Income Tax Appellate Tribunal - Delhi
Dy. Commissioner Of Income Tax, Central ... vs Starcity Buildcon Private Limited, ... on 30 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A': NEW DELHI
BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER
AND
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
ITA No.4646/Del/2025
(ASSESSMENT YEAR: 2020-21)
Dy. CIT, Starcity Buildcon Private Limited,
Central Circle-1, Plot No.GH-12, IA Surajpur,
Noida. Vs. Gautambudh Nagar, Noida,
Uttar Pradesh-201306.
PAN-AANCS4279F
(Appellant) (Respondent)
Shri Rohit Kapoor, Adv. &
Assessee by Shri Virsain Agarwal, Adv.
Department by Shri Jitender Singh, CIT- DR
Date of Hearing 10/02/2026
Date of 30/04/2026
Pronouncement
ORDER
PER MANISH AGARWAL, AM:
The present appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-3, New Delhi [CIT(A) in short], dated 15.05.2025 in Appeal No. CIT(Appeal), Noida-3/10018/2019-20 arising out of the order passed u/s 147 r.w.s. 143(3) of the Income Tax Act, 1961 (the Act, in short) dated 25.03.2024 for Assessment Year 2020-21.
2. Brief facts of the case are that a search and seizure action u/s 132 of the Act was carried out on ACE & Kurele Group on 28.07.2021 and thereafter on ACE & Rudra Group on 04.01.2022 and search was also carried at the business premises of assessee company. The assessee had filed its return of income on 26.12.2020 declaring total income at Rs.4,87,86,420/-. The AO observed that during the year 2 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
assessee has received loan of Rs.14,00,00,000/- from M/s Hallow Securities Pvt. Ltd. and paid interest of 3,62,507/-. Out of the total loan, a sum of Rs. 2,00,00,000/- was treated as unexplained credit and addition u/s 68 r.w.s 115BBE of the Act was made for the principal amount of 2.00 crores and interest thereon of Rs. 3,62,507/- and the total income was assessed at Rs. 6,91,48,927/-.
3. Against the said order, the assessee filed an appeal before the Ld. CIT(A) who has allowed the appeal of the assessee and deleted the addition made by the AO.
4. Aggrieved by the said order, the Revenue is in appeal before the Tribunal by following grounds of appeal:
1. Whether on facts and circumstances of the case and in taw, the Ld. CIT(A-3 Noida has erred in deleting the addition of Rs. 2,00,00,000/- made under Section 68 r.w.s 115BBE of the Income Tax Act, 1961, without appreciating the fact that the assessee has failed to discharge the onus of proving the identity, creditworthiness of the lender and genuineness of the transaction.
2. Whether on facts and circumstances of the case and in ta@ Noida has erred in deleting the addition of Rs.2,00,00,000/- made u/s 68 of the Act on account of bogus unsecured loan received from M/s Hallow Securities Pvt. Ltd., without appreciating the fact that the said entity was classified as a confirmed shell company by the Ministry of Finance (Press Release dated 08.06.2018) and categorized as a High-
Risk Financial Institution by FIU-IND for non-compliance with PMLA and associated rules, and without corroborating such deletion with any credible or verifiable evidence, thereby disregarding the findings recorded by the Assessing officer in the assessment order.
3. Whether on facts and circumstances of the case and in law, the Ld. CIT(A)-3 Noida has erred in deleting the disallowance made on account of interest payment towards principal amount allegedly taken from M/s Hallow Securities Pvt. Ltd. to the tune of Rs.3,62,507/-, without appreciating the fact that the assessee failed to discharge the onus of proving the identity, creditworthiness and genuineness of the loans.
4 That the order of CIT(A) being erroneous in law and facts be set aside and order of the A.O. be restored.
3 ITA No.4646/Del/2025DCIT vs. Starcity Buildcon Pvt. Ltd.
5 That the above grounds are without prejudice to each other and appellant craves leave to add, alter or amend any ground or grounds on or before the date of hearing of appeal.
5. Grounds of appeal No.1 & 2 are with respect to the deletion of addition of Rs. 2,00,00,000/- made u/s 68 r.w.s 115BBE towards the loan taken treating the same as unexplained credits and grounds of appeal No.3 & 4 are with respect to the deletion of disallowance of interest on such loan. Since all these grounds of appeal are interconnected, therefore, they are taken together for consideration.
