(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 2(7)‑‑‑"Assessment"‑‑‑Connotation‑‑‑Essentials‑‑‑Scope‑‑‑Assess ment is an order through which the Revenue expresses itself on the income earned by or accrued to an assessee during a particular accounting period‑‑‑Such an expression is generally based upon the declarations ‑and affirmations made with regard to his income by an assessee and‑ their acceptance or rejection or part acceptance and part rejection by the Assessing Authority‑‑‑Expression of the Revenue as to income of assessee upon return filed under Self‑Assessment Scheme is more fictional and presumed than real‑‑‑Assessment based upon return or subsequent inquiries conducted by the Revenue is an assessment simpliciter‑‑‑Assessment deemed under the law, such as acceptance of declared version under Self‑Assessment Scheme, is as good an assessment order as the one framed after observing prescribed procedure‑‑‑No assessment order takes precedence under the law over the other merely by reason that a particular procedure was or was not followed‑‑‑Ex parte assessment order ranks equal with a contested one‑‑Flaw in framing of an assessment does not by itself make the same a lesser assessment deserving any little respect for computation of income made therein‑‑‑Assessment order once framed carries with it an element of finality though subject to provisions of law with regard to revision or appeals‑‑‑Assessment once framed and served upon assessee demonstrates a legal demand or absence of it, irrespective of the grounds on which same can possibly be assailed.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 65 & 66‑A‑‑‑Contract Act (IX of 1872), S. 14‑‑‑Additional assessment‑‑‑ Re‑opening of agreed assessment‑‑‑Agreed assessment though a settlement of contractual nature could not be declared to be a voluntary agreement between the Revenue and assessee fulfilling all the codal requirements of a contract enforceable at law‑‑‑If the agreed assessment was at par with any other agreement enforceable in law even then some steps would have to be spared for the concept of voidableagreement‑‑‑Assessing Officer framing an agreed assessment could always make a case to avoid that "agreement" if he could prove that the same was coloured by wrong declaration, even innocent misrepresentation and fraud‑‑‑Assessing Officer by entering into an agreed assessment neither would be debarred from" raising an additional assessment under S.65 of the Income Tax Ordinance, 1979, nor such act could directly or indirectly oust the jurisdiction of Income Tax Appellate Commissioner to revise such assessment‑‑‑Agreed assessment, if hit by provisions of S.65 of the Ordinance, could be re‑opened by Assessing Officer in the like manner in which an Inspecting Additional Commissioner could proceed to revise an agreed assessment, if the same was erroneous insofar as the same was found prejudicial to the interest of Revenue‑‑‑Inspecting Additional Commissioner under S.66‑A of the Income Tax Ordinance, 1979 could proceed to exercise jurisdiction and order enhancing or modifying the agreed assessment, cancelling it and directing a fresh assessment to be made‑‑‑Blanket protection to an agreed assessment could neither be in accordance with law nor the public policy.

1993 PTD 125; Gray (Inspector of Taxes) v. Matheson 1993 PTD 1303; Tanveer Brothers Oil Dealers v. The C.I.T. 1990 PTD 383; Messrs Afzal Construction Company (Pvt.) Ltd. v: Chairman, C.B.R: 1990 PTD 903 and Seth Gujar Modi and others v. Commissioner of Income‑tax, Uttar Pradesh and another (1964) 9 Tax 147 ref.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 129 & 134‑‑‑Appeal‑‑‑Agreed assessment‑‑‑Assessee may find it very difficult to be an appellant before the higher forums in the case of an agreed assessment.

(d) Income‑tax‑‑‑

‑‑‑‑C.B.R. No. 17 of 1979, dated 23‑12‑1979‑‑‑C.B.R. Circular No. 15 of 1989-‑‑C.B.R. Circular No.12 of 1990, dated 20‑12‑1990‑‑‑Practice of framing agreed assessment‑‑‑Its history, legal status and necessity.

An agreed assessment obviously suits the interest of both the Revenue as well as the assessee at least at the time when it is entered into by them. For the assessee the first and foremost reason is to get rid of the agony of lengthy proceedings and at times he may honestly feel to have committed a mistake or having taken a chance which was not worth it. In all such situations, when he finds himself in a quagmire, he would like to be out of it at the earliest and at every cost he can afford. That cost is quid pro quo, which he offers to be out of the malaise. If the cost/price so offered is acceptable to the Revenue, then an agreed assessment will be framed and conversely the Assessing Officer will proceed to frame regular assessment on the basis of the evidence collected by him. The Revenue, in such situation, by agreeing to accept an offer to be assessed at, a particular sum hardly does any favour to the assessee. It is happy with the ease with which the money comes along. On its part the idea of ready tax money is sufficient consideration to match the desire of the assessee for a Way out. It is, therefore a marriage of convenience irrespective of the fact that at least one of them, the assessee felt obliged in entering the same to avoid the hassle, inconvenience or even the possibility of paying more tax.

