NASIM SIKANDAR, J.-- This is a case stated by the Lahore Bench of the Income Tax Appellate Tribunal. The following question has been referred for our consideration and answer:- "Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that no penalty under section 111 of the Ordinance can be imposed went any assessment is made on the basis of an agreed figure of income?
2. According to the statement of the case in the Assessment Year 1980-81 the assessee and individual, drawing income from fittings of sui gas pipelines and appliances was finally assessed at Rs. 20,188/-. During the finalization of the assessment for the next year 1981-82, it transpired that he was in receipt of various sums from various departments such as Pakistan Railways, Social Security and WAPDA which were not disclosed to the revenue. Therefore, his case for the assessment year 1980- SI was reopened. However, thereafter, he appears to have offered to be assessed at net income at Rs. 55,000/- in the year 1980-81 and at Rs. 95,000/- in the year 1981-82. The. Offer was found by the Assessing Officer to be "reasonable" and therefore, accepted. Having done so, the Assessing Officer then proceeded to initiate proceedings for concealment under section 111 of the Income Tax Ordinance and finally imposed a penalty of Rs. 14,000/- on account of his having concealed his true income and to have furnished inaccurate particulars thereof. The assessee succeeded in first appeal wherein the aforesaid penalty was directed to be deleted on the ground that an agreed assessm ent between the department and the tax-payer was in the nature of compounding of offence by the departmental officers. The order so made was unsuccessfully challenged by the revenue before the learned Tribunal. A learned single Member thereof concluded that once an assessm ent was framed on agreement basis it was binding on both the parties and that when an assessee came out with an honest intention to make a compromise, the Assessing Officers while accepting the offer forego their discretionary power to levy penalty.
3. After hearing the learned counsel for the revenue, we are of the view that answer to the aforesaid question has to be in the affirmative. Although we do not subscribe to some of the reasons advanced by the learned Member in Chamber while maintaining the order of the first Appellate Authority, yet we find it to be in accordance with law, equity and justice. An assessee cannot be put to surprise after having agreed to be assessed at a certain amount, In absence of a clear term of the agreement to the contrary, the offer to be assessed at a particular amount must be taken as a package deal. If the Assessing Officer does not put an assessee at his guard and accepts the offer without any express reservation then he is not permitted to turn about and book him for the alleged admitted concealment. An Assessing Officer represents the state which is not expected to cheat its citizens. The doctrine of estopped may not strictly be applicable in such situation but the essence of the principle can be borrowed to say that imposing penalty in such situation would amount to black-mailing of a citizen by the state, It is not the case of the revenue that the assessee either agreed to a penalty or that he was made aware of the fact that penalty proceedings even in an agreed assessm ent could follow. The compounding of offence in certain situations in criminal law is a known privilege of the state. An application of the principle strict senso in tax matters does not appear quite relevant. However, as expressed earlier the offer to be assessed at a particular income if accepted without indicating the possible off-shot to these proceedings, will bind the Assessing Officer. His competency to initiate penalty proceeding is not in issue, It is if having accepted the offer for an agreed assessment the Assessing Officer could ask for a premium over and above the price the assessee had already paid to purchase peace. Since an agreed assessm ent is always in black and white and witnessed by both the parties no penalty proceedings thereafter could be initiated on the ground of oral understanding or that the assessee had either been apprised orally or that he orally agreed to be subjected to penalty proceedings. An oral undertaking or understanding to face penalty proceedings or agreement to face penalty proceedings after an agreed assessme nt cannot be readily accepted.
4. An agreed assessm ent obviously serves the interest of Revenue as well as the assessee. For the assessee the first and foremost reason is to get rid of the agony of lengthy proceedings. At times he may honestly feel to have committed a mistake or taken a chance which was not worth it. In all such situations including the one in which he finds himself in a quagmire, he would like to be out of it at the earliest and at every cost. That cost is quid pro quo which he offers to be out of the malaise. If the cost offered is not acceptable to the Revenue then obviously it could reject the same. However, it would be totally unreasonable and even immoral for a revenue collector to conceal the idea in the backyard of his mind to recover the cost in phases without informing the unwary tax-payer, It is like trapping an assessee. The State acting through its functionaries does not entrap, It is only greed and at times foolishness of a person which makes him walk down to a door seemingly wide open. And in most cases he feels almost through it when something goes wrong somewhere. The temptation to an easy solution is common in all cases but the way it fails is peculiarly to every attempt.
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 for more advantage then it was originally settled, It appears strange that after accepting an offer and framing an agreed assessm ent 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 is 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.
7. For the fore said reasons, we are of the view that an assessee could not have been vexed twice for the same default on which, after having been confronted, he agreed to be assessed at a particular sum. All the more so when at the time of framing of agreed assessment, nothing was brought into black and white as part of the deal to reserve the initiation of penalty proceedings, It, however, needs to mention here that recently in a number of tax references we have maintained the imposition of penalty to which the assessee had. Consented at the time of agreed assessment but subsequently sought to challenge on hyper-technical grounds. So has been our view in cases where though no fixed amount of penalty was settled at the time of agreed assessment but the assessee was properly informed of the contemplated penalty proceedings. Only the quantum of penalty in such cases will remain a moot point to be challenged on any available legal ground.
8. Accordingly, our answer to the aforesaid question is in the affirmative.