Full and true disclosure: authority must re examine detailed evidential disclosures before rejecting a tax settlement application.

Whether a settlement application can be rejected for non compliance with the requirement of full and true disclosure was addressed: the authority declined settlement under the statutory disclosure provision after finding alleged nondisclosure of income linked to an inflated refinery loss, but it did not adequately examine the detailed confidential materials showing how the additional income was derived. Because rejection attracts interest, penalty and prosecution risk, the authority was required to closely scrutinise and verify the evidential material before concluding nondisclosure; the matter is remitted for fresh consideration of the disclosed materials and the impugned orders set aside.

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Issues: Whether the Settlement Commission/competent authority was justified in rejecting the assessee's settlement application under Section 245C(1) of the Income-tax Act, 1961 for alleged failure to make full and true disclosure in respect of Rs. 80 crores claimed as undisclosed income linked to inflated refinery loss.

Analysis: The assessee submitted a confidential enclosure detailing the manner in which the additional income was derived, describing the process of inflating refinery loss and correlating stock in trade with the claimed undisclosed income. The authority's rejection recorded that full and true particulars and evidential materials were not disclosed, but did not adequately examine the detailed explanation provided by the assessee. Given that rejection under Section 245C(1) carries consequences including interest, penalty and potential prosecution, the authority was required to closely scrutinize and verify the manner in which the undisclosed income was shown to have been derived before concluding there was no full and true disclosure. The record shows that, on the remaining amounts, the revenue accepted eligibility for settlement.

Conclusion: The rejection cannot stand without a detailed re-scrutiny of the materials tendered by the assessee; the matter is remitted to the competent authority for fresh consideration of the settlement application keeping in view the detailed disclosures made by the assessee. The writ appeal is allowed and the impugned orders are set aside.

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