GAAR Part 2: consequences, the section 144BA machinery and the remedy

In one line. Chapter X-A is only half the subject: what follows a finding of impermissibility is a power to recharacterise almost anything, exercised through a three-stage machinery in which the taxpayer’s leverage sits at the second stage and against whose central decision no appeal lies.

This is Part 2 of three. Part 1 sets out the substantive test, the two gates in Rule 10U, the two cumulative requirements of section 96(1), the four alternative descriptions in clauses (a) to (d) and the definitions in section 102 that decide who is inside an arrangement. This Part takes up two things. The first belongs to the test rather than to its consequences: section 99, which permits connected persons to be treated as one and an accommodating party to be disregarded in deciding whether a tax benefit exists at all, and which is therefore how a benefit is found in a person who has none and how the three crore threshold in Rule 10U is reached. The second is what may be done once the test is satisfied: how wide the section 98 consequences run, whether a specific anti-avoidance rule displaces the general one, the section 144BA machinery from the reference to the Approving Panel’s directions, what remedy survives, and what the three Telangana High Court decisions actually decide.

The facts in the background throughout are those of M/s. EKGE Retail LLP v. Assistant Commissioner of Income-Tax, W.P. No. 21210 of 2022, reserved on 6 August 2026 and pronounced by the Telangana High Court on 13 October 2026. A retail business was sold as a going concern on 13 June 2017 for Rs 2,10,46,21,110 against a net worth of Rs 33,70,26,715 computed under section 50B, the long-term capital gains being taken at Rs 1,75,91,50,508. Part of the surplus was invested in listed equities, shares were bought before bonus issues and an equivalent quantity sold afterwards, and the resulting short-term capital loss of Rs 49,32,71,673 was set against the slump sale gains under section 70(2). The Approving Panel declared that an impermissible avoidance arrangement by directions dated 23 February 2022 under section 144BA(6), and the Court quashed them for failure on every ingredient.

Section 99, and how a tax benefit is found where there is none

Section 99, which becomes section 182 of the Income-tax Act, 2025, is one sentence long and is usually read as an appendix to section 98. It operates a stage earlier, at the point of deciding whether a tax benefit exists at all:

“For the purposes of this Chapter, in determining whether a tax benefit exists,—(i) the parties who are connected persons in relation to each other may be treated as one and the same person; (ii) any accommodating party may be disregarded; (iii) the accommodating party and any other party may be treated as one and the same person; (iv) the arrangement may be considered or looked through by disregarding any corporate structure.”

A taxpayer whose own position shows no tax benefit can still be inside the Chapter, because the benefit can be located in a connected person and the two collapsed into one. The answer to “where is my tax benefit?” may be that it is in somebody else’s return.

The same collapsing is what lifts an arrangement over the three crore line. Rule 10U(1)(a) aggregates the benefit across all the parties; section 99 decides who counts as one person for the purpose of finding a benefit at all. An adviser modelling the threshold on the client’s own numbers is modelling the wrong thing.

And a corporate structure can be disregarded for this purpose without anything being decided about the structure itself. Section 99(iv) is a limited look-through, directed only at the existence of a benefit, and it is worth insisting on that limit: a finding under section 99 is not a finding that the company is a sham.

Two further points are worth having. The four items in section 99 reappear almost word for word among the consequences in section 98(1), so the same collapsing does duty twice, once to find a benefit and again to tax it; a taxpayer answering a section 99 finding is therefore answering the consequence as well. And nothing in the section requires the person in whom the benefit is found to be the person assessed, which is what makes it the Revenue’s route into a group.

A two-line example shows the shape of it. A loss is claimed by A, whose own tax saving is two crore rupees and so below the Rule 10U line. B, a company in which A’s spouse holds thirty per cent, takes the matching gain. Collapse A and B under section 99 and the aggregate benefit is above the line, the arrangement is within the Chapter, and the consequences can then be visited on either.

The defence is to attack the connected person finding and the accommodating party finding on the statutory definitions, before arguing about purpose. “Connected person” is defined in section 102(4) and turns on the twenty per cent substantial interest test in section 102(8); “accommodating party” is defined in section 97(3) and requires that the main purpose of that party’s participation be to obtain a tax benefit for the assessee. Both are findings of fact that have to be made, and if they are not made the aggregation falls away with them.

The consequences, if GAAR does bite

Most of the argument in these files is about whether Chapter X-A applies at all, and the consequences if it does repay more attention than they usually get. They are drastic, and they should be explained before a client is told that the worst case is a disallowed loss.

Section 98, which becomes section 181 of the Income-tax Act, 2025, provides by sub-section (1) that where an arrangement is declared impermissible, the consequences in relation to tax, “including denial of tax benefit or a benefit under a tax treaty”, shall be determined in such manner as is deemed appropriate, “including by way of but not limited to” seven listed consequences: disregarding, combining or recharacterising any step or the whole; treating the arrangement as if it had not been entered into; disregarding an accommodating party or treating it and another party as the same person; deeming connected persons to be one and the same person; reallocating any accrual or receipt of a capital or revenue nature, or any expenditure, deduction, relief or rebate, among the parties; treating the place of residence of a party or the situs of an asset or transaction as being somewhere else; and looking through any arrangement by disregarding a corporate structure.

Sub-section (2) adds that for those purposes any equity may be treated as debt or vice versa, any accrual or receipt of a capital nature may be treated as of a revenue nature or vice versa, and any expenditure, deduction, relief or rebate may be recharacterised.

Six practical observations.