6. Before us, Ld. CIT-DR vehemently supported the order passed by the AO and submits that assessee has failed to prove the creditworthiness of the lender from whom loan of Rs. 2,00,00,000/- was taken namely M/s Hallow Securities Pvt. Ltd. The Ld. CIT-DR submits to the extent of Rs. 2.00 crores has failed to discharge the burden of proving three ingredients of section 68 of the Act i.e. identity of lender, genuineness of transaction and the creditworthiness of the lender with credible evidences and satisfactory explanation. Ld. CIT-DR submits that the AO in its order at page 68 has categorically observed that out of the total Rs. 14.00 crores received from M/s Hallow Securities Pvt. Ltd., the assessee has been able to establish the source of source of loan of Rs. 12.00 crores and for the balance amount of Rs. 2.00 crores, assessee has filed to prove the source of source, therefore, AO has made the addition and requested for the confirmation of the same. The Ld. CIT-DR further submits that ld. CIT(A) at page 67 of the order has referred certain enquiries from SFIO which are separate and independent enquiries and based on the same addition should not be deleted. Ld. CIT-DR thus, alternatively prayed that matter be sent to the file of Ld. AO for fresh verifications of this fact.
4 ITA No.4646/Del/2025DCIT vs. Starcity Buildcon Pvt. Ltd.
7. On the other hand, Ld. AR for the assessee vehemently supported the order of Ld. CIT(A) and submits that during the course of assessment proceeding, assessee has filed all the documents to establish the identity and creditworthiness of the lender and genuineness of the transactions of loan taken from M/s. Hallow Securities Pvt. Ltd. which contained the PAN Card, Bank Statements, Assessment Orders from AY 2011-12 to AY 2017-18, RBI Certificate with respect to NBFC Status, Loan confirmation, ledger account evidencing TDS deduction and repayment of loan and financial statements of the lender company. Ld. AR submits that as per the financial statements, the lender company has share capital of more than Rs.98,00,00,000/- when the loans were advanced to the assessee. Ld. AR further submits that law to prove the source of source is applicable from AY 2023-24 and onwards and thus, the AO cannot make addition for the reason that source of source of loan has not been by the assessee. Ld. AR submits that the burden casted upon it of proving all the conditions of section 68 of the Act has been discharged and no incriminating materials whatsoever was found and seized as a result of search thus no addition should be made in the case of the assessee for the loan taken from M/s Hallow Securities Pvt. Ltd. He thus prayed for the confirmation of the order of Ld. CIT(A).
8. Heard the parties and perused the materials available on record. At the outset, it is observed that AO has accepted loans to the extent of Rs.12,00,00,000/- out total loan received at Rs.14,00,00,000/- from M/s Hallow Securities Pvt. Ltd. as genuine and doubted the identity and creditworthiness of the lender with respect to the loan of only Rs. 2,00,00,000/- received. It is further observed that all the funds were received through banking channel thus genuineness cannot be doubted. Further the assessee has filed all the plausible evidence to establish the creditworthiness of lender company which is evident from the financial statements of the said company 5 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
available at PB pages 451 to 469. Further the copies of the bank statements provided by the assessee, it is observed that sufficient balance was available when funds were transferred to the assessee. Moreover, the lender company has sufficient share capital to give loan of 14 cores to the assessee. It is also a fact that the AO has accepted he creditworthiness of the lender to the extent of granting loan of 12.00 crores and surprisingly doubted the capacity to further advanced the loan of only 2.00 crores.
9. Tt is further observed that Ld. CIT(A) has appreciated these facts and further by making independent enquiries from the SFIO reached to the conclusion that loan taken by the assessee was genuine and deleted the addition by making following observations at page 92 to 93 of the order:
"1. The money advanced by Hallow Securities Pvt. Ltd. to the assessee company is out of the return back of advances given to other concerns by Hallow Securities Pvt. Ltd. during the earlier years or the year under consideration (or routed through the genuine entities like Teesta Retails Pvt. Ltd., HFCL and ICICI Prudential Mutual Funds in ACE Group) meaning thereby that the creditworthiness of entities like Sundram Consultant Pvt Ltd, becomes irrelevant. Hence, the application of Section 68 using the source of source theory to the case of the appellant becomes uncalled for in above circumstances.
2. The fund flow statement of M/s. Hallow Securities Pvt. Ltd. from AY 2017-18 to AY 2022-23 reveals that there were sufficient funds available with Hallow Securities Pvt. Ltd. out of additions made by AO which were advanced to various concerns including the appellant. Without prejudice to the above findings and discussion, it is observed that the bank credits in the hands of M/s. Hallow Securities Pvt. Ltd. have already been added by the AO in the assessment orders of M/s. Hallow Securities Pvt. Ltd. for AY 2017-18 to AY 2022-23, the adding the same money emanating from the said accounts in the hands of the assessee company would amount to double taxation of the same money.
3. The AO in the assessment proceedings of Hallow Securities Pvt. Ltd. has excluded the funds advanced to ACE Group from the total credits added in the hands of Hallow Securities Pvt. Ltd. The exclusion of the funds advanced to the ACE Group from the total credits added by the AO in the hands of Hallow Securities Pvt. Ltd. is immaterial as when the total addition made in the hands of Hallow Securities Pvt. Ltd. is compared with the increase in the application of funds in its balance 6 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
sheets over the years, a net surplus persists, clearly demonstrating that same funds have been subjected to multiple and duplicate additions.