An agreed assessment does not find mention in any of the provisions of the Income Tax Ordinance, 1979, Act II of 1886, the landmark in the history of income‑tax appears to be the only legislative instrument, which provided for compounding; of taxes between the3 Government and .the tax payer for a number of years on the basis of: agreement. That provision or its like was not repeated either in the succeeding Act II of 1918 or Act XI of 1922.

Agreed assessments are being made since long wherever it suits both the Revenue, as well as the assessee.

The practice of framing agreed assessments is very well in‑ the field almost since the enforcement of Income‑tax law in the sub-continent.

A number of circulars issued by C.B.R. including Circular No.17 of 1979, dated 23-12-1979, Circular No‑15 of 1989 and Circular No. 12 of 1990, dated 20‑12‑1990 are indicative of the fact that the Revenue has accepted it as a reality. Circular No. 12 of 1990 appears to have translated the judgment of Lahore High Court in re: Tanvir Brothers Oil Dealers (1990 PTD 383).

The aforesaid judgment as also Cicular No.12 of 1990 make it clear that an agreed assessment could only be framed where an Assessing Officer was handicapped in proceedings or collecting evidence.However, from the attending circumstances, he has in his mind a certain estimate of income, which escaped assessment. Keeping in his mind his disability to collect incriminating evidence, he settles for an offer which appears to him to be reasonably near the mark that he had settled in his mind as regards recovery of escaped income. In any case, an agreed assessment though framed outside the four corners of the Act is still an assessments as any other assessment could be. It does not stand either at a higher or a lower pedestal than any other assessment.

(e) Taxation‑‑‑

‑‑‑ Assessment‑‑‑Meaning‑‑‑Word "assessment" in relation to taxation or Revenue means the process of ascertaining, adjusting, determining the share of a tax or duty to be paid by a person or apportioning the same amongst different taxable persons‑‑‑Assessment in relation to taxation includes all steps necessarily to be taken in the legitimate exercise of power to tax.

Punjab Cables v. G.O.P. PLD 1989 Lah. 121 rel.

(f) Estoppel‑‑‑

‑‑‑‑Practice, howsoever old and consistent, could not in any case operate as estoppel against the statute.

(g) Jurisdiction‑‑‑

‑‑‑‑ Parties can neither vest jurisdiction in a statutory authority nor by agreement can divest it when it is available to him under the law.

Muhammad Ilyas Khan for Petitioner.

Nemo for Respondent.

Date of hearing: 11th June, 2001.

JUDGMENT

NASEEM SIKANDAR, J.‑‑‑At the instance of Commissioner of Income Tax and Wealth Tax Sargodha, the Lahore Bench of the Income Tax Appellate Tribunal has stated the following case for our consideration and opinion under section 136(1) of the Income Tax Ordinance, 1979. The question of law proposed by the Revenue and referred to us reads as under:‑‑‑

"Whether on facts and in the circumstances of the case, the learned Tribunal was justified to hold that the Assessing Officer was not authorized to re‑open the assessment already completed on agreed basis?"

2. According to the statement of the case, the respondent is a registered firm and, at the relevant time, derived income from dealing in fertilizer as an agent of Messrs Fauji Fertilizer Corporation Limited, Faisalabad, For the assessment year, 1985‑86 the firm return an income of Rs.28,000. On selection of its case for detailed scrutiny an assessment was framed at a sum of Rs.60,000 on agreed basis. Apparently during this period, return for the next year was also filed in which dealings with only one principal were shown. Subsequently the Department received a complaint that the assessee also purchased fertilizer for supply and sale from Messrs Daud Corporation Limited for a sum of Rs.8,49,100 under the name of Messrs Gulfam Brothers Kamalia. On initiation of re‑opening proceedings under section 65 the Ordinance, 1979 the complaint was found to be correct. The reply submitted by the assessee on 4‑10‑1987 was found unsatisfactory and accordingly additional assessments for the years 1985‑86 and 1986‑87 were framed in the two years respectively at Rs.2,07,919, and Rs.2,17,055.