The list is open. “Including by way of but not limited to” means the seven consequences are illustrations. There is no closed menu, and an order that does something not on the list is not for that reason bad.

Recharacterisation can increase the tax beyond the benefit denied. Treating equity as debt or a capital receipt as revenue does not merely cancel the arrangement; it can produce a liability the taxpayer never had on any view of the transaction. That is the real exposure in a GAAR file and it is the reason the chapter is described in the EKGE order as visiting “consequences of the gravest kind”.

A treaty is not an answer. Section 90(2) normally allows a taxpayer to take whichever of the Act or the treaty is more beneficial. Section 90(2A), and section 90A(2A) for specified associations, disapplies that rule so far as Chapter X-A is concerned. That is the statutory basis for the words “denial of … a benefit under a tax treaty” in section 98(1) and for the whole of the Tiger Global dispute. Two limits are worth stating: section 90(2A) says nothing about whether the arrangement is impermissible, only that the treaty will not save it if it is; and where the treaty contains its own limitation of benefits article, the taxpayer’s argument is that the contracting states have themselves measured the mischief, which is the treaty analogue of the argument on specific anti-avoidance rules made below.

There is no corresponding adjustment. Chapter X-A contains no mechanism for relieving the mirror treatment adopted by another party or in another year. A reallocation under section 98(1) can therefore leave the same amount taxed twice across a group, and nothing in the Chapter requires the Revenue to unwind the other side. Put the double taxation effect on the record before the Panel, because once directions issue the Assessing Officer has no discretion to mitigate it.

And know Rule 10UA, because it is the only provision that limits consequences. It reads: “For the purposes of sub-section (1) of section 98, where a part of an arrangement is declared to be an impermissible avoidance arrangement, the consequences in relation to tax shall be determined with reference to such part only.” Three things follow. It is addressed to the determination of consequences and not to the declaration, so it is argued after the declaration has been lost and should therefore be pleaded in the alternative in the objections rather than raised for the first time before the Assessing Officer. Where the impugned part is one leg of a composite transaction, “such part only” is the argument for leaving the commercial transaction around it undisturbed, which is the natural answer to a reference built on the Explanation to section 95. And although the rule speaks of section 98(1), the recharacterisation powers in section 98(2) are expressed to operate “for the purposes of sub-section (1)”, so the better view is that a consequence confined by Rule 10UA confines the recharacterisation with it. Its counterpart under the new Act is rule 127 of the Income-tax Rules, 2026.

The consequences can reach years that are not before the officer. Section 144BA(11) provides that where the Panel’s direction specifies a previous year other than the one in which the reference arose, the Assessing Officer must apply it to that other year, and no fresh direction is needed. So the exposure is not confined to the year under assessment, and a taxpayer must address the other years at the Panel stage.

And there is a penalty question that should be put to the client at the start. A Chapter X-A adjustment is an addition to total income like any other. The Revenue’s position in these files is under-reporting in consequence of misreporting under section 270A, at 200 per cent of the tax on the under-reported income, on the footing that the claim was not bona fide, and immunity under section 270AA is unavailable where misreporting is alleged. The taxpayer’s answer is that a claim made on fully disclosed facts, computed under provisions applied according to their terms and disclosed in the return and the tax audit report, is not misreporting merely because a declaration under section 96 has been made against it, and that the penalty question is separate from and later than the Chapter X-A question. No decided case applying a section 270A(9) finding to a GAAR addition could be traced, so the position is at present a matter of argument rather than of authority, and it should be described to a client in those terms.

GAAR or SAAR: section 100 and the section 94(8) problem

This is the central unresolved question in Indian anti-avoidance law. Before setting it out, one thing should be said plainly: it does not appear anywhere in the EKGE order. Section 100 is not mentioned, section 94(8) is not mentioned, and so far as the published record goes the point was not argued. A reader should not take the decision as authority on it either way.

Section 100, carried into section 183(a) of the Income-tax Act, 2025 word for word, reads in its entirety:

“The provisions of this Chapter shall apply in addition to, or in lieu of, any other basis for determination of tax liability.”

Section 95(1) opens “Notwithstanding anything contained in the Act”. Taken together, the Revenue’s case is simple and textually strong: Chapter X-A is a later chapter with an overriding clause, it is expressed to apply in addition to any other basis of determining liability, and nothing in it says that the existence of a specific rule ousts it.

Why the question arises on bonus stripping

The provisions in this section are given in their 1961 numbering only, their 2025 counterparts not having been traced for this article. Section 94 is the Act’s own anti-stripping code. Sub-section (7), unchanged throughout the period relevant to these cases, deals with dividend stripping:

“(7) Where—(a) any person buys or acquires any securities or unit within a period of three months prior to the record date; (b) such person sells or transfers—(i) such securities within a period of three months after such date; or (ii) such unit within a period of nine months after such date; (c) the dividend or income on such securities or unit received or receivable by such person is exempt, then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.”

Sub-section (8) deals with bonus stripping. As it stood for assessment year 2018-19 it read:

“(8) Where—(a) any person buys or acquires any units within a period of three months prior to the record date; (b) such person is allotted additional units without any payment on the basis of holding of such units on such date; (c) such person sells or transfers all or any of the units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional units referred to in clause (b), then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.”

The word is “units”, and “unit” was then defined by the Explanation to mean a unit within the Explanation to section 115AB, that is a mutual fund unit. Sub-section (7), sitting immediately above it, said “securities or unit” throughout. The contrast is within the same section and is hard to read as an accident.

