False voluntary disclosure declarations can invalidate scheme certificates and support reassessment for search-related escaped income.

A voluntary disclosure certificate under the 1997 Scheme was said to be vulnerable where the declaration rested on a fictitious leasing transaction and income linked to a search under section 132. The text states that the Scheme's exclusion for search-related income, together with the CBDT clarification, prevented its use for income discovered in search proceedings. It further notes that the issuing authority retained power to cancel a certificate obtained by fraud or falsehood, so a certificate based on an incorrect declaration could be recalled and the consequent reassessment notices treated as valid.

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Issues: Whether the certificate issued under the Voluntary Disclosure of Income Scheme, 1997 could be cancelled on the ground that the declaration was false or based on a sham transaction, and whether the consequential notices under sections 147 and 148 of the Income-tax Act, 1961 were valid.

Analysis: The declaration was found to rest on a fictitious leasing transaction and on income connected with a search under section 132 of the Income-tax Act, 1961. On the record, there was no factual denial of the allegation that the transaction was not genuine. Section 64(2)(ii) of the Scheme excluded the benefit of the Scheme in relation to income for the previous year in which a search was initiated, and the CBDT clarification also supported exclusion where income was discovered as a result of search. The certificate issued on the basis of an incorrect declaration was therefore liable to be recalled, and the authority issuing the certificate retained power to cancel it when fraud or falsehood was shown.

Conclusion: The cancellation of the certificate and the consequent reassessment notices were held valid and the challenge failed.

Final Conclusion: The petition was dismissed because the Scheme could not be invoked to protect a non-genuine declaration or to prevent action for escaped income discovered in search proceedings.

Ratio Decidendi: A certificate issued under a voluntary disclosure scheme can be cancelled when it is founded on a false or fraudulent declaration, and search-related statutory exclusions cannot be circumvented by a sham transaction.

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