3. Learned First Appellate Authority/CIT(Appeals) Faisalabad annulled both assessments mainly on the ground that the firm Messrs Gulfam Brothers was a separate and independent firm. In case of the assessment framed for the year, 1985‑86 it was further observed that having been completed on agreement basis it could not otherwise be re opened under section 65 of the Income Tax Ordinance, 1979.

4. On further appeal, a Division Bench of the Tribunal comprising Ch. Irshad Ahmed, Judicial Member and Mr. Saleem Asghar Mian, Accountant Member followed their Full Bench judgment reported as (1993 PTD 125) incidentally one of us Naseem Sikandar, J. was a Member of that Bench, holding minority view). Although the learned tribunal followed the majority view in the aforesaid judgment yet it expressed its reservations qua the reasons given by the majority that an agreed. assessment was in fact a contract and that a contract could not be rescinded unilaterally by the Department. The learned Division Bench referred to a reported judgment from English jurisdiction cited as re: Gray (Inspector of Taxes) v. Matheson (1993 PTD 1303) to express the view that on their part they were inclined to agree with the minority view which found support from the English precedent but keeping in view the practice followed in the Tribunal they felt constrained to follow the majority decision. Therefore, the impugned first appellate order for the assessment year, 1985‑86 was upheld.

5. Thereafter, as noted earlier, at the request of the Revenue aforesaid question was referred to this Court.

6. Heard the learned counsel for the Revenue. He has questioned the validity of the majority view which was followed by the learned Division Bench before making this reference.

7. We are in agreement with him. An assessment is an order through which the Revenue expresses itself on the income earned or', accrued to an assessee during a particular accounting period. Generally, such an expression is based upon the declarations and affirmations made with regard to his income by an assessed and their acceptance or rejection or part acceptance and part rejection. As regards the returns filed under Self‑Assessment Scheme and those accepted under it, the expression of the revenue as to income of the assessee is more fictional and presumed than real. A proceedings to frame assessment in case of absence of return or where though the return has been filed the assessee avoids supporting the declared version, still remain assessment proceedings and the assessment framed in consequence to be an assessment of income. Whether an assessment is based upon the return filed by an assessed and upon subsequent inquiries conducted by the Revenue, in which part of the affirmations made therein are accepted while rest were rejected again is an assessment simplicitor. An assessment deemed under the law such as acceptance of declared version under a Self‑Assessment Scheme is as good an assessment order as the one framed after observing the prescribed procedure. No assessment order takes 'precedence under the law over the other merely by reason that a particular procedure was or was not followed. An ex parte assessment order ranks equal with a contested one irrespective of the I. legal flaws and the objections which may be available to the' assessed against it. A flaw in the framing of an assessment again does not by itself' make it a lesser assessment deserving any little respect for the computation of income made therein. An assessment order once framed carries with it an element of‑finality though subject to the provisions of law with regard to revision or appeals. An assessment once framed and served upon the assessment demonstrates a legal demand, or absence of it, irrespective of the grounds on which it can possibly be assailed. In re: Punjab Cables v. G,O.P (PLD 1989 Lahore 121) a learned Single Bench of this Court observed that the word assessment in relation to taxation or Revenue means the process of ascertaining, adjusting determining the share of a tax or duty to be paid by a person or apportioning the same among different taxable persons. Further that assessment in relation to taxation includes all steps necessary which are taken in the legitimate exercise of power to tax.

8. An agreed assessment obviously suits the interest of both the Revenue as well as the assessee at least at the time when it is entered into by them. For the assessee the first and foremost reason is to get rid of the agony of lengthy proceedings and at times he may honestly feel to have committed a mistake or having taken a chance which was not worth it. In all such situations, when he finds himself in a quagmire, he would like to be out of it at the earliest and at every cost he can afford. That cost is quid pro quo, which he offers to be out of the malaise. If the cost/price so offered is acceptable to the Revenue, then an agreed assessment will be framed and conversely the Asssessing Officer will proceed to frame regular assessment on the basis of the evidence collected by him. The Revenue, in such situation, by agreeing to accept an, offer to be assessed at a particular sum hardly does any favour to the assessee. It is happy with the ease with which the money comes along. On its part the idea of ready tax money is sufficient consideration to match the desire of the assessee for a way out. It is, therefore, a marriage of convenience irrespective of the fact that at least one of them,the assessee felt obliged in entering the same to avoid the hassle, inconvenience or even the possibility of paying more tax.

