144BA of Income-tax Act, 1961
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.... to consolidate and modernize tax law, Clause 274 serves as a critical provision for the continued enforcement of anti-avoidance measures. The clause's importance is underscored by its procedural safeguards, multi-tiered review process, and the binding nature of its outcomes, all of which seek to balance the interests of revenue with taxpayer rights. This commentary provides a detailed analysis of Clause 274, its objectives, procedural structure, practical implications, and a comparative evaluation with Section 144BA and Rule 10UB. The analysis aims to highlight both continuity and change in the anti-avoidance framework, and to assess the efficacy and fairness of the proposed regime. 2. Objective and Purpose The core objective of Clause 274 is to provide a structured, transparent, and fair process for the identification and determination of impermissible avoidance arrangements during income tax assessments or reassessments. The legislative intent is rooted in the policy imperative to deter sophisticated tax avoidance schemes that, while technically compliant with the letter of the law, defeat its spirit and purpose. Key policy considerations and purposes include: * Deterren....
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....ons. Interpretational Issues: * The threshold for "necessity" is not defined, leaving room for subjective interpretation by the AO. However, the requirement to record reasons and provide an opportunity of being heard mitigates arbitrariness. 3.2. Non-Response and Directions: Sub-sections (3) and (4) Text: If the assessee fails to object within the specified period, the Principal Commissioner/Commissioner may issue directions as deemed fit to declare the arrangement impermissible. If the assessee objects but the explanation is unsatisfactory, the matter is referred to the Approving Panel. This closely tracks Section 144BA(3)-(4). The provision ensures that taxpayers cannot frustrate proceedings by non-participation, while also providing a higher level of scrutiny before an adverse declaration is made in contested cases. Key Points: * Directions by the Principal Commissioner/Commissioner in case of no objection are final at this stage. * Where objections are raised, the Approving Panel acts as an independent review body, adding a layer of procedural fairness. 3.3. Approving Panel Proceedings: Sub-sections (6)-(9), (13)-(15), (18)-(21) Text: The Approving Panel, upon refer....
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....affed, resourced, and operate efficiently. The extension of powers vested in the Board for Advance Rulings to the Approving Panel (mutatis mutandis) is a significant feature, providing the Panel with quasi-judicial powers for effective adjudication. 4. Practical Implications Clause 274, by setting out a detailed and multi-stage process, has significant practical implications for all stakeholders: * For Taxpayers: * There is enhanced transparency and due process, with clear timelines and opportunities to present objections and evidence. * However, the inability to appeal Approving Panel directions (except by way of writ jurisdiction) may be viewed as a limitation on remedies. * Taxpayers must be prepared for detailed scrutiny of arrangements and should maintain robust documentation to defend commercial substance and business purpose. * For Tax Authorities: * The provision provides clear procedural guidance, reducing the risk of procedural lapses that could invalidate proceedings. * The involvement of an independent Approving Panel may increase administrative workload but enhances credibility and reduces allegations of bias. * For the Revenue: * The regime is desi....
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....nel, as per Section 387, may signify a broader or more updated set of powers compared to the Authority for Advance Rulings under s. 245U. * Procedural clarity is enhanced by detailed sub-sections on exclusion of time for international inquiries and court stays, with a minimum 60-day buffer for issuing directions. 5.4. Rule 10UB: Procedural Detailing Rule 10UB operationalizes Section 144BA by prescribing: * Mandatory notice to the assessee before making a reference, specifying the arrangement, tax benefit, reasons for invoking GAAR, and supporting documents. * Standardized forms for references and directions (Forms 3CEG, 3CEH, 3CEI), ensuring uniformity and record-keeping. * Requirement for the Commissioner to record satisfaction before referring to the Approving Panel. While Clause 274 does not itself specify these procedural details, its sub-section (24) expressly empowers the Board to make rules for the constitution and functioning of the Approving Panel, mirroring the existing approach u/r 10UB. It is expected that corresponding rules will be notified under the new Act to fill in these operational details. 5.5. Ambiguities and Potential Issues * Substantive Criteri....