PCIT Vs Ansal Phalak Infrastructure Pvt Ltd (Delhi High Court)
Delhi HC: ₹55-Crore Foreign Investment Cannot Be Added u/s 68 When Identity, Creditworthiness & Genuineness Stand Established; AO Cannot Ignore Assessee’s Evidence
In Pr. CIT-4 v. Ansal Phalak Infrastructure Pvt. Ltd. (now New Look Builders and Developers Pvt. Ltd.), the Delhi High Court dismissed the Revenue’s appeal concerning a ₹55-crore addition under Section 68 for AY 2011-12. The investment had been made by New Dimension Holdings Ltd., Mauritius and Velford Ventures Ltd., Cyprus, through equity shares and Compulsorily Convertible Debentures (CCDs).
The CIT(A), whose findings were affirmed by the ITAT, found that the investments arose pursuant to an investment-cum-collaboration agreement. The foreign investors acquired shares and CCDs, were registered entities and taxpayers in their respective jurisdictions. The assessee had also furnished Foreign Inward Remittance Certificates containing details and purpose of remittances and audited balance sheets of the investor companies.
The High Court held that these were findings of fact based on material on record, and the Revenue could not demonstrate that they were perverse. Consequently, no question of law arose, and the Revenue’s appeal was rejected.
Importantly, the Court strongly criticised the AO for completely ignoring the assessee’s replies and documentary evidence. It emphasised that an AO’s role is not merely to protect Revenue or generate tax; the AO must objectively and judiciously consider the assessee’s replies, pleas, judgments and documents. Ignoring such material constitutes a breach of natural justice and procedural fairness.
Key takeaway: A Section 68 addition cannot rest merely on the AO’s suspicion as to why foreign investors would make a substantial investment when the transaction is supported by agreements, banking/remittance records, audited financial statements and other evidence establishing its genuineness. More significantly, the judgment reiterates that an assessment order which brushes aside material evidence furnished by the assessee offends natural justice and procedural fairness.
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