That contrast was tested before GAAR and the taxpayers won. The Tribunal at Bangalore held in DCIT v. B.G. Mahesh, ITA No. 450/Bang/2012, pronounced on 20 September 2013, on shares of Dabur, HCL Technologies and Sundaram Fasteners bought cum-bonus and sold ex-bonus, that the Explanation confined sub-section (8) to mutual fund units and that “the intention of legislative was to exclude the shares of companies from the ambit of the provisions of section 94(8)”. The Tribunal at Pune held the same in DCIT v. Adar Cyrus Poonawalla, ITA Nos. 2252 and 2273/PUN/2014, pronounced on 2 February 2017 on HCL Technologies shares, finding that Parliament “restricted the scope of bonus stripping u/s 94(8) of the Act only to the units and did not extend it to the shares” and rejecting the Assessing Officer’s inference of dubious tax planning.

One caution on B.G. Mahesh before it goes into a submission: the order also records, at paragraph 6.4.1, that the assessee “has not incurred any loss as the loss claimed by him is a notional loss”. The Revenue’s appeal was still dismissed, but that sentence cuts against the clean proposition the case is usually cited for, and it will be produced.

A third decision is often added to that list and should not be, at least not for that proposition. Marine Container Services South Pvt. Ltd. v. ACIT, T.C.(A) No. 17 of 2009, decided by the Madras High Court on 12 November 2018, held that section 94(8) is prospective and “neither curative nor declaratory of the previous law”, setting aside a Tribunal order that had treated it as clarificatory and therefore retrospective. But the case concerns units of a bond fund for assessment year 2004-05, and the point decided is that the sub-section operates prospectively from its own commencement and cannot be applied to an earlier year. It says nothing about whether section 94(8) reaches shares. It is good authority that a new anti-stripping charge is not to be applied backwards, which is a different and narrower proposition.

Then Parliament acted. Section 25 of the Finance Act 2022 substituted “securities or units” for “units” wherever it occurs in section 94(8), and recast the definitions of “record date” and “unit”, with effect from 1 April 2023. So bonus stripping in shares is within the specific rule from assessment year 2023-24. Commentaries attributing this to the Finance Act 2023 are mistaken; that Act did not touch the sub-section, and the error comes from the 1 April 2023 effective date.

The result is a window. For assessment years 2018-19 to 2022-23, GAAR applied and section 94(8) did not reach shares. Every GAAR bonus stripping case so far falls in that window, and the window is not a coincidence: section 94(8) did not reach shares in those years.

The two cases

The Revenue’s case, and it has a judgment behind it. In Ayodhya Rami Reddy Alla the assessee argued that what the specific rule deliberately left out cannot be brought back by the general one. The Court rejected it, on four strands: Chapter X-A came into force after section 94 was enacted, so the later provision prevails; section 95(1)’s non obstante clause gives the Chapter overriding effect; section 100 makes the Chapter applicable in addition to or as a substitute for any other method of determining liability, making GAAR, in the Court’s phrase, an all-encompassing safety net; and the Shome Committee’s view that a specific rule should supersede the general one pertains mainly to international agreements rather than to domestic cases such as that one. The Court also observed that section 94(8) “might be relevant in a simple, isolated case of the issuance of bonus shares”, which concedes something but not much.

The taxpayer’s case, which no court has yet accepted. It has three strands and they are not weak.

First, the Shome Committee, on whose work Chapter X-A in its present form is built, recommended that “where SAAR is applicable to a particular aspect/element, then GAAR shall not be invoked to look into that aspect/element”. Whether that recommendation is confined to treaty cases, as the Telangana High Court held, is a question on which the report itself should be read rather than paraphrased. The official copy of the final report of 30 September 2012 is not reachable by automated retrieval and the freely available mirrors are the draft of 1 September 2012, so the section and page numbers in circulation should not be cited as the final report’s. The recommendation quoted above and the recommendation of a three crore rupee threshold both appear in the draft, and the threshold was accepted by the Government, as the Department’s press release of 14 January 2013 records.

Second, and this is the stronger point, Parliament’s own conduct. If the general rule already reached bonus stripping in shares, the amendment of 2022 was unnecessary. Legislating a specific rule for conduct said to be caught by the general one is at least some evidence that the general one was not understood to cover it. The counter is that Parliament often legislates for certainty and that section 100 expressly contemplates overlap; the counter to the counter is that section 100 permits GAAR to be applied in addition to another basis, which assumes the other basis is available, and says nothing about applying GAAR to supply a rule Parliament declined to enact for the year in question.

Third, a narrower version of the argument that is more likely to work and is usually overlooked. Where section 94(8) does apply, it produces a defined consequence: the loss is ignored and added to the cost of the bonus units, so it is deferred rather than destroyed. If the Revenue invokes GAAR on facts within a specific rule and seeks a harsher consequence under section 98 than that rule provides, the complaint is not that GAAR is unavailable but that the consequence chosen is disproportionate to a mischief Parliament has itself measured. That is an argument about section 98 rather than about section 100, and it does not require the general proposition to be won.

The same argument, in the other places it arises

Bonus stripping is only the instance that has reached court. The same question arises wherever a specific rule already addresses the conduct, and a planner should be able to see the field. The provisions most often overlapping with Chapter X-A are section 93 on the transfer of income to non-residents; section 94(7) on dividend stripping; section 94B on interest limitation in cross-border debt; the transfer pricing code in Chapter X; section 40A(2) on payments to related parties; section 56(2)(x) on receipts for inadequate consideration; section 2(22)(e) on deemed dividend; section 79 on the carry-forward of losses after a change in shareholding; section 115BBE on unexplained income; and the anti-abuse conditions built into the amalgamation and demerger reliefs. In each the argument is the same one set out above, and in each it is open.

