1986 PLP (Trib (PTD)

M.T. SIDDIQUI (MEMBER).‑‑There are three appeals in this case pertaining to the charge year 1958‑59, 1959‑60 and 1960‑61 against the order of the Appellate Assistant Commissioner, whereby the appellant objects to the prejudice created in the mind of the Appellate Assistant Commissioner by the agreement between the appellant firm and the assessing officer regarding the estimates of the turnover and the rate of profit which are also objected to as excessive. Since the facts involved in the three appeals as also the objections and circumstances leading to them are identical for all the three years, all the appeals will be disposed on by this one consolidated order.

2. The appellant runs a boarding and lodging house at Hyderabad where food is supplied to residents only. For the three years under consideration it disclosed sales of Rs.48,540, Rs.47,398 and Rs.59,080 against which profits of 21.5%, 14% and 18% (taken by the Income‑tax Officer as 32% due to typographical mistake in the profit and loss account) respectively were disclosed. Since the accounts suffered from a number of defects the Income‑tax Officer refused to accept the same although he accepted the rental receipts as shown by the appellant. The Income‑tax Officer found in particular that whereas purchases were increasing, the sales were going down. He also noticed that no day‑to‑day record of consumption was available. He accordingly estimated the sales at Rs.75,000 for each of the three years and applied thereto a rate of 33‑1/3%. It appears that in arriving at these results he had the consent of the assessee and had obtained a written agreement to the figures adopted by him, from the appellant and its legal advisor. The appellant later on felt aggrieved and went to the Appellate Assistant Commissioner where it objected to the agreement itself as invalid and not binding and also objected to the excessive estimate of the turn over and the rate of profit applied The Appellate Assistant Commissioner, however, concluded that even if the agreement was disregarded, the appellant had no case on merits as in view of its past history, the conditions in which the accounts were maintained and a parallel case available, the Income‑tax Officer was justified in his estimates both in respect of the turn over and the rate of profit applied.

3. Before us Mr. Abbasi tried to raise a preliminary objection that the assessments which were based on invalid agreement were in themselves void being without any legal sanction. He then pressed the prejudice created in the mind of the Appellate Assistant Commissioner by this agreement. We, however, find that the Appellate Assistant Commissioner was not prejudiced at all, as his finding in respect of this agreement clearly indicates this and is in the following words: "Whatever may be the position regarding agreement. I find that accounts are otherwise unreliable and defects pointed out by the Income‑tax Officer exist " It is obvious from this that the Appellate Assistant Commissioner never applied his mind regarding the exact position of the assessments vis‑a‑vis the so‑called agreement. He cannot, therefore, be said to be prejudiced by the agreement in any manner. We find from the records that the so‑called agreement is in the following words: "Mr. B partner, and Mr. A attend. The assessee runs a hotel where he serves food also. No manufacturing and quantitative account has been kept for either 1958‑59 or 1959‑60 and 1960‑

61. Gross profit in 1958‑59 shown is 21% as against 29% of last year. Again in 1959‑60 the gross profit is only 14%. In 1960‑61 they are shoving improved gross profit No explanation is offered for low gross profit. The purchases are only partly vouched in all the three years. The assessee agrees to the assessment in this respect as under: Sale estimated at Rs.75,000 and gross profit taken at 33‑1/3% as in other cases. This is agreed for all the three years 1958‑59, 1959‑60 and 1960‑