4. It is further evident that the exclusion of funds advanced to ACE Group from the current year's credits in the hands of Hallow Securities Pvt. Ltd. is also inconsequential for the reason that the corresponding credits in earlier years have already been added to the income in the case of Hallow Securities Pvt. Ltd. Hence, once the original advances and credits forming the substratum of these transactions have been added to the income of Hallow Securities Pvt. Ltd., any subsequent reduction from the credits in accounts of Hallow Securities Pvt. Ltd. of the advances given to the ACE Group does not materially impact the overall transactions which need to be brought to tax.
5. The loans received from M/s. Hallow Securities Pvt. Ltd. have been returned back in future years and part of unsecured loan was converted into preference shares resulting into squaring up of unsecured loan.
6. The statement of Sh. Vishal Kumar is without corroborative documentary evidence meaning that the said statement is standalone.
7. The statement of the Directors i.e. Sh. Pratap Singh Rathi (who has denied the facts as narrated by Sh. Vishal Kumar) rebuts the statement of Sh. Vishal Kumar.
8. The statement of Sh. Nishant Chajjar, Director of Hallow Securities Pvt. Ltd. was rebutted by the other Director Sh. Prakash Kumar Jha.
9. The AO has applied the source of source theory in ACE Group while giving relief with respect to the funds received from Hallow Securities Pvt. Ltd. via Teesta Retails Pvt. Ltd. Applying the same theory as applied by the AO to the other funds received by the appellant reveals that the said money majorly emanated out of the coffers of Hallow Securities Pvt. Ltd. during earlier years which were advanced to various entities and returned back or the said funds have been taxed in the hands of Hallow Securities Pvt. Ltd.
In view of the discussion on various issues carried out above, the addition made by the AO is not found to be sustainable and accordingly these grounds of appeal are allowed.
10. It is further observed that under identical circumstances and by making similar allegations additions were made in the case of M/s Allure Developers Pvt. Ltd for the loans taken from M/s Hallow Securities Pvt. Ltd. in AY 2020-21 which were deleted by ld. CIT(A) and such orders were upheld by the coordinate Delhi Bench of Tribunal in ITA NO. 3558/Del/2025 vide its order dt. 26.11.2025. The relevant 7 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
observations of the coordinate bench as contained in para 19 to 40 of the order are reproduced herein below for sake of convenience:
19. Heard the parties and perused the material available on records. In the present case the sole issue before us is the addition made of Rs. 17,74,00,000/- made by AO by holding the loans taken from M/s Hallow Securities Pvt. Ltd as unexplained u/s 68 of the Act which stood deleted by ld. CIT(A). Before going further, the facts leading to the issue are summarized as under:
"A search action us/ 132 was carried out on ACE group of cases on 28.07.2021 and further on 04.01.2022. During the year assessee received loan of Rs. 26,74,00,000/- from a company M/s Hallow Securities Pvt. Ltd. which is a NBFC. The AO examined the genuineness of loan and after considering the financials of the lender company M/s Hallow Securities Pvt. Ltd., observed its financial position is not satisfactory to grant such a huge loan to the assessee."
20. The AO has referred the statements of Sh. Nishant Chajjar, Director assessee company who was also the director of lender company M/s Hallow Securities Pvt. Ltd. who in reply to Q. NO. 14 stated that the cash/Hawala Transaction were handled by the other director of assessee company Sh. Prakash Kumar Jha. AO further observed that Shri Nishant is also directors of many companies managed and controlled by one Shri Ashish Begwani who alleged the key person and engaged in providing accommodation loans to assessee. The also referred the statements of Shri Ashish Begwani, recorded in the year 2017 wherein he explained the modus operandi for providing accommodation entries to various beneficiaries.
21. During the course of assessment proceedings, assessee had submitted copy of ITR, bank statement, Audited Balance Sheet of M/s Hallow Securities Pvt. Ltd to establish the identity, genuineness of transaction and creditworthiness. Assessee further established that M/s Hallow Securities Pvt. Ltd. had sufficient funds available in its bank account as and when the funds were transferred to the assessee.
22. The AO admitted that M/s Hallow Securities Pvt. Ltd. is registered NBFC however, alleged that it is also engaged in providing accommodation entries of loan to various business houses. Assessee claimed that M/s Hallow Securities Pvt. Ltd has received CCDs amounting to Rs. 300 crores from M/s Teesta Retails Pvt. Ltd. during various financial years which is one of the group company of Reliance group. The AO observed that M/s Hallow Securities Pvt. Ltd. is a shell company as per the Press Release dated 08.06.2018 by Ministry of Finance. The AO has accepted part loans as genuine and made the addition of 17,74,00,000/- by doubting the source of this amount in the hands of the lender company M/s Hallow Securities Pvt. Ltd.
23. It is the contention of the assessee that no incriminating document whatsoever was found / seized during the course of search from the possession of the assessee or any of the directors or its employees. As the assessee no document is referred / 8 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
relied upon by the AO for making the additions. He solely placed reliance on the statements of the director of assessee company and one of the employees of Ace group and also placed heavy reliance on the
26. As per section 68 of the Act, there must be a credit of amounts in the books maintained by an assessee and such credit has to be of a sum received during the previous year; and the assessee offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offer no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.