The honest summary for a client is this: the argument is available, it is respectable, it has lost once in the only court to decide it, that decision is under appeal, and the narrower version directed at the consequence rather than at the jurisdiction is the one most likely to succeed.

The section 144BA machinery, step by step: reference, Commissioner, Approving Panel

Chapter X-A cannot be applied by an Assessing Officer on his own. Section 144BA, which becomes section 274 of the Income-tax Act, 2025 with twenty-four sub-sections in place of twenty-one, builds a three-stage process, and the practitioner’s leverage is concentrated in the second stage, not the third.

Stage one, the Assessing Officer. Section 144BA(1) provides that if the Assessing Officer, “at any stage of the assessment or reassessment proceedings before him having regard to the material and evidence available”, considers it necessary to declare an arrangement impermissible and to determine the consequence, “he may make a reference to the Principal Commissioner or Commissioner in this regard”. There is no time limit in the section, and the power exists only within a pending assessment or reassessment, so a reference cannot be made in the air.

Before he refers, Rule 10UB(1), which becomes rule 129(1) of the Income-tax Rules, 2026, requires him to issue a written notice to the assessee seeking objections to the applicability of Chapter X-A. That requirement is in the rule and not in the section, which is easy to miss and is a point of attack where it has not been complied with. Rule 10UB(2) specifies what the notice must contain, and the list is a checklist for the defence as much as for the officer: the details of the arrangement, the tax benefit arising under it, “the basis and reason for considering that the main purpose of the identified arrangement is to obtain tax benefit”, “the basis and the reasons why the arrangement satisfies the condition provided in clause (a), (b), (c) or (d) of sub-section (1) of section 96”, and the list of documents and evidence relied upon for the last two. A notice that does not identify which clause of section 96(1) is relied on, and why, does not comply with the rule.

The EKGE record is a clean illustration of that attack, and the Court did not have to deal with it. The notice of 5 April 2021 by which the GAAR question was first raised is described by the petitioner as a notice issued “under Section 142(1) of the Act”, and by the Revenue, narrating the same notice of the same date, as having been issued “under sub-rule (1) of Rule 10UB”. Those are different things. A questionnaire issued under section 142(1) that does not set out the five matters in Rule 10UB(2) is not compliance with Rule 10UB(1), whatever it is called afterwards, and the first thing to do on any file is to obtain the notice and test it against the sub-rule.

The reference itself goes in Form No. 3CEG, which becomes Form No. 62 under the 2026 Rules. The form is said to require the officer to state the last date for completing the assessment, which is how the rest of the machinery is kept inside the section 153 limitation; the form itself could not be read for this article, so ask for it rather than assume its contents.

Stage two, the Commissioner. On receipt of the reference, if the Commissioner is of the opinion that Chapter X-A is required to be invoked, section 144BA(2) requires him to issue a notice to the assessee “setting out the reasons and basis of such opinion”, for objections, “and providing an opportunity of being heard to the assessee within such period, not exceeding sixty days, as may be specified in the notice”. Sixty days is a ceiling on the period he may specify, not an entitlement.

Three outcomes are possible, and the difference between them is the single most important procedural fact in this field. If the assessee does not object, sub-section (3) requires the Commissioner to issue such directions as he deems fit. If the assessee objects and the Commissioner, after hearing him, is satisfied that the Chapter is not to be invoked, sub-section (5) requires him to say so by an order in writing communicated to the Assessing Officer with a copy to the assessee, recorded in Form No. 3CEH. And if the assessee objects and the Commissioner is not satisfied by the explanation, sub-section (4) requires him to refer the matter to the Approving Panel, with his recorded satisfaction in Form No. 3CEI.

So silence costs the Approving Panel. The reference to the Panel under sub-section (4) arises only where the assessee has objected and the Commissioner is unpersuaded. A taxpayer who does not answer the section 144BA(2) notice converts a three-stage process containing an independent, judicially chaired hearing into a decision by one officer, and the resulting direction under sub-section (3) is not even covered by the appeal bar in sub-section (14), which is addressed only to directions under sub-section (6). Answering the notice is therefore the first procedural instruction on any such file, and it should be answered even where the objections are thin.

Rule 10UC gives the Commissioner one month from the end of the month of compliance with the notice to issue directions under sub-section (3), and two months from the end of the month in which the final submission is received to make a reference under sub-section (4).

This is where the file is decided. The Commissioner is the only person in the chain with an unfettered power to stop the matter. Everything that is going to be said to the Approving Panel should be said here first, in writing, with the material annexed.

Stage three, the Approving Panel. Section 144BA(6) empowers the Panel to issue such directions as it deems fit on the declaration, “including specifying of the previous year or years to which such declaration” shall apply. Sub-section (7) bars any direction without an opportunity of being heard, given to the assessee and to the Assessing Officer, on directions prejudicial to that party. Note that the right is conditional, not freestanding: it arises where the direction would be prejudicial. The practical answer is to ask for the hearing expressly and in writing at the first opportunity, to record that any direction adverse to the assessee would be prejudicial within sub-section (7), and to treat a refusal as a ground in itself.

Sub-section (8) lets the Panel direct the Commissioner or another authority to make further inquiry and furnish a report, call for and examine records, or require the assessee to furnish documents and evidence. Where an inquiry is directed, ask for the report and for an opportunity to answer it; a direction founded on material the assessee has not seen is open to the same objection as any other.

