TaxTMI 
TaxTMI 
2026 (5) TMI 943
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....tion by questioning the commercial expediency of the transaction, thereby, stepping into the shoes of a businessman to decide on the reasonableness and justification of a business transaction. 2.2 The Ld. DCIT and Ld. DRP rejected the arguments of the Appellant by placing an alternate method of implementing the transaction. 2.3 The Ld. DCIT and Ld. DRP has not considered the fact/ explanations provided by the Appellant during the proceedings with respect to the rationale for the acquisition of the remaining shares of Valeo Service India Auto Parts Private Limited (VSIAPL'). 3. Erroneous interpretation of intent test 3.1 The Ld. DCIT and Ld. DRP erred in law and on the facts of the case by wrongly applying the intent test to consider the shares held by the Appellant in its subsidiary VSIAPL as stock-in-trade instead of capital asset. Consequently, treating the entire consideration for the sale of shares as 'other Income'. 3.2 The Ld. DCIT and Ld. DRP has failed to appreciate the fact that the Appellant held 60% of the shares of VSAIPL right from its incorporation and has taken a narrow interpretation in characterizing the inve....
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....at at the time of payment of consideration VIPL has deducted tax at source for Rs. 6,01,78,155/-. The assessee further submitted that the impugned transaction of sale of shares is not to be treated as transfer under the provisions of section 47(iv) of the Act and therefore the said transaction resulted in the claim of refund in the return of income. The A.O called on the assessee to furnish further details and also to show cause as to why the impugned transaction is not subjected to tax in India. The assessee furnished various details giving the background of the transactions and also the reasons as to why the transaction cannot be charged to tax in India under the Act. The A.O however did not accept the submissions of the assessee and proceeded to treat the entire consideration as income from other sources. Aggrieved by the draft assessment order passed by the A.O, the assessee filed objections before the Disputes Resolution Panel (DRP), who confirmed the addition made by the A.O. The A.O passed the final assessment order as per directions of the DRP and the relevant findings of the A.O in this regard are extracted herein below: "a) In its reply, the assessee has said tha....
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....ee company has done the valuation based on the calculation of Net Asset Value Method and based on Discounted Cash Flow Method. The value per share as per the Net Asset Value Method is at INR 38.67 per share (INR 348053000/9000000 shares), however, the value per share as per the Discounted Cash Flow Method is at INR 72.01 per share. The assessee company has considered the valuation as per the Discounted Cash Flow Method which is based on projections. Therefore, it can be seen that the company (M/s. VSIAPL) which was already planned to be merged/amalgamated with M/s. VIPL and thereby extinguishing the shares of M/s. VSIAPL after merger/amalgamation, was valued at the beneficial rate per share only to transfer the consideration received against the sale of shares of M/s. VSIAPL to the assessee company M/s. VBF, when the merger/amalgamation could have happened without sale of shares of M/s. VSIAPL. d) The assessee company has stated that "the object of the investment in shares of a company is to derive income by way of dividend etc., then the profits accruing by change in such investment (by sales of shares) will yield capital gain and not revenue receipt". However, in the ins....
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....rivate Limited ("AIPL") (an entity of Anand Group), and it was engaged in aftermarket trading of Valeo and Anand Group automotive parts. * The objective of the JV was not realised; hence, the parties mutually exited the JV. The Appellant subsequently acquired the 40% stake held by AIPL on 26 June 2018. The consideration was agreed at INR 55 per share (approx.) A copy of the share purchase agreement was entered into by the parties to give effect to this exit. [Refer to Page 84 of Paper Book] * Following the acquisition of a 40% stake in AIPL, VSIAPL's shares were held by the Appellant along with its nominees. The details of investment made in VSIAPL by the Appellant are tabulated below: # Particulars Number of shares Year of infusion/acquisition 1 Capital infusion by Valeo Bayen 42,00,000 2012 2 Capital infusion by Valeo Bayen 12,00,000 2014 3 Purchase of shares by Valeo Bayen from AIPL 35,96,000 2018 * The shareholding in VIPL and VSIAPL was classified as investment in subsidiaries and affiliates as part of long-term financial assets. A copy of the financial statement evidencing the same is available at ....
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.... Ld. AR also argued that the way a particular transaction has to be carried out is at the option of the assessee who is running the business and the tax authorities cannot interfere with the choice of the taxpayer. The Ld. AR submitted that the assessee has sold the shares and the said transaction is carried out within the four walls of tax law and cannot therefore be held to be abusing of the provisions of the Act. The Ld. AR further submitted that merely because a transaction is claimed to be not taxable as per the provisions of the Act the Revenue cannot question the genuineness of the transaction without any evidence. The ld. AR also submitted that the A.O has treated the consideration received by the assessee as income from other sources without considering the fact that the shares of VSIPL held by the assessee are in the nature of capital asset the transfer of which if at all is taxable need to be brought to tax under the head "capital gains". The Ld. AR drew our attention to the fact that the assessee was holding 60% of the shares of VSIPL since March, 2012 and that the balance 40% was purchased from Asia Investment Pvt. Ltd. with whom the assessee has entered into a joint v....
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....n of balance shareholding (40%) in 2018 pursuant to exit of JV partner and the subsequent transfer in 2019 is considered by the revenue as transaction in the nature of trade. In our considered view, the said contention of the revenue has not considered the transaction as whole i.e. the earlier holding of the assessee and has been decided merely based on the subsequent acquisition. In absence of any material to establish sham or lack of commercial substance, the transaction cannot be disregarded merely because it results in tax benefit. The settled position of law is that tax planning within the framework of law is permissible. The AO has questioned the necessity of share transfer vis-à-vis merger i.e. why the assessee has chosen the fast track merger u/s. 233 of the companies Act instead of the normal merger and that AO has treated the transaction as non genuine for the reason that the assessee could not substantiate the action with proper evidence. It is well settled that Revenue cannot sit in the armchair of a businessman and dictate the manner in which business decisions are to be taken. In the present case, the decision to sell the shares and subsequently merge the wholl....
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....Section 47(iv) of the Act provides that a transfer of a capital asset by a holding company to its wholly owned subsidiary shall not be regarded as a transfer provided the following conditions are satisfied - * The Holding Company or its nominees has to hold whole of the share capital of the subsidiary company, and * The subsidiary company is an Indian Company 11. In assessee's it is not in dispute that the assessee holds 100% shares in VSIPL and VIPL and that both these companies are Indian companies. Accordingly we see no reason to deny the exemption as claimed by the assessee. With regard to the valuation of shares of VSIPL which is doubted by the AO we notice the valuation report is rejected by mere comparison with NAV and the AO has not recorded any defects in DCF methodology adopted by the assessee. The assessee has the statutory right to select either the DCF or NAV method and the AO has the power to examine the valuation report and question the assumptions. It is a settled position that the AO cannot reject the valuation report without pointing out specific defects or inaccuracies in the report. From the perusal of records we notice that the AO has n....