27. In the instant case as observed above, assessee has filed following documentary evidences in support of the loan from M/s Hallow Securities Pvt. Ltd. :-
(i) Confirmed Copy of account statement;
(ii) Bank statement of the lender company;
(iii) Audited financial statement of the lender company;
(iv) Copy of ITR acknowledgement of the lender company
28. It is further seen that by filing the bank statement, assessee has not only proved the source in the hands of the lender company but further prove the source of source of the loan given to it by explaining each credit entry in the table submitted before then ld. CIT(A) as appearing at pages 100-102 of the order which is reproduced as under for sake of convenience:-
29. It is also relevant to state that an amendment is made vide Finance Act, 2022 wherein second proviso to section 68 is added so as to provide that the nature and source of any sum, whether in the form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or loan provider. However, this additional onus to prove satisfactorily the source in the hands of the creditor, would not apply if the creditor is a well-regulated entity, i.e., it is a Venture Capital Fund, Venture Capital Company registered with SEBI. This amendment has taken effect from 1stApril, 2023 and accordingly applies in relation to the assessment year 2023- 24 and subsequent assessment years. The year before us is AY 2020-21 thus this amendment is not applicable, yet the assessee has been able to establish the same as per the table reproduced herein above.
30. As observed above, the requirement of explaining 'Source' of 'Source' in respect of loans is applicable from A.Y. 2023-24 and subsequent years. Reliance in this 9 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
regard is placed on the judgement of coordinate bench of Delhi ITAT in the case of M/s Mall Hotels Ltd. Vs. CIT in ITA No. 2688/DEL/2014 dated 31.05.2022.
31. Further the Delhi Bench of ITAT in the case of ACIT v Smt. Prem Anand in ITA No. 3514/Del/2014 vide order dated 13.04.2017 held that amendment made in section 68 of the Act w.e.f. 01.04.2013 empowers the A.O. to examine source of source in case of share application money / share capital / share premium from 01.04.2013 and this amendment does not give power to the A.O. to examine source of source of non-share capital cases.
32. As is evident from the chart as reproduced above, assessee has been able to establish the source of source in the hands of the lender company M/s Hallow Securities Pvt. Ltd. and the AO has wrongly under stood the said receipts as loans taken by the lender company whereas the same were repayment of the loans given by the lender company to all those companies thus the allegations made about the financial statements of the companies whose sums were credited in the bank account of the assessee prior to the funds transferred to the assessee is totally uncalled for and thus ignored and excluded and cannot be considered for examining the genuineness and creditworthiness of the lender company.
33. It is also relevant to state that the lander company has received funds in the shape of CCD from M/s Teesta Retails Pvt. Ltd who is having strong net worth and during the year assessee has received a sum of Rs. 60.00 crores out of total 300.00 crores received in FY 2019- 20 to 2021-22. It is also observed by ld. CIT(A) that the RBI license issued was also submitted and in the assessment proceedings of one of the group company M/s Bright Buildtech Pvt. Ltd., who is also before us in the captioned appeals, loan received from M/s Hallow Securities Pvt. Ltd. out of the funds received from Teesta Retails were also accepted by the department, thus the funds to such extent cannot be held as unexplained.
34. Another issue raised by the revenue is that the lender company M/s Hallow Securities Pvt. Ltd. was declared as Shell company by the press release issued by the Ministry of Finance dt.08.06.2018 and further no opportunity was given to the Ao to rebut the evidences filed by the assessee which are in the nature of additional evidences u/R 46A of the Act. In this context, it is seen that in order to verify this fact, ld. CIT(A) has made direct enquires from SFIO u/s 250(4) of the Act, who is the nodal agencies in this regard. The SFIO vide reply dt. 23.01,2025, as reproduced herein above, in clear terms has stated that no investigation is initiated/pending/disposal against the company i.e. M/s Hallow Securities Pvt. Ltd. the conclusion drawn by ld. CIT(A) on the basis of aforesaid report of SFIO are fully convincing and we concur these findings given by ld. CIT(A) which are reproduced as under:
"From the above press release, following conclusions can be drawn:
a. The red flagged companies which had not filed returns for last 2 years were deregistered from the ROC.10 ITA No.4646/Del/2025
DCIT vs. Starcity Buildcon Pvt. Ltd.
b. Directors of those companies which had not filed annual returns were disqualified.
c. The struck-off companies were restricted from using their bank accounts. d. Genuine corporates were given benefit of condonation of delay scheme for filing the returns.
