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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 29,13,00,000/- made by the AO on account of receipt of subscription and allotment of compulsorily convertible preference shares from the assessee's holding company. The AO had questioned the identity and creditworthiness of the holding company.
Held
The CIT(A) deleted the addition after considering additional evidence and the AO's remand report, finding a direct connection between the funds received and the impugned amount, and concluding that the identity, creditworthiness, and genuineness of the transactions were established.
Key Issues
Whether the addition made under Section 68 on account of compulsorily convertible preference shares received from the holding company was justified, considering the assessee's failure to prove identity and creditworthiness.
Sections Cited
143(3), 153-C, 69-C, 115-BBE, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: SHRI VIMAL KUMAR
Date of Hearing 19.02.2026 Date of Pronouncement .03.2026 ORDER PER AMITABH SHUKLA, AM,
This appeal by the Revenue is directed against the order of National Faceless Appeal Centre/Ld. Commissioner of Income Tax(Appeals), New Delhi [hereinafter referred to as ‘ld. CIT(A)] dated 25.06.2025 arising out of assessment order dated 26.09.2021 passed under section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2016-17. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The Revenue has raised following grounds of appeal:-
1. On the facts and in the circumstances of the case and in law, CIT(A) erred in sustaining proceedings u/s.153-C in the Assessee's case, which are bad in law and without jurisdiction.
2. On the facts and in the circumstances of the case and in law, CIT(A) erred in sustaining proceedings based on search in the case of Mr. Sanjay Jain.
3. On the facts and in the circumstances of the case and in law, CIT(A) erred in sustaining addition of Rs.2,10,000/- on account of alleged interest paid by the Assessee, under section 69-C, read with section 115-BBE of the Act.
The principal issue seminal to the controversy is regarding the action of the ld. CIT(A) in deleting the addition of Rs.29,13,00,000/- made by the ld. AO on account of receipt of subscription and allotment of compulsorily convertible preference shares from Ecogreen Energy Pvt. Ltd.-the holding company of the assessee. The ld. AO held the view that the assessee had failed to discharge its obligation to prove creditworthiness and identity of the party making the investment and proceeded to make the additions under section 68 r.w.s. 115BBE of the Act. The ld. CIT(A) after considering additional evidences filed by the assessee during appellate proceedings, remand report submitted by the AO, concluded that there was a direct connection between amounts received from the holding company and the impugned amount of Rs.29,13,00,000/- and proceeded to delete the addition. While doing so, the ld. CIT(A) gave extensive finding of facts as available on page-34 to 36 of this appellate order, for the purposes of clarity, reproduced hereunder:-
8.6. Reverting back to the assessment order dated 26.09.2021, the question of the identity and creditworthiness of the holding company has been raised by the AO in the assessment order. It is evident that Ecogreen Energy (P) Ltd., the holding company of the appellant, went to appeal before the Hon’ble ITAT against the addition made u/s 68 of the Act for Rs. 1,57,80,68,370/- in it’s own Page 2 of 5 case. The Hon’ble ITAT, for reasons discussed in the order mentioned above, found that the funds was received by the said company from it’s own holding company Lamoon Holdings Ltd., a tax resident of BVI by way of Foreign Inward Remittances. Consequently, it was held by the Hon’ble ITAT that the said assessee i.e. Ecogreen Energy (P) Ltd. had successfully discharged the onus and therefore, no addition should be made u/s 68 of the Act in it’s case for the AY 2017-18.
The appellant, during the instant proceedings submitted copies of the audited accounts of Ecogreen Energy (P) Ltd., the holding company of the appellant and the subscriber of CCPS in the appellant company. As per Schedule-3 of the Balance sheet as on 31.03.2018, the following is evident:
Particulars As at March 31, 2018 As at March 31, 2017 Number Amount in Number Amount in Rupees Rupees Authorized Share Capital Equity Shares 10,62,500 Equity shares of Rs. 10 each 1,062,500 10,625,000 1,062,500 10,625,000 (P.Y. 10,000 Equity Shares of Rs. 10/- each)
Compulsory Convertible Preference Shares 18,79,56,837 Preference Shares of Rs. 10/- each (PY 3,01,50,000 Preference Shares of Rs. 10/- each) 187,956,837 1,879,568,370 30,150,000 301,500,000 Issued, Subscribed and Fully Paid-Up Equity Shares 10,62,500 Equity Shares of Rs. 10/- each 189,019,337 1,890,193,370 31,212,500 312,125,000 Compulsory Convertible Preference Shares 18,79,56,837 Preference Shares of Rs. 10/- (P.Y. 3,01,50,000 Preference Shares @Rs. 10/- each) 1,062,500 10,625,000 1,062,500 10,625,000 187,956,837 1,879,568,370 30,150,000 301,500,000
189,019,337 1,890,193,370 31,212,500 312,125,000
Where as in Schedule-11 of the same audited accounts, the investment in shares (CCPS) of the appellant for Rs.29,13,00,000/- was mentioned as under Particulars As at March 31, 2018 As at March 31, 2017
Investment in Shares 601,050,000 - EEGFPL Investment in Shares EEGPL 291,300,000 - Investment in Shares EELPL 781,817,060 - 1,674,167,060 -
It is therefore apparent, that a part of the increment of Rs. 1,57,80,68,370/- (1,89,01,93,370 – 30,15,00,000) in the share capital for the AY 2017-18 has been correspondingly invested in CCPS of EEGPL the appellant, by its own holding company. This is also supported by the audited cash flow statement of Ecogreen Energy (P) Ltd. as on 31.03.2018.
This apart, the receipt of the funds on various dates from the holding company, Ecogreen Energy (P) Ltd. is also evidenced from the bank statements of the appellant. Again, allotment letters on subscription of CCPS and other documents mentioned in the aforesaid paragraphs serve as concrete and direct evidences to the fact that the sources of funds received by the appellant from its holding company i.e. Ecogreen Energy (P) Ltd. during the FY 2017-18, relevant to AY 2018-19 stands fully explained. Therefore, in my opinion all the three ingredients being identity, creditworthiness and genuineness of transactions stands adequately established.
8.7. In view of the aforesaid discussion, the additions made u/s 68 of the Act for Rs.29,13,00,000/- ought to be deleted. Accordingly, the appellant's contention in Ground no. 1 is allowed.”
We have noted from the aforesaid order of ld. CIT(A) that there is a direct connection between the impugned amount of Rs.29,13,00,000/- received by the assessee from its holding company. We do not find any infirmity in the conclusions of ld. CIT(A) that consequently there cannot be any doubt on the identity, creditworthiness and its genuineness of transactions postulated in section Page 4 of 5 68 of the Act. Accordingly, we confirm the order of ld. CIT(A) and dismiss the ground of appeal raised by the appellant Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 11th March, 2026.