61. The expenses will be allowed on merits. (Sd.) Income‑tax Officer. We agree. (Sd.) B." 31‑8‑1960. It is patent from the language used in the agreement that the assessments as framed by the Income‑tax Officer had the consent of the appellant and its counsel. Both of them are literate persons and knew what they were signing. Mr. Abbasi contended that such agreements are not envisaged by any provisions of the Act. He argued that, therefore, any assessment based on this agreement itself was devoid of any legal sanctity. The Departmental Representative on the other hand argued that although no such agreements are envisaged by the Act but having regard to the procedural practice when a case is at assessment stage, it is a matter of daily occurrence that, to avoid any hardship to the assessee and at the same time to safeguard the interest of the revenue, the assessee and his counsel on the one side and the Income‑tax Officer on the other side choose to resolve their differences in an amicable manner. The assessee has the consolation of having the correct assessment to the best of the Income‑tax Officer's estimate and has the advantage of avoiding any further litigation. It was contended by the Departmental Representative that although such agreements are not envisaged by the Act and may not be legally enforceable yet they are in the first instance morally binding on the appellant who has agreed to a definite course of action and in the second place they amount legally to a revision of the appellant's return of income without going into the legal formalities of submitting an amended return as required by subsection (3) of section 22 of the Act. We are in agreement with the view of the Departmental Representative that a solemn agreement in the absence of any fraud or pressure is binding on the assessee as by this course of action he definitely bars any further thorough or detailed enquiry into the state of his accounts, avoids a chance of a higher assessment and the subsequent consequences of appeals etc., attended thereto. The assessing officer at the same time even at the cost of some revenue, saves time and labour and has the consolation of causing no inconvenience to the assessee. As a matter of fact when an assessee agrees to this course of action, the assessing officer can very well require him to amend the return of income but as this would lengthen the cumbersome proceedings, both the parties without going into technical formalities, choose to take recourse to this convenient procedure. If, therefore, an assessee is allowed at a later stage to go back over such an agreement it would mean a breach of trust and shall bar the chances of any similar amicable settlements for other assessees, as well. Moreover an assessee who with full responsibility and full freedom of action adopts a course of action cannot be allowed to agitate a grievance against the course of action adopted by him of his own free will. It is true that law provides for no such legal agreement but an established procedure normally adopted by two consenting parties has no tinge of illegality in it. If the parties are allowed in any manner to go back on such agreement the result would be enforcement of technical formalities which may be cumbersome to both. We may with benefit in this connection invite attention to the practice of this nature prevalent elsewhere by quoting relevant portions of section 510 of the U.K. Income‑tax Act where such agreements are now statutorily provided "Setting of appeals by agreement: 510.‑‑ (1) Subject to the provisions of this section, where a person gives notice off appeal to the General Commissioners, the Special Commissioners of the Board of Referees against an assessment to, or a decision of any kind with respect to, income‑tax other than surtax and, before the appeal is determined by the Commissioners or Board, the surveyor or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise. that the assessment or decision should be treated as upheld without variation or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the Commissioners or Board had determined the appeal and had up held he assessment or decision without variation, had varied it in the, manner or had discharged or cancelled it, as the case may be .." It may be worthwhile to cite here the following comments by Prof. G. B. A. Wheatereft in his British Tax Encyclopaedia on page 3542: "This describes a procedure which was previously carried out in practice, especially in relation to appeals against Sch. D. assessments, to which the section gives statutory effect. In the absence of an agreement within this section, any appeal would require to be adjudicated upon formally by the Special or the General Commissioners (Or Board of Referees), e.g. by a personal hearing and formal determination." There is no doubt that no such statutory agreements are provided in the Income‑tax Act at present but a procedure that is being carried out in practice is almost identical with that which was being followed in the U.K., in respect of the determination of the appeals. It may be worthwhile to mention here that proceedings before the Income‑tax Officer are not "Judicial proceedings" in the strict sense and it has been held in Ganga Ram Balmokand v. Commissioner of Income‑tax 1937 I T R 464 that the Income‑tax Officer who holds an inquiry and makes an assessment under section 23(3) is not a Court, nor are the proceedings before him judicial proceedings in the strict sense. Attention is also invited in this connection to the following comments on page 549 of the Commentary on the Income‑tax by Kanga and Palkhiwala, Fourth Edition Volume I: "The broad principles which emerge from the earlier judgments of the various High Courts are summarised below:‑‑ The assessing officer exercises quasi‑judicial functions and should be governed in his procedure by judicial considerations and must conform to the rules of natural justice Gopinath Naik v. Commissioner of Income‑tax 1936 I T R I, 16117. That is to say, he must proceed without bias and give sufficient opportunity to the assessee to place his case before the Department; he must conduct himself in accordance with the principles of justice, equity and good conscience Ganga Ram Balmokand v. Commissioner of Income‑tax 1937 I T R 464." We, therefore, hold that such agreements are binding on the assessee who has consented to them and has agreed to the adoption of a particular quantum of income, sales and the rates of profit. He should not be allowed to question the same at a, subsequent stage anti at the back of the Income‑tax Officer with whom such agreements have been entered into. From the Order‑sheet entries that we have reproducing above this agreement appears to have been made in unequivocal terms and has been duly signed not by the assessee alone but by its advisor also. We, therefore, find that in accordance with the judicial pronouncements cited above the Income‑tax Officer had conducted himself in accordance with the principles of justice; equity, good conscience and had not relied on any evidence or fact without first pointing out the same to the appellant. His, course of action cannot, therefore, be said to be tinged with any arbitrariness or illegality. It must, therefore, be upheld. The appellant accordingly fails on this issue. As we have held that the assessments have been framed on agreements binding on the assessee, we do not feel called upon to discuss and decide the case on merits.

4. In the result all the three appeals fails and are hereby dismissed. M . Y . H . Appeals dismissed.