In view of the above, it was felt necessary to make enquiries both with Hallow Securities Pvt. Ltd. and SFIO (the Nodal Authority maintaining the database) to know, if any, proceedings were pending with respect to Hallow Securities Pyt Ltd. with SFIO and whether M/s. Hallow Securities Pvt. Ltd. had been regular in its compliances with ROC and RB etc. The exact correspondences with M/s. Hallow Securities Pvt. Ltd. and SEIO have already been reproduced above in the body of the order. M/s. Hallow Securities Pt. Ltd. in response to enquiry from this office provided the following information:
a. Details of the annual returns filed with the ROC from AY 2018-19 till AY 2024-25.
b. Details of the annual returns filed with the RBl from AY 2018-19 till AY 2024-
25.
c. No show cause has been received by the above company from the ROC since Financial Year 2017-18 (i.e. even after a period of seven years of the press release quoted by the AO).
Enquiry letter was also issued to SFIO to know, if any, proceedings were pending with the Nodal Authority against M/s. Hallow Securities Pvt. Ltd. The response of SFIO authorities has already been reproduced in the body of the order above. The Nodal Authority (SFIO) has clearly reported that no proceedings are pending against M/s. Hallow Securities Pvt. Ltd. with their office"
35. Further from the perusal of observations at page 79 onwards of the order of ld.
CIT(A) we find that CIT(A) has provided numerous opportunities to the AO for rebuttal/objections however, the AO has not availed any of the opportunity therefore, the ld. CIT(A) has made the enquiries in terms of the power conferred upon it in section 250(4) of the Act. The relevant observations of ld. CIT(A) are as under:
Reply of AO "During the course of appellate proceedings, various reminders were issued to the assessee vide this office emails dated 15.02.2025, 08.02.2025, 01.02.2025, 25.01.2025, 24.01.2025, 18.01.2025, 15.01.2025, 14.01.2025 & 08.01.2025 on various issues including enquiries conducted with Hallow Securities Pvt. Ltd., SFIO Report, Additional Grounds of Appeal etc. But no objections have been received from the AO till the date of finalization of appeal. It is pertinent to point out that it was only during the course of enquiry done by this office that the assessee/third parties furnished the relevant evidences. The said evidences were called for under the powers of enquiry with the office of Commissioner Appeal).
Hence, the assessee/third parties have not produced any additional evidence but have only furnished evidences as called tor during enquiry made by this office. In 11 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
case, the AO is not able to collect complete material and take the issue to logical end, the evidence collected by the appellate authority from the assessee/third parties in continuation of the same trail initiated by the AO would be clarificatory evidence. The clarificatory evidence would only remove the doubts arising in the mind of the appellate authorities from the documents on record so that the issue under consideration is taken to a logical conclusion by making the argument more explicit so that the real income can be arrived at.
On the said issue, the Hon'ble High Court of Delhi in the case of Commissioner of Income-tax, Central-l vs. Manish Build Well (P.) Ltd. reported at [2011) 16 taxmann.com27 (Delhi) has held as under:
"Whether a distinction should be recognized and maintained between a case where assessee invokes rule 46A to adduce additional evidence before Commissioner (Appeals) and a case where Commissioner (Appeals), without being prompted by assessee, while dealing with appeal, considers it fit to cause or make a further enquiry by virtue of powers vested in him under subsection (4) of section 250 and it is only when he exercises his statutory suo moto power under above sub-section, that requirements of rule 46A need not be followed - Held, yes"
Further, the Hon'ble High Court of Karnataka in the case of Shankar Khandasari Sugar Mills v. CIT reported at 59 taxman 405 has observed as under:
"The appellate authority should have accepted the material produced by the assessee as clarificatory in nature and considered the same to test the fairness and propriety of the estimate of income made by the Income-tax Officer. Though it was belated production of very relevant material, no prejudice (in its legal sense) would have resulted to the Revenue by considering the material produced by the assessee... In the absence of any prejudice to the Revenue, and the basis of the tax under the Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do." [Emphasis supplied] (p. 673) Further, the Hon'ble High Court of Allahabad in the case of Smt. Mishingar Kaur vs. Central Government reported at (1976) 104 ITR 120 (ALL.) has held as under:
"The AAC could while disposing of an appeal, make such inquiry as he thought fit. He could permit a fresh or new ground to be raised in the appeal. No part of rule 46A whittles down or impairs the power to make further inquiry conferred upon the AAC by section 250. Similarly, sub-section (5) of the said section confers a power on the AAC to permit the appellant to raise a fresh point. This power has not been even touched by rule 46A."
Further, the Hon'ble High Court of Bombay in the case of Smt. Prabhavati S. Shah vs. Commissioner of Income-tax reported at [1998) 100 TAXMAN 404 (BOM.) has held as under:
12 ITA No.4646/Del/2025DCIT vs. Starcity Buildcon Pvt. Ltd.
It is, thus, clear that the powers of the AAC are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of the ITO. He can do what the ITO can do. He can also direct the ITO to do what he failed to do. The power conferred on the AAC under the said subsection being quasi-judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the AAC fails to exercise his discretion judicially and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority.
On a conjoint reading of section 250 and rule 46A, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the AAC under sub-section (4) of section 250. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the ITO. ..............