Sub-section (9) decides differences by majority. Sub-section (10) requires the Assessing Officer, on receipt of directions under sub-section (3) or sub-section (6), to “proceed to complete the proceedings referred to in sub-section (1) in accordance with such directions”. He has no discretion, which is the real reason the Commissioner stage is decisive and the reason nothing said to the Assessing Officer after the directions is worth saying. Sub-section (11), set out earlier, lets directions govern other years. Sub-section (12) provides that no assessment or reassessment order determining tax consequences under Chapter X-A may be passed without the prior approval of the Commissioner, and that sub-section is the hinge on which the appeal route turns. Sub-sections (17) to (21) deal with the Panel’s term, its meetings and remuneration, the advance-ruling powers it borrows, the officials provided to it, and the Board’s power to make rules for its constitution and functioning.

The clocks. Section 144BA(13), which is section 274(13) of the 2025 Act with the same formula, gives the Panel six months “from the end of the month in which the reference under sub-section (4) was received”. The Explanation that follows excludes the time taken to obtain information through a treaty partner, capped at one year, and the period of any court stay, with a proviso extending the remaining period to sixty days if less than sixty days would otherwise be left. The court-stay exclusion in its present form was substituted with effect from 1 April 2025.

Two things about that period are worth more than the statement of it.

The date it runs from is a date the assessee is never told. It is the date the Commissioner’s reference was received by the Panel, which appears nowhere in the directions and nowhere in anything served on the taxpayer. Ask for it in writing, and ask for Form 3CEI with its date of dispatch and its date of receipt, because without that date the six-month computation cannot be done and a direction cannot be tested. On the EKGE record, for instance, the notice raising GAAR was dated 5 April 2021, the objections were filed on 20 April 2021, the Commissioner’s notice under section 144BA(2) issued on 24 May 2021 and the directions came on 23 February 2022. Those dates allow the Rule 10UC limits to be tested but not the section 144BA(13) limit, because the one number that governs it is missing.

And the consequence of exceeding the six months has not been decided. Section 144BA(13) says the Panel “shall issue directions” within the period and prescribes no consequence. That is the classic mandatory or directory question and it has not been decided. The taxpayer’s argument is that a provision conferring a drastic power, with a fixed outer limit and a judicially chaired body, is mandatory, and that the limit would otherwise be meaningless. The Revenue’s argument is that no consequence is prescribed and that the Explanation’s carefully drawn exclusions show Parliament managing the period rather than conditioning the power. Both are available and the point is worth taking.

Separately, section 153, Explanation 1, clause (xi) excludes from the assessment limitation the period from the date on which the reference under section 144BA(1) is received by the Commissioner to the date on which the Assessing Officer receives a direction under sub-section (3) or (6) or an order under sub-section (5). Note where the period starts: on receipt by the Commissioner, not on the officer’s despatch. The general proviso to Explanation 1 then extends the remaining period to sixty days where less would be left. The practical point is that a GAAR reference costs the Assessing Officer no time at all, so there is no limitation pressure discouraging him from making one.

One question the machinery does not answer. Where the taxpayer is an eligible assessee under section 144C, typically a foreign company, and the draft order contains a Chapter X-A variation, it is not clear how the Dispute Resolution Panel route and the Approving Panel route interact: whether the Dispute Resolution Panel is bound by the Approving Panel’s directions, whether both routes run, and which appeal provision then applies. Section 246A carves out both kinds of order and section 253(1)(e) names only the section 144BA(12) approval. The question is a real one for the population most likely to meet GAAR on treaty facts, and no decision on it could be traced.

And one point to settle at the outset of any search file. Where the Chapter X-A reference is made inside a section 153A proceeding, as it was in EKGE, the threshold question is whether that assessment can carry any addition at all. On the settled line of authority an unabated assessment cannot be disturbed in the absence of incriminating material found in the search, and a Chapter X-A declaration is an addition like any other; the firm’s treatment of that line is set out in its article on what follows an income tax search. The Revenue’s answers are that the assessment had abated because a notice under section 143(2) was pending when the search took place, and that section 144BA(1) permits a reference at any stage of an assessment or reassessment without distinguishing between them. The abatement position should therefore be established before anything else is argued, because if the assessment abated the argument is not available. On the EKGE facts the sequence was a search on 27 and 28 November 2018, a scrutiny notice under section 143(2) on 21 September 2019 which named capital gains and loss among the issues selected, a notice under section 153A fourteen months after the search on 22 January 2020, and a return filed on 20 February 2020 repeating the original claims.

The Approving Panel, and what a hearing before it is worth

Section 144BA(15), which becomes section 274(18) of the Income-tax Act, 2025, provides that the Central Government shall constitute one or more Approving Panels “as may be necessary and each panel shall consist of three members including a Chairperson”. Sub-section (16), which becomes section 274(19), provides that the Chairperson “shall be a person who is or has been a judge of a High Court”, that one member shall be an officer of the Indian Revenue Service “not below the rank of Principal Chief Commissioner or Chief Commissioner of Income-tax”, and that one member shall be “an academic or scholar having special knowledge of matters, such as direct taxes, business accounts and international trade practices”. The term is ordinarily one year, extendable to three. By sub-section (19) the Panel has the powers vested in the Authority for Advance Rulings under section 245U, and by sub-section (18) it meets as and when required. The reference to the Authority is now an anachronism, the Authority having been replaced by the Board for Advance Rulings; the Income-tax Act, 2025 corrects it at section 274(22), which borrows the powers of the Board under section 387.

