NASIM 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 M/s. Fauji Fertilizer Corporation Limited, Faisalabad. For the assessm ent year 1985-86 the firm returned 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 M/s. Daud Corporation Limited for a sum of Rs. 8,49,100/- under the name of M/s. 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 assessm ents .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 M/s. Ghulam Brothers was a separate and independent firm, in case of the assessm ent framed for the years 1985-86 it was further observed that having been completed on agreement basis it could not otherwise be reopened 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) 67 Tax-1 Trib, 1993 PTD 125 (incidently one of us Nasim 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 assessm ent 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 party they were inclined to agree with the minority view which found support from the English precedent but keeping in view the practise followed in the Tribunal they felt constrained to follow the majority decision. Therefore, the impugned first appellate order for the assessm ent year 1985-86 was up-held.
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 assessee 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 assessm ent framed in consequence to be an assessment of income.
Whether an assessm ent is based upon the return filed by an assessee 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 simpliciter. An assessment deemed under the law such as acceptance of declared version under a self-assessment scheme is as good an assessm ent 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 the legal flaws and the objections which may be available to the assessee against it. A flaw in the framing of an assessme nt again does not by itself makes 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 assessee 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 assessm ent 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 assessm ent 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 of of it at the earliest and at every cost he can afford. That cost is quid pro quo which he offers to be of of the malaise. If the cost price so offered is acceptable to the revenue then an agreed assessment will proceed to frame regular assessm ent 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 case with which the money cames along. On its part the idea of ready tax money is sufficient consideration to match the desire of the assessee for a way of 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 of 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 VII of 1918 or Act XI of 1922. Mr. Muhammad Ilyas Khan, Advocate, is also correct in saying that agreed assessm ents 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: M/s. Afzal Construction Comp. (Pvt.) Ltd. v.
Chairman, CBR (1990 PTD 903).
10. In the first mentioned case Muhammad Azal 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 assessments where material for regular assessment was available. The agreed assessm ent in question was accordingly quashed by observing that "agreed assessm ent 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 assessm ent, he could not ignore that evidence and go ahead for an agreed assessm ent. 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 agreed assessments 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 was 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 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 or not?"
A number of circulars issued by the 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. 1 2 of 1990 appears to have translated the judgment of this Court in re. Tanveer Brothers Oil Dealers (Supra).
12. The aforesaid judgments of this Court as also Circular No. 12 of 1990 make it clear that an agreed assessm ent 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 reasonable near the mark that he had settled in his mind as regards recovery of escaped income, In any case an agreed assessm ent though framed outside the four corners of the Act is still an assessment as any other assessm ent could be. It does not stand either at a higher or at lower pedestal then any other assessm ent.
13. In the Income Tax Ordinance, two important provisions rival the practice of agreed assessment.
The first provision is section 65 which empowers an assessing officer to frame additional assessm ent 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 relief or refund............................... " The second provision viz. 66-A provides for revisional jurisdiction of the IAC exercisable where an assessm ent 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 an 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 scope and powers of IAC are concerned.
Therefore, an essential issue intrinsically tailed with the above will be if the IAC is competent to interfere with the agreed assessm ent 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 assessm ent could certainly be 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 bona fidely or collusively can agree to a proposal offering a certain amount to 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 taxable 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: Gray (Inspector of Taxes) it Is held that where an agreement had been reached between a taxpayer and an Inspector and it was thereafter discovered that the 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 taxpayer 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 assessm ent 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 drain 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 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 declarations, 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 become clear that an additional assessment would nevertheless be competent even if the assessee had not made any deliberate concealment and was not himself aware of the under statement of income which and some-how or the other crept in his declared version.
18. An assessm ent 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 assessm ent will not be debarred from raising an additional assessment under section 65 of the Ordinance. An agreed assessment if hit by anyone of the aforesaid reasons on which additional assessm ent 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 assessm ent 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 assessm ent, cancelling it and directing e fresh assessment to be made. An assessing officer, as noted earlier, by. Entering into an agreed assessment cannot directly or indirectly out the statutory jurisdiction of IAC to revise an assessment.
19. Therefore, our answer to the question is in the negative.