The AAC should have considered this evidence in exercise of his powers under sub-sections (4) and (5) of section 250 which he failed to do. Thus, it was a fit case where the AAC should have exercised the powers conferred upon him and taken on record the zerox copies of the cheque, the certificate from the bank and the copy of the account of the assessee with the said bank and considered the same for deciding the genuineness of the loan." Further, the Ld. ITAT Bench Calcutta in the case of INCOME-TAX OFFICER VS. BAJORIA FOUNDATION reported at [2001] 117 TAXMAN 126 (CAL.) (MAG.) has held as under:
"Whether a harmonious interpretation of section 250, even if read with rule 46A, means that if facts of case warrant further enquiries, it is within powers of Commissioner (Appeals) to do so - Held, yes - Whether if prima facie an information is necessary to examine claim of assessee, Commissioner (Appeals) should consider necessary evidence in exercise of his powers under subsections (4) and (5) of section 250 - Held, yes"
Further, the Ld. ITAT Ahmedabad Bench 'C' in the case of Deputy Commissioner of Income-tax vs. J.A. Infracon (P.) Ltd reported at [2025] 171 taxmann.com 228 (Ahmedabad - Trib.) has held as under:
Commissioner (Appeals) called for a remand report from Assessing Officer and issued notice under section 133(6) to aforesaid investor companies and in response to same, parties namely 'ATPL' and 'ALPL' confirmed transactions With assessee company with necessary documents and evidences - These Confirmations were not controverted by Assessing Officer by way of bringing anything adverse on record - Further in spite of availability of all documents transaction with share applicant companies who had made share application on record, nothing had been brought on record by Assessing Officer to doubt in assessee company - Whether, on facts, Commissioner (Appeals) rightly deleted addition made by Assessing Officer
- Held, yes [Paras 7, 8 and 11] [in favour of assessee]"13 ITA No.4646/Del/2025
DCIT vs. Starcity Buildcon Pvt. Ltd.
Further, the Hon'ble Supreme Court in the case of CIT vs. Kanpur Coals Syndicate [1964] 53 ITR 225 has held that "the appellate Commissioner has plenary powers in disposing of an appeal. The Hon'ble Court further held that the scope of the power of CIT(A) is coterminous with the AO."
Further, the Hon'ble High Court of Karnataka in the case of CIT vs. K. S. Dattatreya [2011] 197 taxman 151 has held that "as a revisional authority commissioner appeal can revise not only the ultimate computation arrived at but every process which lead to the ultimate computation or assessment". Further, the Hon'ble Kerala High Court in the case of V. Subramonia Aiyr v S. CIT 1978] 113 ITR 685 held that "the power conferred on Appellate Authority by Section 246 which is exercised in accordance with procedure with Section 250 indicate and amplitude and width which is no less wide than that of an ITO and the Appellate Authority could substitute the order of the ITO by one of his own."
36. In view of the above clear observations of ld. CIT(A) we find that despite of repeated opportunities to the AO, no response was given thus the ld. CIT(A) had proceeded to decide the issue after making necessary enquires at his end. Accordingly, we find no error in such findings of ld. CIT(A) and accordingly this plea of the revenue is not acceptable.
37. Another important aspect which has been considered by ld. CIT(A) is that the loans were repaid by the assessee in subsequent years and assessee has also filed the copies of the relevant ledger accounts before us which are placed in the paper book. The assessee also filed a chart in this regard which is reproduced as under:
38. While accepting the plea of the assessee, Ld. CIT(A) has made following observations at page 109 of the order :
Repayment of Loan "The AR further submitted that the loans under contention already stand repaid in the future years. The relevant copies of account of the repayment of loans are placed at pages 46 to 49 of the paper book, It has been held in a number of judgments that once an unsecured loan has been returned back, the same cannot be treated as income u/s 68.
On the above issue, the Hon'ble Supreme Court in the case of Assistant Commissioner of income-tax vs. Gujarat Television (P.) Ltd. reported at [2024] 159 taxmann.com 739 (SC) has held as under:
"SLP dismissed against order of High Court that where unsecured loans given to assessee were squared up on same date and nothing remained outstanding at end of day, much less at end of financial year, impugned reassessment proceedings to tax same under section 68 deserved to be quashed"
On the above issue, the Hon'ble High Court of Mumbai in the case of Principal Commissioner of Income-tax vs. Bairagra Builders (P.) Ltd. reported at [2024] 164 taxmann.com 162 (Bombay) has held as under:
