VALEO BAYEN,FRANCE vs. DCIT, INTERNATIONAL TAXATION CIRCLE2(2), CHENNAI

ITTPA 63/CHNY/2023Status: DisposedITAT Chennai29 April 2026AY 2020-2113 pages
AI SummaryRemanded

What were the facts?

The assessee, M/s. Valeo Bayen, a French tax resident, is appealing against the final assessment order for AY 2020-21, passed by the Dy. Commissioner of Income Tax, International Taxation Circle-2(2), Chennai, under Section 143(3) r.w.s 144C(13) of the Income Tax Act, 1961. The assessee filed a return admitting total income of Rs. 15,42,11,900/- and claimed a refund of Rs. 6,15,20,120/-. The refund claim arose from the sale of shares in its Indian subsidiary, Valeo Service India Auto Parts Private Limited (VSIAPL), to another Indian entity, Valeo India Pvt. Ltd. (VIPL), for Rs. 64,78,01,960/-. The Assessing Officer (AO) treated the entire consideration as income from other sources, rejecting the assessee's contention that the transaction was not taxable in India and that Section 47(iv) should apply. The Dispute Resolution Panel (DRP) confirmed the AO's addition.

What did the Tribunal hold?

The Tribunal held that the issue of violation of principles of natural justice (Ground 1) was not elaborated upon by the assessee. Regarding the commercial expediency (Ground 2), the Tribunal noted that the assessee's argument that the transaction was not a subject of assessment was rejected by the AO because the assessee chose to proceed with the sale of shares. The Tribunal found that the AO and DRP had questioned the commercial expediency and proposed an alternate method of implementation. On the characterization of shares and intent test (Ground 3), the Tribunal observed that the assessee's submission that the transaction was not a subject of assessment was rejected. The Tribunal noted that the AO and DRP had wrongly applied the intent test and characterized the shares as stock-in-trade. The Tribunal found that the AO and DRP had failed to appreciate the facts and explanations provided by the assessee regarding the rationale for the acquisition of shares and the characterization of the investment. The Tribunal also noted that the AO and DRP had failed to appreciate the CBDT circulars. Regarding Section 47(iv) (Ground 4), the Tribunal noted that the AO and DRP had denied the benefit of this section. On the tax treaty and Section 9(1)(i) (Ground 5), the Tribunal noted that the AO and DRP had concluded that income accrued in India without appreciating the facts and without applying the tax treaty. The Tribunal also noted the assessee's argument that the deeming fiction of Section 9(1)(i) cannot be imported to the DTAA. Regarding the deduction of the cost of acquisition (Ground 6), the Tribunal noted the assessee's claim for deduction under Section 57. The Tribunal found that the AO and DRP had not considered the assessee's submissions on these grounds. The Tribunal decided to set aside the order of the AO and remand the matter back to the AO for fresh adjudication on all the grounds raised by the assessee, after providing the assessee with an adequate opportunity of being heard and considering all the submissions and evidence.

What were the issues?

1. Whether the Assessing Officer (AO) and Dispute Resolution Panel (DRP) violated the principles of natural justice by not providing sufficient opportunity to the Appellant (Section 143(3) r.w.s 144C(13)). 2. Whether the AO and DRP erred by questioning the commercial expediency of the transaction and stepping into the shoes of a businessman, and by rejecting the Appellant's arguments and proposing an alternate method of implementation (Ground 2.1, 2.2). 3. Whether the AO and DRP wrongly applied the intent test and characterized the shares held in VSIAPL as stock-in-trade instead of a capital asset, treating the entire consideration as 'other income', and failed to appreciate the Appellant's explanations and the CBDT circulars on characterization of shares (Ground 3.1, 3.2, 3.3). 4. Whether the AO and DRP erred in denying the benefit of Section 47(iv) of the Act (Ground 4.1). 5. Whether the AO and DRP erred in concluding that the income accrued in India without appreciating the facts and without applying the provisions of the Tax Treaty between India and France, and whether the deeming fiction of Section 9(1)(i) can be imported to the Double Taxation Avoidance Agreement (DTAA) (Ground 5.1, 5.2). 6. Whether the AO and DRP failed to allow the cost of acquisition of shares as a deduction under Section 57 of the Act (Ground 6.1). 7. Whether the AO erred in levying interest under Sections 234A and 234B and initiating penalty under Section 270A, which are consequential (Ground 7.1). Assessee's Contentions: The assessee argued that the transaction was not subject to assessment as it related to a merger. They contended that the sale of shares was not a transfer under Section 47(iv) and thus resulted in a refund claim. They provided details and reasons why the transaction should not be taxed in India. They also argued that the AO and DRP questioned commercial expediency, wrongly characterized shares, denied Section 47(iv) benefits, failed to apply the India-France tax treaty, and did not allow deduction of the cost of acquisition. They relied on CBDT circulars and the principles of natural justice. Revenue's Contentions: The judgment records that the AO rejected the assessee's contention that the transaction was not a subject of assessment, noting that the assessee chose to go ahead with the sale of shares despite having an option to avoid it. The AO also rejected the assessee's submissions and proceeded to treat the entire consideration as income from other sources. The DRP confirmed the AO's addition.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 47(iv),Section 9(1)(i),Section 57,Section 234A,Section 234B,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI GEORGE GEORGE KAND MS. PADMAVATHY.S

Hearing: 16.04.2026Pronounced: 29.04.2026

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the final order of assessment passed by the Asst. Commissioner of Income Tax, International Circle-2(2), Chennai (in short "A.O") passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short "the Act") dated 13.07.2023 for Assessment Year (AY) 2020-21. The grounds of appeal raised by the assessee are as under:

“1. General Ground

1.

1 The Ld. DCIT and Ld. DRP erred in law by not giving

The order continues below.

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