The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed the Revenue’s appeal against Starcity Buildcon Private Limited, affirming the deletion of an addition of ₹2 crore made under Section 68 read with Section 115BBE of the Income Tax Act, 1961. 

The bench Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) has observed that once the assessee had discharged the primary onus of proving the identity, creditworthiness, and genuineness of the lender, the addition could not be sustained merely on suspicion.

The dispute arose from assessment proceedings for AY 2020–21, where the Assessing Officer (AO) treated ₹2 crore out of a total unsecured loan of ₹14 crore received from M/s Hallow Securities Pvt. Ltd. as unexplained cash credit. The AO also disallowed interest of ₹3.62 lakh on the said portion, alleging failure of the assessee to establish the lender’s creditworthiness and genuineness of the transaction. 

The Commissioner of Income Tax (Appeals) [CIT(A)] had earlier deleted the addition, observing that the assessee had furnished comprehensive documentary evidence, including PAN, bank statements, financial statements, loan confirmations, and details of TDS deduction. The CIT(A) also conducted independent inquiries, including verification from the Serious Fraud Investigation Office (SFIO), which confirmed that no investigation was pending against the lender company. 

Before the Tribunal, the Revenue contended that the lender had been flagged as a shell company and categorized as a high-risk financial entity, and that the assessee failed to establish the “source of source” for the loan. However, the Tribunal rejected these arguments, noting that the AO had already accepted ₹12 crore out of the ₹14 crore loan as genuine, and therefore, questioning only ₹2 crore without any distinguishing material was inconsistent.

The Tribunal emphasized that all transactions were routed through banking channels and that sufficient funds were available in the lender’s accounts at the time of disbursement. It further noted that the lender had substantial share capital and financial strength, supporting its creditworthiness. 

Importantly, the Tribunal reaffirmed that the requirement to prove the “source of source” is applicable only from Assessment Year 2023–24 onwards, and therefore, could not be invoked for AY 2020–21. It also observed that no incriminating material was found during the search proceedings to justify the addition.

The ITAT also took note of the CIT(A)’s findings that the funds advanced by the lender were traceable to earlier transactions or returns of advances, and that taxing the same amount again in the hands of the assessee would result in double taxation. Additionally, the Tribunal highlighted that the loans had been repaid or converted into preference shares in subsequent years, further supporting the genuineness of the transactions. 

The Tribunal reiterated that suspicion, however strong, cannot substitute legal proof. It held that the assessee had adequately discharged its burden under Section 68, and in the absence of contrary evidence, the addition could not be sustained.

The Tribunal upheld the order of the CIT(A) and dismissed all grounds raised by the department, providing significant relief to the assessee.

Case Details

Case Title: Dy. CIT Versus Starcity Buildcon Private Limited

Citation: JURISHOUR-1046-ITA-2026(DEL) 

Case No.: ITA No.4646/Del/2025

Date: 30/04/2026

Counsel For  Appellant: Rohit Kapoor, Adv

Counsel For Respondent: Jitender Singh

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