9. Learned counsel for the Revenue is correct in pointing out that an agreed assessment does not find mention in any of the provisions of the Income Tax Ordinance, 1979, Act II of 1886, the landmark in the history of income tax law appears to be the only legislative instrument, which provided for compounding of taxes between the Government and the tax payer for a number of years on the basis of agreement. That provision or its like was not repeated either in the succeeding Act II of 1918 or Act XI of 1922. Mr. Muhammad Ilyas Khan, Advocate, is also correct in saying that agreed assessments are being made since long wherever it suits both the Revenue as well as the assessee. The legality of that practice was examined by a Division Bench of this Court in re: Tanveer Brothers Oil Dealers v. The CIT reported as (1990 PTD 383) and re: Messrs Afzal Construction Company (Pvt.) Ltd. v. Chairman, C.B.R. (1990 PTD 903).

10. In the first mentioned case Muhammad Afzal Lone, J., observed that in the Income Tax Ordinance there was no room for an agreed assessment and that the Income Tax Officer had to assess the petitioner's total income on the strength of the material on record and such other material on specific points as required by him. In the second judgment the same learned Division Bench expressly disapproved the practice of agreed assessment where material for regular assessment was available. The agreed assessment in question was accordingly quashed by observing that "agreed assessment did not fit into the broad contours of the Ordinance." An assessment, according to their Lordships had to be made on the foundation of the material before the Assessing Officer. If such material produced by the assessee or collected by the Income Tax Officer warranted a higher assessment, he could not ignore that evidence and go ahead for an agreed assessment. However, in the view of their Lordships, the position would be different if there was no material at all and the assessee agreed to be assessed at a particular figure which was acceptable to the Assessing Officer.

11. The practice of framing, agreements is very well in the field almost since the enforcement of Income Tax law in the sub‑continent. However, its validity from the standpoint of revenue was challenged much later. The earliest judgment reported on the subject appears to be one from Indian jurisdiction in re: Seth Gujar Modi and others v. Commissioner of Income Tax Uttar Paradesh and another (1964) 9 Tax 147. This case as relied upon is most of the judgments of the Income Tax Appellate Tribunal which supported the view that an agreed assessment could not be reopened. A part of the judgment was generally referred to seek support for the idea which reads as under:‑‑‑

"Such a settlement was of a contractual nature. It was a voluntary one which had the effect of completely by passing the normal procedure provided in the Income Tax Act for assessment, levy of the penalty and the rates at which the income was to be assessed under the relevant Finance Act. By agreement the parties could fix not only the quantum of the escaped income but also the rate on which the tax was to be levied and also whether penalty would be exigible of not?"

A number of Circulars issued by C.B.R. including Circular No.17 of the 1979, dated 23‑12‑1979, Circular No.15 of 1989 and Circular No. 12 of 1990, dated 20‑12‑1990 are indicative of the fact that the Revenue has accepted it as a reality. Circular No.12 of 1990 appears to have translated the judgment of Lahore High Court in re: Tanvir Brothers Oil Dealers (supra).

12. The aforesaid judgment as also Circular No. 12 of 1990 make it clear that an agreed assessment could only be framed where an Assessing Officer was handicapped in proceedings or collecting evidence. However, from the attending circumstances, he has in his mind a certain estimate of income, which escaped assessment. Keeping in his mind MS. disability to collect incriminating evidence, he settles for an offer which appears to him to be reasonably near the mark that he had settled in his mind as regards recovery of escaped income. In any case, an agreed assessment though framed outside the four corners of the Act is still an assessment as any other assessment could be. It does not stand either at a higher or a lower pedestal than any other assessment.

13. In the Income Tax Ordinance two important provisions rival the practice of agreed assessment. The first provision is section 65 which empowered an Assessing Officer to frame additional assessment if "for any reason" income chargeable under the Ordinance has escaped assessment, has been under assessed, or assessed at too low a rate or has been the subject of excessive or refund .." The second provision viz. 66‑A provides for revisional jurisdiction of the IAC exercisable where an assessment already framed is found to be erroneous insofar as it is prejudicial to the interest of the Revenue.

14. The question as framed, therefore, raises and important legal proposition if an agreed assessment framed with the consent of the parties could be re‑opened under section 65 by the Assessing Officer. That very question is also relevant as far the scape and powers of IAC are concerned. Therefore, an essential issue intrinsically tailed with the above will be if the JAC is competent to interfere with the agreed assessment in revisional jurisdiction under section 66‑A.

