Full and true disclosure under Section 245C(1) bars reclassification after failure; settlement application must be rejected in entirety.

Section 245C(1) requires a settlement application to provide a full and true disclosure of undisclosed income, the manner of its derivation, and the additional tax payable. A disclosure presented as business income was treated as insufficient where the application did not identify the relevant years, source, or documentary basis for the stated stock-in-trade. The requirement applies to the application as a whole, so a supported partial disclosure does not cure a material unsubstantiated component. Once the statutory disclosure threshold is not met, the Settlement Commission cannot reclassify the amount as unexplained investment under Section 69B or apply Section 115BBE(1); the application must be rejected in entirety, leaving tax treatment to regular assessment proceedings.

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Issues: (i) Whether the settlement application satisfied the requirement of full and true disclosure under Section 245C(1) of the Income-tax Act, 1961 in relation to the disclosed sum of Rs. 80 crores for AY 2017-18; (ii) Whether, after finding absence of full and true disclosure, the Settlement Commission could treat the disclosed amount under Section 69B of the Income-tax Act, 1961 and apply Section 115BBE(1) instead of rejecting the application.

Issue (i): Whether the settlement application satisfied the requirement of full and true disclosure under Section 245C(1) of the Income-tax Act, 1961 in relation to the disclosed sum of Rs. 80 crores for AY 2017-18.

Analysis: Section 245C(1) requires disclosure of undisclosed income, the manner in which such income has been derived, and the additional tax payable. The application was accepted only to the extent of the refinery-loss disclosure of Rs. 70.66 crores, but the separate disclosure of Rs. 80 crores as stock-in-trade/business income was unsupported by documentary material. The disclosed stock was stated to relate to a period prior to AY 2011-12, yet no particulars were furnished identifying the years, source, or evidentiary basis for treating it as business stock. In settlement proceedings, full and true disclosure applies to the application as a whole; a partial truthful disclosure does not satisfy the statutory standard if another material part remains unsubstantiated or incorrectly stated. The statutory obligation extends to furnishing sufficient particulars regarding the manner of derivation of the income corresponding to the disclosure made in the application.

Conclusion: The settlement application did not satisfy the requirement of full and true disclosure under Section 245C(1) in respect of the Rs. 80 crores disclosure; this issue was decided against the assessee.

Issue (ii): Whether, after finding absence of full and true disclosure, the Settlement Commission could treat the disclosed amount under Section 69B of the Income-tax Act, 1961 and apply Section 115BBE(1) instead of rejecting the application.

Analysis: The settlement mechanism proceeds on the assessee's own disclosure and does not permit the Settlement Commission to recast the head or character of the income once the application is found to be lacking in full and true disclosure. Where the assessee presented the disputed amount as business income taxable at the normal rate, the Commission's role was confined to deciding whether that disclosure met the statutory threshold. Once that threshold failed, the application became liable to rejection in entirety, and the further exercise of classifying the amount as unexplained investment under Section 69B and subjecting it to Section 115BBE(1) lay within the domain of the Assessing Officer in regular assessment proceedings under Section 153A, not within the Settlement Commission's jurisdiction after rejection.

Conclusion: Upon finding absence of full and true disclosure, the Settlement Commission had no power to reclassify the amount under Section 69B or apply Section 115BBE(1); the only permissible course was rejection of the settlement application in entirety. This issue was decided against the assessee.

Final Conclusion: The rejection of the settlement application was sustained because the statutory precondition of a complete and truthful settlement disclosure was not met, and the disputed tax treatment of the Rs. 80 crores amount was left to be examined, if necessary, in regular assessment proceedings.

Ratio Decidendi: Under Section 245C(1) of the Income-tax Act, 1961, a settlement application must contain a complete and truthful disclosure of undisclosed income together with a proper disclosure of the manner of its derivation; if any material part of that disclosure fails this standard, the Settlement Commission cannot recharacterise the income under another head for taxation but must reject the application as a whole.

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