14 ITA No.4646/Del/2025DCIT vs. Starcity Buildcon Pvt. Ltd.
"Where assessee had taken unsecured loan from two companies and had submitted all evidences to substantiate loan including confirmation from creditors and loan was taken and repaid through banking channels, Assessing Officer was not justified in treating said unsecured loan as fake and unexplained cash credit"
Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax (Central vs. Dharmesh Padamshibhai Patel soner reported at [2023] 156 taxmann.com 491 (Gujarat) has held as under:
However, Tribunal remanded matter back to Assessing Officer to verify identity of parties -It was noted that Tribunal had observed that assessee had furnished bank accounts of all lenders wherein loans claimed were duly reflected - Creditors were assessed to tax and their confirmations were filed
- Further, loans were returned through banking channels before close of subsequent Financial year - Whether, on facts, an opportunity was rightly allowed by Tribunal to assessee to prove identity of lenders when their creditworthiness and genuineness of transactions as was held by Commissioner (Appeals), were already proved - Held, yes [Paras 15 and 16] In favour of assessee] Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax (Central), Surat vs Neotech Education Foundation reported at [2023] 148 taxmann.com 372 (Gujarat) has held as under:
It was noted that Commissioner (Appeals) had observed that assessee had discharged its onus by furnishing necessary details such as a copy of PAN, bank details and ITR etc. in support of identity and creditworthiness of creditor and genuineness of transaction - He further noted that payment of loan to assessee as well as repayment of loan and interest by assessee were made by account payee cheques - Further, both lower authorities had concurrently held that initial burden of proof even if not discharged by assessee at level of Assessing Officer but every transaction was explained by production of documents by assessee before Commissioner (Appeals) where two remand reports were called for - Whether, on facts, impugned addition on account of loan amount made by Assessing Officer was to be deleted - Held, yes [Paras 9 to 11] [In favour of assessee] Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax vs. Merrygold Gems (P.) Ltd reported at [2024] 164 taxmann.com 764 (Gujarat) has held as under:
Section 68 of the Income-tax Act, 1961 - Cash credit (Scope of provision) - Assessment year 2016-17 - Assessing Officer made addition of certain amount to assessee's income on account of unsecured loan treading same as unexplained cash credit under section 68 - Whether since amount of loan received by assessee was returned within same financial year, appellate authorities had rightly deleted addition made by Assessing Officer - Held, yes [Paras 9 and 11] [In favour of assessee] 15 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax vs. Ambe Tradecorp (P.) Ltd reported at [2022] 145 taxmann.com 27 (Gujarat) has held as under:
Where assessee took loan from two parties and assessee had furnished requisite material showing identity of loan givers and that assessee was not beneficiary as loan was repaid in subsequent year, no addition under section 68 could be made on account of such loan Further, the Hon'ble HIGH COURT OF GUJARAT in the case of Principal Commissioner of Income-tax vs. Ojas Tarmake (P.) Ltd. reported at [2023] 156 taxmann.com 75 (Gujarat) has held as under:
Where assessee showed unsecured loans received during relevant assessment year and AO made addition on ground that assessee failed to discharge onus of liability as laid down under section 68, since amount of loan received by assessee was returned to loan party during year itself and all transactions were carried out through banking channels, impugned addition was to be deleted."
39. We find that the sole allegation of the AO was that the assessee has taken the bogus accommodation entries in the shape of unsecured loans however, as discussed above, the revenue has failed to controvert the finding of the ld. CIT(A) who not only appreciate the facts of the case and the submissions made by the assessee but also make verification at his own end in terms of the powers u/s 250(4) of the Act when the AO has filed to response on the request of ld. CIT(A) of making verification of the submissions made by the assessee. It is further seen that the assessee has discharged the burden casted upon it of establishing the genuineness of the loans and creditworthiness of the lender company and further established the source of source though was not required under the law as existed at the relevant time. The conclusion drawn by ld. CIT(A) is as under:
Conclusion "Accordingly, in view of the above discussion, following conclusions can be drawn:
1. The money advanced by Hallow Securities Pvt. Ltd. to the assessee company is out of the return back of advances given to other concerns by Hallow Securities Pvt. Ltd. during the earlier years or the year under consideration (or ACE Group meaning thereby that the creditworthiness of entities like Manak routed through the genuine entities like Teesta Retails Pyt. Ltd. and HFCL in Estate & Finance Pvt Ltd, Sundram Consultants Pt Ltd, AKJ Engineers Pvt Ltd, Kanta Credits and Holdings Pvt Ltd. becomes irrelevant.
Hence, the application of Section 68 using the source of source theory to the case of the appellant becomes uncalled for in above circumstances.
2. The fund flow statement of M/s. Hallow Securities Pvt. Ltd. from AY 2017-18 to AY 2022-23 reveals that there were sufficient funds available with Hallow Securities Pvt. Ltd. out of additions made by AO which were advanced to findings and discussion, it is observed that the bank credits in the hands of 16 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
various concerns including the appellant. Without prejudice to the above M/s. Hallow Securities Pvt. Ltd. have already been added by the AO in the assessment orders of M/s. Hallow Securities Pvt. Ltd. for AY 2017-18 to Ar 2022-23, the adding the same money emanating from the said accounts in the hands of the assessee company would amount to double taxation of the same.