15. It is the case of the Revenue and we will agree that it is not necessary to agree with the views expressed by their Lordships of Uttar Paradesh High Court in re: Seth ‑ Gujar Modi and another (Supra). An agreed assessment could certainly described as a settlement of contractual nature. However, to declare it to be a voluntary agreement between Revenue and the assessee fulfilling all the codal requirements of a contract enforceable at law would not be correct. There are a number of reasons. Firstly, a Revenue Officer acting bonafidely or collusively can agree to a proposal offering a certain amount of tax for a certain assessment period. However, by accepting the offer he does not forego his duty to reopen the assessment if subsequently he comes across a concealment total or partial, wrong declaration made or misrepresentation made to him by the assessee at the time of framing of agreed assessment. In the same token by accepting a particular amount of takable income he cannot be said to have deprived the 'IAC of his revisional jurisdiction under section 66‑A. Such an interpretation would be absolutely unjustified in any case. As a fact in cases of agreed assessments the assessees are often tempted to part with a smaller sum as tax while concealing a major portion of it. In such situations there can hardly be said to have come into in existence a legal contract. The reason simply being that Assessing Officer was not accepting the offer with the full and clear picture of the income which was sought to be hidden from his eyes through an agreed assessment. A blanket protection to an agreed assessment, therefore, can neither, be in accordance with law nor the public policy. It is one of the settled propositions of law that parties can neither vest jurisdiction in a statutory authority nor by agreement can divest it wherever, it is available to him under the law.

16. In the aforesaid judgment from English jurisdiction re: ray (Inspector of Taxes) it was held that where an agreement had been reached between a taxpayer and an Inspector and it was thereafter discovered that agreement had been based on incorrect statements by the taxpayer as to his actual profits, the Inspector was not precluded from

raising further assessments in respect of the same years. Also that same results would follow if in the returns filed by the taxpayers for the relevant year the income had mistakenly be understated. It needs to be noted that section 54 of the English Taxes Management Act, 1970 specifically provides for framing of an assessment on agreed basis. In view of their Lordships of the Chancery Division, on the discovery of that fact the Inspector was entitled to raise further assessments in respect of the profits which ought to have been assessed. Lastly it was held that the additional assessments could not be barred by an agreement between the taxpayer and the Inspector based on statements by the taxpayer as to his trading profits during the relevant period which, though innocent, were admittedly incorrect.

17. A practice howsoever old and consistent cannot in any case operate as estoppel against the statute. If one goes for the reasoning that an agreed assessment is at par with any other agreement enforceable in law even then some steps will have to be spared for the concept of a I voidable agreement. An Assessing Officer framing an agreed assessment can always make a case to avoid that "agreement" if he can prove that the same was coloured by wrong declaration, even innocent, mis representation and fraud: A consent given by the Assessing Officer fraught by fraud or even on a bona fide mistake on the part of the assessee will not be a "free consent" as contemplated in section 14 of the Contract Act. Any such agreement would obviously be voidable at the option of the Revenue. An agreed assessment when seen in the light of the aforesaid judgment from English jurisdiction it becomes clear that an additional assessment would nevertheless be competent even if the assessee has not made any deliberate concealment and was not himself aware of the understatements of income which had somehow or the other crept in his declared version.

18. An assessment whether framed with or without the consent of the assessee may have some distinguishing feature with regard to right of appeal etc. The assessee may find it very difficult to be an appellant before the higher forums in a case of an agreed assessment. However, as far the application of other provisions of the Income Tax Ordinance, 1979 is concerned, an Assessing Officer by entering into an agreed assessment will not be debarred froth raising an additional assessment under section 65 of the Ordinance. An agreed assessment if hit by any one of the aforesaid reasons on which additional assessment is justified under section 65 the Assessing Officer can very well proceed to frame an additional assessment in the like manner in which an IAC can proceed to revise an agreed assessment if it is erroneous insofar as it is found prejudicial to the interest of the Revenue. An IAC under section 66‑A can proceed to exercise jurisdiction and order enhancing or modifying the agreed assessment, cancelling it and directing a fresh assessment to be made. An Assessing Officer, as noted earlier, by entering into an; agreed assessment cannot directly or indirectly oust the statutory jurisdiction of IAC to revise an assessment.

19. Therefore, our answer to the question is in the negative.

S.A.K./C‑140/L Reference answered.