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Issues: (i) Whether the belated retraction of the statement recorded during search and the material found in the seized register could be disregarded in assessing the genuineness of the cash loans and related credits; (ii) Whether the settlement application before the Settlement Commission satisfied the requirement of full and true disclosure under section 245C of the Income-tax Act, 1961, and whether the later enhanced offer could cure the defect.
Issue (i): Whether the belated retraction of the statement recorded during search and the material found in the seized register could be disregarded in assessing the genuineness of the cash loans and related credits.
Analysis: The statement recorded under section 132(4) was made during search and was supported by seized books and registers. The retraction came nearly two years later and was not based on any claim of coercion or duress. The assessees did not furnish credible material to establish the identity, creditworthiness, or genuineness of the alleged creditors, nor did they satisfactorily explain the alleged repayment of loans. The presumptive value attached to the seized material and the search statement was therefore wrongly diluted by the Settlement Commission.
Conclusion: The retraction could not displace the evidentiary value of the search statement and seized records, and the credits were not shown to be genuine.
Issue (ii): Whether the settlement application before the Settlement Commission satisfied the requirement of full and true disclosure under section 245C of the Income-tax Act, 1961, and whether the later enhanced offer could cure the defect.
Analysis: An application for settlement must contain a full and true disclosure of undisclosed income and the manner in which it was derived. The statutory scheme does not permit revision of the disclosure by making a higher offer later in the proceedings. The subsequent offer of additional income was, therefore, not capable of curing the original want of full and true disclosure. In the absence of such disclosure, the Settlement Commission lacked a proper basis to sustain the settlement.
Conclusion: The settlement application was not maintainable on the basis of the later enhanced offer, and the impugned settlement order could not stand.
Final Conclusion: The order of the Settlement Commission was set aside, and the Revenue was left to complete the assessments in accordance with law, with the period spent before the Commission excluded for limitation purposes.
Ratio Decidendi: A settlement application under section 245C must rest on an initial full and true disclosure of undisclosed income, and a later enhanced offer cannot be used to revise or validate a disclosure that was not complete and true at the time of application; belated, unsupported retraction cannot defeat the evidentiary value of search statements and seized records.
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