Section 245R (2) require upon AAR to examine the application and the records and only thereafter allow or reject the application. In other words even in choosing to reject application it has to deal into inside outside of the case merits and follow through with the course of providing opportunity and adducing reasons for rejection .
In (2021] 435 ITR 456 the AAR
In choosing to reject the application stating the transaction to be one of tax avoidance further directed the AO to revisit the transaction on the basis of certain pointers to tax avoidance.
As the rulings of AAR are binding in nature with no right of appeals there is no rationale whatsoever to place the ball in AO courts who would have no choice but to hold against the assessee after reexamination of point of tax avoidance.
Therefore to bring certainty to the law it is the duty of AAR to conclude the case of tax avoidance by appreciating the factual evidence in hand with proper reasoning and justification. Leaving it upon AO to conclude tax avoidance would be in the nature of travesty of justice.