Voluntary disclosure cannot override prior search proceedings, and a block assessment notice may proceed validly.

A later declaration under the Voluntary Disclosure of Income Scheme, 1997 could not claim statutory benefit where search proceedings under section 132 had already commenced in relation to the undisclosed cash. The declaration was made after the search and prohibitory order had begun, so the exclusion in section 64(2)(ii) applied and the disclosed amount remained of the Scheme. The notice under section 158BC was also upheld because it only required a true and correct block return including undisclosed income and no jurisdictional defect was shown. The petition therefore failed.

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Issues: (i) Whether the petitioner was entitled to the benefit of the Voluntary Disclosure of Income Scheme, 1997 in respect of the amount disclosed after the search proceedings had commenced. (ii) Whether the notice under section 158BC of the Income-tax Act, 1961 was liable to be quashed on the ground that the disclosed income could not again be subjected to block assessment.

Issue (i): Whether the petitioner was entitled to the benefit of the Voluntary Disclosure of Income Scheme, 1997 in respect of the amount disclosed after the search proceedings had commenced.

Analysis: The exclusion in section 64(2)(ii) of the Scheme applied to income in respect of the previous year in which a search under section 132 of the Income-tax Act, 1961 was initiated. The declaration under the Scheme was held to have been made only on 3 October 1997, whereas search proceedings and a prohibitory order had already commenced earlier in relation to the undisclosed cash in the locker. The petitioner did not establish that the disclosure preceded initiation of search proceedings, and the Scheme benefit depended on the income not being hit by the statutory exclusion.

Conclusion: The petitioner was not entitled to the benefit of the Scheme in respect of the disclosed amount.

Issue (ii): Whether the notice under section 158BC of the Income-tax Act, 1961 was liable to be quashed on the ground that the disclosed income could not again be subjected to block assessment.

Analysis: The notice under section 158BC merely required the petitioner to file a true and correct return of total income including undisclosed income for the block period and did not specifically fasten liability on the amount of Rs. 1,35,00,000. In the circumstances found, the Court held that the assessing authority was entitled to proceed under the block assessment notice, and no jurisdictional infirmity was shown warranting interference under Article 226.

Conclusion: The notice under section 158BC was upheld and was not quashed.

Final Conclusion: The petition failed because the alleged voluntary disclosure did not displace the prior search-related proceedings, and the block assessment notice was permitted to proceed.

Ratio Decidendi: Where search proceedings under section 132 of the Income-tax Act, 1961 have already been initiated in respect of undisclosed income, a later declaration under the Voluntary Disclosure of Income Scheme, 1997 cannot claim the statutory benefit of the Scheme, and a notice for block assessment under section 158BC can validly continue.

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