Disclosure of primary facts bars reassessment where the taxpayer need not explain the inference to be drawn.

Reassessment under section 34(1)(a) of the Income-tax Act, 1922 requires omission or failure to disclose fully and truly all material facts necessary for assessment. Disclosure of primary facts satisfies that obligation; the assessee is not required to point out the inference the Income-tax Officer should draw from them, including whether a transaction is sham. Production of books and documents that would enable the true nature of the transaction to be worked out does not by itself establish nondisclosure where the relevant facts were already placed before the assessing authority. On the facts disclosed, reopening was not justified.

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Issues: Whether reassessment under section 34(1)(a) of the Income-tax Act, 1922 could be sustained when the assessee had disclosed the primary facts relating to the transaction but had not drawn the Income-tax Officer's attention to the inference that the transaction was a sham.

Analysis: The statutory condition for action under section 34(1)(a) is omission or failure to disclose fully and truly all material facts necessary for assessment. Disclosure of primary facts satisfies that duty; the assessee is not bound to instruct the Income-tax Officer as to the inference to be drawn from those facts. Production of books and documents from which the true nature of the transaction could be worked out does not by itself establish nondisclosure where the relevant primary facts were placed before the assessing authority. The case for reopening on the footing of concealed material facts was therefore not made out.

Conclusion: Reassessment under section 34(1)(a) was not justified on the facts disclosed, and the assessee was entitled to succeed on this issue.

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