Reassessment: Sections 143(3), 147 and 148 of Income-tax Act, 1961: A.Y. 1999-00: Assessment u/s.143(3): Subsequent reopening of assessment (beyond 4 years): The recorded reasons must indicate as to how there was a failure on the part of the assessee to disclose the facts fully and truly: Lapse on the part of the AO cannot be a ground for reopening when the primary facts are disclosed.

For the A.Y. 1999-00, the case was taken up for scrutiny and the assessment was completed u/s.143(3) of the Act. Subsequently, (beyond the period of 4 years) the assessment was reopened and an addition of Rs.79,23,834 was made u/s.2(22)(e) of the Act, in the reassessment. The reopening and the addition were confirmed by the Tribunal.

On appeal by the assessee, the following question was framed : “Whether the Assessing Officer was justified and correct in law in initiating the reassessment proceedings for reasons recorded in Annexure A2?” The Delhi High Court answered the question in favour of the assessee and held as under: “

(i) In the regular assessment the Assessing Officer had inquired into the details of the advances received, but did not make any addition u/s.2(22)(e). If the Assessing Officer fails to apply legal provisions, no fault can be attributed to the assessee. The assessee is merely required to make a full and true disclosure of material facts, but is not required to disclose, state or explain the law.

(ii) A lapse or error on the part of the Assessing Officer cannot be regarded as a failure on the part of the assessee to make a full and true disclosure of material facts.

(iii) Though the recorded reasons state that the assessee had failed to fully and truly disclose the facts, they do not indicate why and how there was this failure. Mere repetition or quoting the language of the proviso is not sufficient. The basis of the averment should either be stated or be apparent from the record.

(iv) Explanation (1) to section 147 which states that mere production of books is not sufficient does not apply to a case where the Assessing Officer failed to apply the law to admitted facts on record.

(v) The allegation that the assessee did not disclose the true and correct nature of the payment received from the sister concerns, nor disclosed the extent of holding of the sister concern so as to enable the Assessing officer to apply his mind regarding section 2(22)(e) is not acceptable. The assessee had filed statement of accounts of each creditor and indicated them to be sister concerns. The primary facts were furnished. The law does not impose any further obligation of disclosure on the assessee.

(vi) Appeal is accordingly allowed and the reassessment proceedings are set aside.”