My two cents on one of India's first judicial decisions concerning the GAAR.

Recently, the High Court at Telangana denied a taxpayer’s petition seeking a writ of mandamus directing the Income Tax Department to refrain from invoking the general anti-avoidance rule (GAAR).

The case involves transactions undertaken purely to generate artificial tax losses without an underlying business purpose. In the court’s recounting of the facts, the invocation of the GAAR seems wholly appropriate.

But the judgment is problematic for exactly this reason. The High Court doesn’t just recount the facts. It reaches a conclusion. It finds that an impermissible avoidance transaction exists. Why?

It is well established that the courts' writ jurisdiction may not be invoked where an alternative and equally efficacious remedy is available. It’s quite clear that the taxpayer did not exhaust these remedies before approaching the court. Certainly, nothing in the judgment suggests that the matter reached the 'Approving Panel' stage (the Approving Panel is an expert panel constituted specially to review the appropriateness of instances where the GAAR is invoked.)

The High Court should simply have dismissed the petition on this ground. For one thing, under S.144BA of the ITA, the invocation of the GAAR is subject to stringent process in which a taxpayer is accorded several opportunities to be heard and to object. Why prejudge the outcome of these carefully designed safeguards?

Granted, the facts in this case don’t look good. It’s probably as good a case as any for invoking the GAAR. But process matters. The High Court has prejudged the outcome. I don't see how the taxpayer gets a fair shake in the shadow of this decision.

Maybe there's a case to be made for writ relief against an order of the Approving Panel. But no such order seems to have been involved here.

Parliament has prescribed detailed procedural safeguards to ensure that the Income Tax Department invokes the GAAR sparingly and coherently. The courts should allow that process to play out.