3. The AO in the assessment proceedings of Hallow Securities Pt. Ltd. has excluded the funds advanced to ACE Group from the total credits added in the hands of Hallow Securities Pvt. Ltd. The exclusion of the funds advanced to the ACE Group from the total credits added by the AO in the hands of Hallow Securities Pvt. Ltd. is immaterial as when the total addition made in the hands of Hallow Securities Pvt. Ltd. is compared with the increase in the application of funds in its balance sheets over the years, a net surplus persists, clearly demonstrating that same funds have been subjected to multiple and duplicate additions.
4. It is further evident that the exclusion of funds advanced to ACE Group from the current year's credits in the hands of Hallow Securities Pvt. Ltd. is also inconsequential for the reason that the corresponding credits in earlier years have already been added to the income in the case of Hallow Securities Pvt. Ltd. Hence, once the original advances and credits forming the substratum of these transactions have been added to the income of Hallow Securities Pvt. Ltd., any subsequent reduction from the credits in accounts of Hallow Securities Pvt. Ltd. of the advances given to the ACE Group does not materially impact the overall transactions which need to be brought to tax.
5. The loans received from M/s. Hallow Securities Pt. Ltd. have been returned back in future years.
6. The statement of Sh. Vishal Kumar is without corroborative documentary evidence meaning that the said statement is standalone.
7. The statement of the Directors i.e. Sh. Pratap Singh Rathi (who has denied the facts as narrated by Sh. Vishal Kumar) rebuts the statement of sh. Vishal Kumar.
8. The AO has applied the source of source theory in ACE Group while giving relief with respect to the funds received from Hallow Securities Put. Ltd. via Teesta Retails Pvt. Ltd. Applying the same theory as applied by the AO to the other funds received by the appellant reveals that the said money majorly emanated out of the coffers of Hallow Securities Pvt. Ltd. during earlier years which were advanced to various entities and returned back. In view of the discussion on various issues carried out above, the addition made by the AO is not found to be sustainable and accordingly these grounds of appeal are allowed.
40. In view of the above discussion and further looking to the fact that when all the relevant details and documentary evidences produced by the assessee to establish the identity, creditworthiness and genuineness of the transactions, the said evidences cannot be rejected based on the statements of third party without any 17 ITA No.4646/Del/2025 DCIT vs. Starcity Buildcon Pvt. Ltd.
contrary documentary evidence. It is seen that transactions have been done through banking channels and on the date of making of loans, there was sufficient balance available in the bank account of the lender company, which proves the creditworthiness and genuineness of the transactions. It is also relevant that out total amount of loans of 27.27 crores received, the AO has despite of doubting the creditworthiness, had made the addition of INR. 17.74 crores only meaning thereby the creditworthiness for the remaining amount is not doubted though the facts and the circumstances while granting these loans remained the same. This creates serious doubts about the mode and manner of the additions made by the AO. Once it is accepted that the lender has creditworthiness for part of the amount, the remaining amount cannot be held as unexplained. There is no case of any cash deposited in the account of any of the lender company at the time of issuing cheques/RTGS in favour of the Assessee. Therefore, Appellant has duly discharged the burden casted upon it u/s 68 of the Act.
41. It is trite law that suspicion, howsoever strong, cannot take the place of proof as held in Umacharan Shaw & Bros. vs. CIT (1959) 37 ITR 271 (SC). The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax (1954) 26 ITR 775 (SC) has observed that powers given to the Revenue authority, howsoever, wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material. The assessment cannot be framed only on bare suspicion. The assessment should rest on principles of law and one should avoid presumption of evasion in every matter. The assessee, in the instant case, has sufficiently demonstrated the genuineness of transaction and creditworthiness of the loan creditors. On a broader reckoning, the apprehension raised by the Revenue authorities militates against the tangible material and is thus extraneous. Accordingly, we find no infirmity in the order of ld. CIT(A) in deleting the additions made u/s 68 towards the unsecured loans of Rs. 17.74 crores by holding the same as accommodation entries. Accordingly, all the grounds of appeal of the revenue are dismissed.
11. It is observed that in the aforesaid case, the coordinate bench has dealt with every aspect of the loan taken from M/s Hallow Securities Pvt. Ltd. and also the allegations made by the AO were duly rebutted. Before us in the instant case, the Revenue has failed to controvert the findings given by the Ld. CIT(A) which are based on the appreciation of the facts of the financial statements of the lender company M/s Hallow Securities Pvt. Ltd. Thu by respectfully following the judgement in the case of Allure Developers Pvt. Ltd (supra), we find no error in the order of the Ld. CIT(A) in deleting the additions made, accordingly, the same is hereby confirmed. All the grounds of appeal of the Revenue are dismissed.
18 ITA No.4646/Del/2025DCIT vs. Starcity Buildcon Pvt. Ltd.
12. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 30.04.2026.
Sd/- Sd/- /-
(ANUBHAV SHARMA) (MANISH AGARWAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 30.04.2026.
*PK, Sr. Ps*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI