I.T.A. No.3906/LB of 2000, decided on 31st August, 2002. VS I.T.A. No.3906/LB of 2000, decided on 31st August, 2002., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 137 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.66A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Agreed assessment‑‑‑Inspecting Additional Commissioner cancelled the assessment on the ground that the Assessing Officer while framing the assessment had allowed capital loss on sale of investment which was not allowable against the income of the Company and could only be set off against capital‑gains hence, Assessing Officer while setting off loss against Revenue income acted in oral conversation of the law and framed an assessment which was not only erroneous but was also prejudicial to the interest of Revenue ‑‑‑Validity‑‑ Appellate Tribunal held that since an agreement had been signed between the department and the assessee and Inspecting Additional Commissioner was a part of that agreement hence, invoking of provisions of S.66A of the Income Tax Ordinance, 1979 was illegal ‑‑‑Assessee's appeal was accepted.

1993 PTD (Trib.) 125; 20(11 PTD 1206 and Scorer (Inspector of taxes) v. Olin Energy Systems. Ltd. (House of Lord) rel.

1989 PTD (Trib.) 907; (1996.) 73 Tax (sic) and (1999) PTCLR 491 ref.

Sajid Ijaz Hottiana; Muhammad Maqbool, A.C.A. for Appellant.

Mian Javed ur Rehman, D. R. for Respondent.

ORDER

AMJAD ALI RANJHA (ACCOUNTANT MEMBER).‑‑‑It is an appeal by the assessee relevant to assessment year 1998‑99 against the order of Inspecting Additional. Commissioner, Range‑IV, Companies Zone‑II, Lahore dated 11‑9‑2000.

2. Assessee's only grievance is that I.A.C.'s order is bad in law as an agreed assessment is a contract, which binds both the parties, the assessee as well as the department. If the assessee is debarred from filing an appeal against the agreed assessment, the department is also bound by the agreement And thus act of I.A.C., to cancel agreed assessment is illegal, unjustified and unfair.

3. Call notices were issued in response to which, Mr. M. Maqbool, A.C.A. and Mr. Sajjad Hussain, Advocate were present on behalf of the assessee‑appellant whereas Mian Javed‑ur‑Rehman, D.R. was present on behalf of the Revenue. Both the parties have been heard in detail.

4. Facts of the case are that returns for assessment years 1997‑98 to 1999‑2000 were filed declaring nil income for assessment year 1997‑98, a loss of Rs.4,23,441 for assessment year 1998‑99 and nil income for assessment year 1999‑2000. However, an agreement was reached at an income of Rs.50,000 relevant to assessment year 1997‑98, at Rs.1,50,000 relevant to assessment year 1998‑99 (under appeal) and at Rs.50,000 relevant to assessment year 1999‑2000 in agreement with the assessee through it's A.R. in the I.A.C.'s committee. Later on, proceedings under section 66A were initiated on the ground that the Assessing Officer while framing the assessment had allowed capital loss on sale of investment to the tune of Rs.1.5 million as was evident from Note No.12 of audited accounts furnished by the Company. As this loss was not allowable against the income of the Company and could only be set off against capital gains hence, Assessing Officer while setting off this loss against Rs.1.5 million against revenue income acted in oral conversation of the law and framed an assessment which was not only erroneous but was also prejudicial to the interest of Revenue. Thus I.A.C. cancelled the assessment. directing the Assessing Officer to make a fresh assessment.

5. All of the assessee argued at length that since an agreement had been made hence, I.A.C. was not justified in cancelling the assessment especially when he was himself a part of that agreement. In this respect, he has quoted the following case‑laws:

(1) 1989 PTD (Trib.) 907, (2) judgment 1993 PTD (Trib.) 125, (3) (1996) 73 Tax (sic), (4) PTCLR 491 (1999), (5) 2001 PTD 1206 and (6) Scorer (Inspector of taxes v. Olin Energy Systems Ltd. (House of Lord).

6. We have gone through the relevant case‑laws and find that the arguments put forward by A.R. are quite convincing. He particularly referred to the case of Scorer (Inspector of taxes) v. Olin Energy Systems Ltd. (House of Lord) where the facts of the case were almost the same in the case under consideration as loss in a particular line of business has been set off against other sources in agreement with the assessee. So, facts of this case are almost similar to the facts of the case under consideration and the para. of the learned Court's judgment to hake the matter clear is given as under:

"It is true that the actual point of law was never formulated. But I do not think that can be necessary. The section is dealing with agreement as to how an assessment shall be dealt with. It is not dealing with the formulation of points of law. We do not know why the inspector agreed the computation. He may have made an error of law or he may have misunderstood the facts or he may have failed to think about the matter at all. Subject to the question, which I mention later, as to whether the tax payer has provided misleading information, I do not see why the circumstances that the inspector has made a mistake either of law or fact should take the case outside section 510. Essentially, the question is not why he agreed but whether he agreed. The purpose of the section must be to protect the taxpayer by producing finality, and Parliament, I would suppose, must have contemplated that the taxpayer would be protected, even through the inspector made some error in his view of the facts or the law. That is a likely, if not the most likely, event in which the question of going back on the agreement would never arise at all."

7. Secondly, he argued at length that since it was a contract hence, it could not be violated. In this respect, he has referred to the case 2001 PTD 1206 in the case of C.I.T., Gujranwala v. Muhammad Hanif, Faisala Jareer. Paras. 5 and 6 of this judgment are reproduced as under:

"5. The Revenue by agreeing to accept an offer does not do any favour to the assessee. The ease with which it comes across ready money is sufficient consideration to match the desire of the assessee for a way out. It is often forgotten that an agreed assessment is not contemplated within the parameters of the Income Tax Ordinance. It is a marriage of convenience. Irrespective of who proposes to whom, the fact remains that this marriage though unusual is nevertheless not illegal. Therefore, once it has happened, none of the couple can be allowed to exploit the other of more advantage than it was originally settled. It appears strange that after accepting an offer' and framing an agreed assessment, which is not provided for in the Ordinance, the Assessing Officer wishes to go back to the Ordinance to invoke penalty provisions, which are normally discretionary.

6. At the time of framing of agreed assessment, the absence of a settlement with regard to the penalty proceedings is fatal for the Revenue as it could be for the assessee. In case an assessee in the guise of agreement succeeds in befooling the Revenue while offering tax on a small chunk and concealing a bigger part of it, the Revenue is not prohibited from bringing the untaxed amount to the net within the Scheme of the Ordinance. A settlement is neither final nor sacrosanct if any of the parties keeps a bloody scythe under the cloak ready for a strike on the first opportunity available. The Assessing Officer, in any case, does not enjoy a lever against an assessee nor he can be allowed to keep his cards close to his chest and to come out with a fresh desire for more tax money which could very well be and in fact was the most relevant fact to be discussed and hammered out at the time the agreed assessment was framed. In the case in hand the offer of the assessee was accepted by the Revenue Officer without any reservation and therefore, he could not re‑open a closed chapter using the very agreement as admission of concealment on the part of the assessee. It was totally unjust and unrealistic. "

8. Thirdly, reference to para. 14 of the case‑law cited as judgment 1993 PTD (Trib.) 125 was also made, which is also reproduced as under:‑‑‑

"Generally speaking, any person, who commits any crime is liable to be charged and prosecuted and if found guilty, his trial may culminate in conviction and sentence. But sometimes, the State finds it difficult to establish the guilt of an accused for lack of evidence and consequently, an offer is made to a co‑accused to the effect that if he fulfils certain conditions including the condition of giving evidence against his other co‑accused persons, he would be tendered pardon and if he accepts it, he can be tendered such pardon by a Magistrate under section 337. 'In such cases also, a valid contract comes into existence which binds the State. Thus, in effect, an approver even though guilty of an offence, stands freed from any penalty or disability. It actually removes the penalties and disabilities and restores him to all his civil rights. It makes him, as it were, a new man, and gives him a new credit and capacity in life. If a legal contract of tender of pardon has come into existence, neither the Sessions Judge nor the' High Court can, in exercise of their revisional jurisdiction, try the accused after relieving the State from its contractual obligation. "

9. Apart from it, A.R. of the assessee also referred to C.B.R's. Circular No. 17 of 1990 with Circular No. 15 of 1989 showing that it was a normal practice‑ according to the instructions of C. B. R. D. R. could not rebut the arguments of A.R.

10. Considering the arguments of A.R., we are fully convinced that since an agreement had been signed between the Department and the assessee and I.A.C. was a part of that agreement hence, invoking of provisions of section 66‑A in view of the above given judgments, is illegal.

11. Assessee's appeal stands accepted.

C.M.A. 528/Tax (Trib.)