ITO, NEW DELHI vs. SH. PARAS VERMA, NEW DELHI

the order dated 25.02.2011 of CIT(A)-XXVII, New Delhi pertaining to 2005-06 assessment year wherein the addition made has been deleted. The assessee has filed his C.O objecting to the jurisdiction of the AO.

I.T.A .No.-2746/Del/2011 & C.O.No.-236/Del/2011 2. The Ld.AR inviting attention to the facts on record submitted that the assessee had purchased a plot bearing no.E-72 (area measuring 268 sq. mtrs) situated in Sector- 40, Noida for Rs.16,00,000/- and invested Rs.3,00,868/- on the registration of the documents, transfer fee & other allied charges. Thereafter, Assessee had invested Rs.10,77,655/- towards construction of the said plot during F.Y. 2003-04. Thus, the total investment in the said partly built up property upto 31.03.2004 worked out at Rs.29,78,523/- which was reflected by Assessee in the Balance Sheet as at 31.03.2004 of his sole proprietary concern-M/s Verma Constructions. The assessee had further invested Rs.16,83,584/- towards construction/finishing of the partly built up property during F.Y.2004-05, while recording all such transactions in the books of the said M/s Verma Construction.

Information was received from DAO indicating that the assessee sold a property for Rs.49 lakhs. The assessee was requiem to explain the same. In response assessee filed computation of income and balance sheet for AY 2004-05 and computation of income, balance sheet and P&L A/c for AY 2005-06. The assessee is proprietor of M/s Verma Construction. Perusal of P&L A/c for AY 2005-06 reveals that the assessee has claimed expenditure of Rs.2,03,200/- being interest paid. Perusal of balance sheet for AY 2004-05 reveals that there is no liability on account of loans which could bear interest element of Rs.2,03,200/-. Therefore, I have reason to believe that assessee has concealed taxable income to the extent of Rs.2,03,200/-

I.T.A .No.-2746/Del/2011 & C.O.No.-236/Del/2011 made as a result of the re-opening the assessment that the re-opening has been done on the basis of incorrect facts as the assessee admittedly had purchased a property and not sold a property. Inviting attention to the impugned order it was his submission that apart from this argument, various other arguments were advanced on behalf of the assessee which are found discussed in page 4 to 5 in para 5.1 to 5.15 of the impugned order. It was submitted that though the CIT(A) has reproduced the submissions in his order but has not cared to address them. Referring to the impugned order it was submitted that although on merits the additions made by the AO were deleted by the CIT(A) in appeal and reliance is placed thereon on merits. However, it was argued that the grievance of the assessee remains as the jurisdictional issue remains unaddressed and it should have been first addressed.

I.T.A .No.-2746/Del/2011 & C.O.No.-236/Del/2011 property was sold by the assessee. The assessee by way of its C.O filed has assailed the initiation of proceedings u/s 147 and consequently the notice u/s 148 and the re- assessment proceedings as bad in law. We find that once the very factual basis of the re-opening fails the re-opening based on wrong and incorrect facts becomes unsustainable in law. No authority need be cited in order to hold that the power to re- open assessments has to be exercised fairly and judiciously which necessarily postulates that the “reason to believe” that income has escaped assessment must be based on some fact or evidence which can lead to the formation of such a belief. However, a non-existent fact cannot be made the basis of formation of belief that income has escaped assessment as in such a situation where the foundational fact of the formation of belief itself is not an existing fact the entire edifice built on this erroneous foundational fact cannot survive. Thus once it is established that the re-opening has been based on incorrect facts the proceedings have to be quashed. The Ld.Sr.DR considering the material available on record was unable to defend the reason recorded i.e. the assessee had sold any property and infact agreed on query that the assessee had infact incurred expenditure on construction. Thus, where the foundational fact itself is incorrect the formation of belief on incorrect facts cannot be held to be a legitimate exercise of power to re-open the assessment. We find that the said ground had been raised before the CIT(A) who instead of addressing the said ground proceeded to consider the maintainability of the additions made on merit. The said approach is contrary to the settled legal position and cannot be approved. Thus, we hold that the Ld.CIT(A) fell in error in not first deciding the jurisdictional issue and instead proceeded to consider the issue on merits whose correctness is assailed by the Revenue. Though Page 4 of 5

I.T.A .No.-2746/Del/2011 & C.O.No.-236/Del/2011 the ld.AR has heavily relied upon the impugned order on merits also, we find no reason to address the same and by allowing Ground No.1 in the C.O. filed the proceedings are directed to be quashed.

The order is pronounced in the open court on 10th of August, 2016.