The composition is more independent than any other stage of the process. A serving or retired High Court judge in the chair, with a non-official third member, is structurally a better forum than an internal review, and the tone of a submission should be the tone used before a court. Nothing is published about outcomes, so no inference should be drawn beyond the composition itself: in each of the decided cases the Panel had held against the taxpayer, which is what brought the matter to court.

But it is not a court and there is no appeal from it. The combination of a judicial chairperson, a binding direction and no appeal means that the hearing before the Panel is, for most purposes, the only oral hearing the merits will ever receive from an independent person before the assessment is made. It should be prepared accordingly, with a paper book, and with every document the commercial narrative depends on in it. In EKGE the Court twice referred to what the record disclosed and twice criticised the Panel for leaving it unaddressed; that criticism is only available to a taxpayer who put the material on the record.

On the Panel’s own procedure, candour is better than invention. Section 144BA(18) and (21) contemplate that the Panel meets as required and that the Board may make rules for its constitution and efficient functioning, and rules have been made for the Panel beyond those dealing with the reference itself. The detail of what those rules provide for representation, for adjournments, for the filing of additional evidence and for answering a report obtained under sub-section (8) could not be closed against the Gazette for this article, and a practitioner with a live matter should obtain them rather than rely on a secondary account, including this one.

The Panel does decline references, which is worth saying because the system is usually described as though it never did, though the evidence for it is a single reported instance. In DCIT v. Sanjana Cryogenic Storages Ltd., ITA No. 2503/Mum/2026, decided by the Tribunal at Mumbai on 31 August 2026 for assessment year 2022-23, the Assessing Officer had made a section 144BA reference on a buy-back and the Approving Panel, by directions dated 30 January 2025, held that there was no impermissible avoidance arrangement under section 96. The Assessing Officer then taxed the same transaction under section 56(2)(x) instead. The Tribunal treated the Panel’s findings as relevant to the commercial character of the transaction and dismissed the Revenue’s appeal, while expressly declining to decide whether a rejection of GAAR precludes recourse to other provisions. That last question is open and is worth knowing about: a favourable Panel direction is not necessarily the end of the matter.

Appeal and remedy against GAAR directions: section 144BA(14), section 253(1)(e) and the writ

Section 144BA(14), which the Income-tax Act, 2025 splits into section 274(16) for the binding effect and section 274(17) for the appeal bar, provides:

“The directions issued by the Approving Panel under sub-section (6) shall be binding on—(i) the assessee; and (ii) the Principal Commissioner or Commissioner and the income-tax authorities subordinate to him, and notwithstanding anything contained in any other provision of the Act, no appeal under the Act shall lie against such directions.”

Precision matters here, because two opposite errors are common and both are serious.

The bar is confined to the directions. The words are “no appeal under the Act shall lie against such directions”, and “such directions” is anchored to the Panel’s directions under sub-section (6). On its face the bar does not reach a direction of the Commissioner under sub-section (3), which is a point of some value to a taxpayer who failed to object to the section 144BA(2) notice.

The assessment order is appealable, but not to the Commissioner (Appeals). Section 246A, which lists appealable orders before the Commissioner (Appeals), carves GAAR assessments out: several of its clauses are expressed as applying “except an order passed in pursuance of directions of the Dispute Resolution Panel or an order referred to in sub-section (12) of section 144BA”. The route instead is section 253(1)(e), which becomes section 362(1)(e) of the Income-tax Act, 2025, and which gives a direct appeal to the Appellate Tribunal against “an order passed by an Assessing Officer under sub-section (3) of section 143 or section 147 or section 153A or section 153C with the approval of the Principal Commissioner or Commissioner as referred to in sub-section (12) of section 144BA”, or an order under section 154 or 155 in respect of such an order. The architecture mirrors the Dispute Resolution Panel route: one tier is removed and the matter goes straight to the Tribunal.

So two statements that are frequently made are both wrong. “Section 144BA(14) bars an appeal against a GAAR assessment” is wrong: it bars an appeal against the Panel’s directions. “A GAAR assessment is appealable to the Commissioner (Appeals)” is also wrong: section 246A excludes it.

What follows is the reason every GAAR case so far has come up as a writ petition. A taxpayer who wants the directions themselves set aside, before an assessment is made on them, has no remedy under the Act at all. Article 226 is the only route, and that is why Ayodhya Rami Reddy Alla, Anvida Bandi and EKGE Retail are all writs. The EKGE petitioner put it exactly that way, pleading that because section 144BA(14) bars an appeal and makes the directions binding on the assessee and on the Revenue alike, he “was left with no other alternative efficacious remedy”. It should be said accurately that this is the petitioner’s case as the judgment records it; the Court did not return to maintainability in its reasoning, and simply entertained the petition and allowed it.

The Revenue’s answer should be anticipated rather than assumed to have been run, because on the face of the two reported records it has not been, at least not in this form. In EKGE the Revenue’s submissions as recorded contain no maintainability objection at all; in Ayodhya Rami Reddy Alla the objection taken was the narrower one that writ jurisdiction is not meant to assail show cause proceedings, and section 253(1)(e) is not mentioned in either judgment. The argument available to the Revenue is that the taxpayer should wait for the assessment and appeal to the Tribunal under section 253(1)(e), and that a writ against an intermediate direction involving disputed questions of fact is not maintainable. That answer has force where the complaint is about the correctness of a factual conclusion, and much less where the complaint is that the Panel applied the wrong test or never addressed an ingredient. The distinction to press is between a challenge to the evaluation and a challenge to the approach, and it is the latter that belongs in a writ court.

