The Delhi High Court on 21 August dismissed the Income Tax Department's appeal against Ansal Phalak Infrastructure Pvt Ltd and upheld the deletion of the Rs. 55 crore addition by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT).

A Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta emphasised that an Assessing Officer must objectively consider the reply and documents furnished by a taxpayer and cannot brush them aside while making an addition under Section 68 of the Income Tax Act, 1961 (which deals with unexplained cash credits). The judges held:

“An adjudicatory process enjoins upon an AO to deal with the reply and documents filed by the assessee in an objective manner and his duty as an AO is not only to watch interest of revenue and generate revenue for the country, but also to judiciously consider the reply and pleas including judgments and documents which an assessee relies upon or furnishes,”

The dispute concerned investments totalling Rs. 55 crore made by two foreign companies in Ansal Phalak Infrastructure through shares and convertible debentures. The Assessing Officer treated the investment as unexplained and made the addition under Section 68 after questioning the creditworthiness of the foreign investor companies.

The company challenged the addition before the Commissioner of Income Tax (Appeals). After examining the audited accounts of the foreign companies, the appellate authority concluded that the investment was genuine and duly explained. The ITAT affirmed these findings.

The Department then challenged the ITAT order before the High Court. It argued that since the assessment year involved was 2011-12, before the amendment to Section 68 came into effect on 1 April 2013, the Assessing Officer could require the taxpayer to explain the “source of the source”. It also argued that the company had failed to satisfactorily explain why the two foreign companies would make such a substantial investment.

The company, however, submitted that the Assessing Officer had ignored material already placed on record, including the agreement between the investor companies and the company, the fact that the Transfer Pricing Officer had given no adverse report and the 16% coupon applicable to the compulsorily convertible debentures.

The Court noted that Ansal Phalak Infrastructure had entered into an investment-cum-collaboration agreement with the two foreign investors and had produced certificates of foreign inward remittance and audited balance sheets of the investor companies.

The Bench found that the Commissioner of Income Tax (Appeals) had based its findings on the material available on record and that the Revenue had failed to demonstrate that those findings were perverse. It also noted that while the appellate authority had considered each document filed by the company “with great detail and care”, including by referring to the relevant page numbers of the paper book, the Assessing Officer had “completely ignored” them. It remarked:

“Brushing aside or ignoring documents filed by an assessee leads to breach of principles of natural justice and hits at the procedural fairness,”

Accordingly, the High Court dismissed the Income Tax Department's appeal and upheld the deletion of the Rs. 55 crore addition.

For Appellant: Mr. Shlok Chandra, SSC along with Ms. Naincy Jain, JSC

For Respondent: Mr. Sachit Jolly, Sr. Advocate with Mrs. Mansha Anand, Mr. Abhyudaya Shankar Bajpai, Mr. Sohum Dua, Ms. Saloni Ray, Mr. Ghunaim Siddiqui, Ms. Yahavi Sharma and Ms. Manvi, Advocates

Case Title :  Pr. Commissioner Of Income Tax 4 New Delhi v. M/S Ansal Phalak Infrastructure Pvt Ltd (Now Known As New Look Builders And Developers Pvt Ltd)Case Number :  ITA 770/2025CITATION :  2026 LLBiz HC (DEL) 878
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