Settlement applications require true disclosure of undisclosed income, and the Commission may consider later-collected departmental material on concealment.

An application for settlement under Chapter XIX-A is maintainable only if it makes a full and true disclosure of income not previously disclosed before the Assessing Officer, together with the manner in which that income was derived; an application lacking that threshold disclosure is not entertainable. In deciding whether to allow the application to proceed under section 245D(1), the Settlement Commission may consider the Commissioner's report and material collected by the income-tax authorities up to that stage, including material gathered after filing of the application, to assess whether concealment has already been established or is likely to be established. On that basis, the Commission lacked jurisdiction to proceed.

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Issues: (i) Whether an application for settlement under Chapter XIX-A is maintainable unless it discloses income not previously disclosed before the Assessing Officer and the manner in which such income was derived; (ii) Whether, in deciding whether to allow the application to be proceeded with, the Settlement Commission may consider material collected by the income-tax authorities up to the date of the Commissioner's report, including material gathered after the filing of the application.

Issue (i): Whether an application for settlement under Chapter XIX-A is maintainable unless it discloses income not previously disclosed before the Assessing Officer and the manner in which such income was derived.

Analysis: Section 245C requires a full and true disclosure of income not disclosed before the Assessing Officer together with the manner in which it was derived. The settlement mechanism is intended for voluntary disclosure of concealed income and not for a case where no new income is disclosed and the applicant merely seeks to convert claimed losses into a settlement claim. An application that does not satisfy this threshold requirement cannot be entertained.

Conclusion: The application was not maintainable and the issue is decided against the assessee.

Issue (ii): Whether, in deciding whether to allow the application to be proceeded with, the Settlement Commission may consider material collected by the income-tax authorities up to the date of the Commissioner's report, including material gathered after the filing of the application.

Analysis: Under section 245D(1), the Commission must act on the basis of the Commissioner's report and the nature and circumstances of the case. The statutory scheme does not confine consideration to material existing only on the date of filing of the application. Material collected by the Department up to the stage of the report, and in appropriate cases even thereafter, may be examined to determine whether concealment has already been established or is likely to be established. The Commission's contrary approach was a misdirection in law.

Conclusion: The Commission was entitled to consider such material and the issue is decided against the assessee.

Final Conclusion: The Settlement Commission lacked jurisdiction to proceed with the application, and the Revenue's challenge succeeded.

Ratio Decidendi: A settlement application is maintainable only when it makes a genuine disclosure of previously undisclosed income, and the Commission may refuse to proceed where the Department already possesses material showing concealment established or likely to be established, including material gathered up to the stage relevant for the Commissioner's report.

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