Ask for substantive relief, not a remand. This is the practical lesson of EKGE and it is easily missed. The Court did not merely quash the directions. It held that the Revenue had failed on each ingredient, and then declared that “The petitioner is entitled to the benefit of set-off claimed under Section 70(2) of the Act in respect of the short-term capital loss of Rs.49,32,71,673/- against the long-term capital gains arising on the slump sale”, answering the question of law in his favour and setting the directions aside without remitting anything. A writ petition that pleads the record fully, and asks in terms for a declaration of entitlement rather than for a fresh exercise, makes that outcome available.

It is also the part of the order most exposed on appeal, and a practitioner should know that before relying on it. The Revenue’s best point against EKGE is precisely this: that a writ court has decided a question of purpose, which is a question of fact, on affidavit, without remitting it to the body Parliament constituted to decide it, and that where the complaint is that the Panel failed to engage with the record the orthodox order is a remand for it to do so. EKGE’s answer, which a defender should have ready, is that where the Revenue has failed to discharge a burden on the material it chose to put forward there is nothing to remit, because it does not get a second opportunity to make out a case it did not make. The same objection was available in Ayodhya Rami Reddy Alla and was not needed there, because the writs were dismissed.

What the three Telangana decisions actually decide

Almost the whole of the Indian case law on capital loss harvesting under GAAR comes from one High Court, and the same judge has presided over all three decisions.

	Ayodhya Rami Reddy Alla	Anvida Bandi	EKGE Retail LLP
Number and date	W.P. 46510 and 46467 of 2022, 7 June 2024	W.P. 3201 of 2023, 22 August 2025	W.P. 21210 of 2022, 13 October 2026
Bench	P. Sam Koshy and Laxmi Narayana Alishetty JJ	P. Sam Koshy and Suddala Chalapathi Rao JJ	P. Sam Koshy ACJ and Narsing Rao Nandikonda J
Assessment year	2019-20	2020-21	2018-19
The gain sheltered	Long-term gain on shares of a group company	Long-term gain of about Rs 44 crore	Slump sale gain of Rs 1,75,91,50,508 under section 50B
The loss	About Rs 462 crore	About Rs 17.65 crore	Rs 49,32,71,673
The shares	A group company, after a bonus issue	Listed, on a recognised exchange	Listed, on a recognised exchange, before and after bonus issues
How sold	To a named related entity at Rs 19.20 a share, allotments having been made on private placement	On exchange	On exchange
Decided on	Commercial substance, section 97; burden on the taxpayer under section 96(2)	No arrangement; main purpose not established; timing alone insufficient, on the Expert Committee’s report	No arrangement under section 102(1); main purpose not established; clauses (b) and (d) not made out
Outcome	Writs dismissed, GAAR upheld	Writ allowed, directions quashed	Writ allowed, directions set aside
Status	Under appeal, Civil Appeal No. 9790 of 2024, not disposed of	No appeal traced	Recent

Read across that table and the apparent conflict narrows considerably, though the reconciliation has to be stated carefully.

The distinction that does the work is the identity of the counterparty. It is tempting to describe Ayodhya Rami Reddy Alla as an off-market case about unlisted shares and the other two as exchange cases, and much of the commentary does. The judgment itself does not use the words “off market”, “unlisted” or “listed”. What it does record is that the allotments were made on a private placement basis, that the petitioner sold the shares to Advisory Services Pvt. Ltd., described as another related entity, at Rs 19.20 per share against a pre-bonus value of about Rs 115, and that the funds with which that buyer paid were provided by another group company. The characterisation is therefore the reader’s inference from those facts and not a finding of the Court, and it should be put that way in a submission. The inference is a fair one: none of those features is available where the trade is screen-based, and every element of section 96(1) is easier for the Revenue where they are present. Rights not ordinarily created at arm’s length under clause (a); the circulation of funds within a group, which is round trip financing territory under section 97(2) and so a deemed lack of commercial substance under clause (c); and a manner not ordinarily employed under clause (d). In the two later cases the trades were screen-based, the counterparty was anonymous, the price was the market’s and securities transaction tax was paid.

The reconciliation is the reader’s, not the Court’s. The EKGE order does not mention Ayodhya Rami Reddy Alla or Anvida Bandi anywhere. No reported commentary records Anvida Bandi engaging with Ayodhya either. So far as the published record goes, the same High Court has decided the same question three times without once addressing its own earlier decision. For a practitioner that has two consequences. In Telangana, the Revenue will cite Ayodhya and there is no judicial answer to it in the later cases to point to, only a factual distinction you will have to draw yourself. Outside Telangana, a court asked to follow EKGE will be shown Ayodhya and will have to choose between two decisions of equal standing, one of which is under appeal.

And the three differ on the law, not only on the facts. On burden, Ayodhya says section 96(2) places the responsibility on the taxpayer and Anvida Bandi is reported to say the presumption arises only after a section 96(1) condition is shown. On the structure of section 96(1), EKGE states the orthodox two-condition test and Anvida Bandi is reported to treat the four limbs as cumulative. Those are not factual differences and they cannot be reconciled by pointing at the exchange.

A final point of fairness to Ayodhya Rami Reddy Alla, which is sometimes described as though it were a decision that bonus stripping is always abusive. It is not. The Court’s reasoning was tied to a finding that the arrangement was devoid of commercial substance on facts that included a sale to a related party and the movement of funds within a group, and it said in terms that section 94(8) “might be relevant in a simple, isolated case of the issuance of bonus shares”. Read as a decision on its facts it is considerably narrower than its reputation. Two blemishes on the face of it are worth knowing before it is quoted: the judgment gives the bonus ratio as 5:1 at paragraph 4 and as 1:5 at paragraph 22, and it twice renders section 144BA as “144AB”.

The Supreme Court, and what is not yet known

Two matters above the High Court bear on this and neither is mentioned in the October 2026 order.

The appeal in Ayodhya Rami Reddy Alla. The judgment of 7 June 2024 was challenged, and the challenge has gone further than most. Leave was granted on 12 August 2024 and the matter is registered as Civil Appeal No. 9790 of 2024, heard with Civil Appeal No. 9896 of 2024 in the companion matter. By an interim order dated 18 October 2024, Abhay S. Oka and Augustine George Masih JJ directed that no further proceedings be taken on the basis of the show cause notice dated 14 December 2022, and listed the appeal for hearing on 5 February 2025. No order after 18 October 2024 could be traced as at the date of this article, and the appeal has not been disposed of. The correct way to describe this in a submission is that leave has been granted and a civil appeal is pending; describing it as a pending special leave petition is wrong, and matters, because leave having been granted the High Court’s reasoning is squarely in issue.

So the only decision upholding GAAR on this technique is a decision under appeal with an interim order in the taxpayer’s favour, and the two decisions quashing it do not refer to it.

The Tiger Global judgment. On 15 January 2026 the Supreme Court decided Authority for Advance Rulings (Income Tax) v. Tiger Global International II Holdings, Civil Appeal Nos. 262 to 264 of 2026, neutral citation 2026 INSC 60, by Pardiwala and Mahadevan JJ, the judgment written by Mahadevan J with a separate concurring judgment by Pardiwala J. It arose from the sale of Flipkart Singapore shares by three Mauritius companies to the Walmart group in 2018, and from the Authority’s rejection of advance ruling applications under proviso (iii) to section 245R(2) on the footing that the transaction was prima facie designed for the avoidance of tax. The Delhi High Court had set that rejection aside on 28 August 2024; the Supreme Court allowed the appeals and set the High Court judgment aside.

This article is going to be more cautious about that judgment than most of what has been written on it, and the reason should be stated openly. The judgment runs to 133 pages plus a concurring opinion, and its operative part, the Discussion and Findings beginning at page 104, the Conclusion at page 132 and the Result at page 133, is not available in any freely accessible full text: the official file and every free reproduction truncate at about page 70, inside a long quotation from Vodafone. What follows separates what can be read from what cannot.

What is verifiable. The Court framed the question for itself in these terms: whether the Authority was right in rejecting the applications on the ground of maintainability by treating the capital gains to be prima facie an arrangement for tax avoidance, and whether that could be enquired into. It said it was inclined “to deal with the core issue alone”. That framing is important and is the reason for the caution: the question before the Court was a threshold question about the Authority’s jurisdiction to reject an application, decided on a prima facie standard, and not a determination under Chapter X-A, which would require the section 144BA machinery that had never been invoked.

What is reported but could not be verified. Commentaries record the Court as having held that the transactions were impermissible avoidance arrangements and that the assessees were not entitled to treaty exemption; that a tax residency certificate is an eligibility condition rather than conclusive proof; that the grandfathering in Rule 10U(1)(d) attaches to investments while Rule 10U(2) applies to arrangements, so that the cut-off runs from the date of transfer; that the onus shifts to the taxpayer; and that judicial anti-avoidance doctrine operates in parallel with the statute and can be invoked even where GAAR is inapplicable. Those accounts converge, and the convergence is some comfort, but none of the sentences has been checked against the judgment itself and no source identifies which clause of section 96(1) the Court applied, if any. The concurring opinion is reported to set out a list of safeguards to be sought in future treaty negotiation; the published accounts give the number variously as four, five, seven, ten and twelve, which is a reason to describe it as a set of suggested safeguards and not to put a figure on it.

Which makes the ratio question real rather than pedantic. Several professional commentators have made the point independently: a conclusion expressed in impermissible-avoidance language, reached on a prima facie standard in a jurisdictional enquiry about an advance ruling, without the Approving Panel process and without the taxpayer having had the hearing that Chapter X-A requires, is not obviously a determination under Chapter X-A at all. A practitioner met with Tiger Global across the table should ask which paragraph is relied on, for what proposition, and whether it is part of the ratio of a decision on section 245R(2). That is a fair question and at present it does not have a published answer. The Revenue’s reply to it is that a judgment of the Supreme Court expressed in impermissible-avoidance language binds under Article 141 whatever the jurisdictional frame in which it was given, which is an answer that will have to be met rather than brushed aside.

One consequence is already on the statute book. Whatever the Court held about Rule 10U, the executive moved quickly afterwards: Rule 10U(1)(d) and Rule 10U(2) were both substituted with effect from 31 March 2026, and the corresponding rule under the Income-tax Act, 2025 with effect from 1 April 2026. Anyone arguing a grandfathering point today must work from the substituted text and not from the version quoted in the 2024 and 2025 commentary.

Where this goes next

The statute, the machinery and the authorities on them are set out above and in Part 1. What remains is the law that runs beside Chapter X-A, what the Board has said about it, and the practice.

Part 3 takes up the judicial anti-avoidance doctrine that ran before the Chapter and still runs beside it, what Walfort actually decided about dividend stripping and what is wrongly attributed to it, the Board’s sixteen clarifications of 27 January 2017, the Department’s case at its highest, the Form 3CD clause 30C question a chartered accountant has usually answered already in a document signed before any notice issued, how a reference is defended, how a transaction is built so that the question does not arise, and the full concordance with the Income-tax Act, 2025.

This note is general commentary on the law as at 18 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.