1990 PLP (Trib (PTD)

AA. ZUBERI (ACCOUNTANT MEMBER).‑‑These four appeals relate to assessment years 1978‑79, 1979‑80, 1980‑81 and 1981‑

82. These have been filed by the Department. The respondent operates a steel re‑rolling mills. The appeal assail consolidated order, dated 20‑4‑1985 passed by the learned CIT (A), Zone‑

2. Lahore.

2. The facts in all the appeals are similar inasmuch as assessments originally made were reopened under section

65. However, for facility of clear understanding of the background, details in respect of assessment year 1978‑79 may be considered as illustrative of the entire situation.

3. It emerged that returns originally filed on 13‑8‑1979 extended the benefit of self‑assessment to pending returns of earlier years. Income was then enhanced from the originally declared figure of Rs. 40,454 to Rs. 133,

454. The computation attached with the original return was not revised as respects the sales disclosed in the Bar account as above the Scrap account, but (i), an addition to G.P. was made at Rs. 75,000 to enhance it to Rs. 437,214; and (ii) addbacks out of overhead expenses was made as to reduce the claim originally made at Rs. 321,760 to Rs 303,

760. The assessing officer then made inquiries from the respondent in terms of C.B.R. Circular No. 5 of 1979, dated 22‑9‑1979, as to whether the lump sum addition pertained to the regular source of income or some other business undertaking originally omitted (or concealed) for the purposes of assessment. This enquiry was pertinent in case the addition related to some other source, it was incumbent on an assessee to submit separate Trading and P & L Account in respect of that source. This option was not exercised with the result that the admitted position remained that the lump sum addition related to the source of income already declared. At a later stage, the assessing officer came to have the knowledge that the respondent had obtained licence of the face value of Rs. 2.5 million for import of steel scrap but did not record the same in the books of account. In fact no imports were actually made as the licence was sold to one Ch Mohammad Yousaf of Steelman Associates, Badami Bagh, Lahore vide agreement entered into on 10‑4‑1978. The assessing officer obtained a copy of this agreement from the United Bank Limited, Badami Bagh Industrial Area by resort to section 144 of the Income‑tax Ordinance. The Respondent was confronted with this situation and the fact that he had neither furnished revised return nor any additional trading account, hence, income from the sale of the licence had obviously been suppressed and concealed. Notice under section 65 was issued on 18‑4‑1982 in response to which return declaring the same income as on 9‑12‑1979 (i.e. Rs. 133,454) was filed. Notice under section 61 followed by a notice under section 62, dated 21‑4‑1982 resulted in revised return dated 28‑4‑1982. In the correspondence exchanged between the assessing officer and the appellant, of prime importance is letter dated 22‑3‑1982 which bears the signature of the proprietor/respondent (Mian A. Rashid). In this communication it was admitted, in unequivocal terms, that no import against the licence issued to his concern was made and the same was sold to Ch. Mohammad Yousaf as per agreement dated 10‑4‑1978. When confronted with the factual situation the respondent entered into an agreement (in writing) in the presence of Mr. A.Q. Khawaja, FCA, who is the AR of the Respondent, the IAC and the Commissioner Zone‑A, Lahore. This agreement was to the following effect; (i) Net profit at 7% of the face value of the licence sold during the year was included in the income. This came to Rs. 175,000 at 7% of Rs. 2,500,

000. Income already accepted under section 59(1) was to be adopted at Rs. 133,454, thus, working out total income at Rs. 308,454. (ii) No benefit was to be allowed for any amount of tax deducted at source under section 50(5) of the Income‑tax Ordinance. (iii) The foregoing determination of income, etc.; was without prejudice to the concealment proceedings for which penalty equivalent to 100% of the tax evaded was agreed for which separate order was to be passed.

4. The demand notice was served on the respondent on 10‑5‑1982 and the matter rested there until 17‑3‑1983 when an appeal was fled to CIT(A), Zone‑2, Lahore who dismissed the same as clearly barred by time. The Respondent then approached the Tribunal who vide its consolidated order dated 14‑3‑1985 in ITA No. 2825/LB of 1982‑83, etc., set aside the same with the direction that the explanation of the respondent that the appeals got not time‑barred for he was prevented by sufficient cause from presenting these in time, may be considered and disposed of. This was done for the reason that the CIT had not exercised power, conferred on him under subsection (3) of section 130 of the Income‑tax Ordinance. While re‑adjudicating the matter in the second round (on 24‑8‑1985) the Commissioner admitted the appeals relying on cases reported as 1982 C L C 375 (Lah.); P L D 1956 FC 72; 1982 C L C 264 and P L D 1969 Lahore 1039. These cases were said to support the view that when an impugned order is a nullity, the appeal does not get barred by time and that if an order is without jurisdiction and void, no question arises about the bar of limitation. The Commissioner finally held: I am of the opinion that time limitation did not apply in this case because the orders passed by the assessing officer are illegal and a nullity in the eye of law as discussed before. This is why the appeals have been considered as in time and have been decided on merits of the case."

5. The D.R. before us vociferously assailed this finding by the learned Commissioner. It was contended that the cases relied upon did not relate to the Income‑tax proceedings and these had no direct bearing on the issue in hand. It was canvassed that the illegality may have beset the order but it could not be called `void' as (i) the assessing officer clearly possessed the jurisdiction over the case of the respondent; (ii) the original returns (as also revised return) were duly filed before him; (iii) even notice under section 65 was responded to which disentitled tae respondent "to call in question the jurisdiction of the I.T.O." as per bar crated by subsection (5) of section 5.? Similarly, section 154(6) of the Ordinance also stood in his way.? It was insisted by the? learned D.R. that the exchange of correspondence (wherein various admissions were made) particularly letter dated 22‑3‑1985 left no room for doubt that the respondent did not utilise the licence issued to him for the import of scrap and the licence was sold out to a verifiable party with whom transaction was made through banks, thus, rendering the entire operation open to verification. In this scenario, the order by the assessing officer was neither illegal nor a nullity in law nor beyond jurisdiction. hence, the learned Commissioner erred in admitting the appeals and adjudicating these on merits. Mr. Qudratullah, the learned D.R. dilated at length on the validity of the agreement (dated 29‑4‑1982) between the respondent and the Department entered voluntarily with a free will. It was pleaded that the assessing officer had the authority to make the assessment and the respondent was competent to get the assessment settled by compromise which he did (consciously and without any coercion) as is evident from the presence of the AR who happened to be a senior (=Fellow) practising Chartered Accountant. The other part of the agreement related to adjustment for tax deducted at source under section 50(5) of the Ordinance. This also, according to the learned D.R. was not against the statute as it did not relate to the computation of income but only to the procedure for giving credit of tax deposited prior to the assessment, e.g., payments under various subsections of section 50 or payment under section 54, etc. Mr. Qudratullah, the learned D.R. further elaborated that benefit for deduction of tax at source could be denied even without an agreement. For example, if an assessee was unable to furnish the certificate under section 51 of the Ordinance or the original challan of payments made at the time of import was not furnished. The Respondent agreed not to make the claim because he did not make the payment himself, he was not the real importer and his name was used simply for the purpose of obtaining an import licence. He was, thus, a Benamider (= name lender) who got commission @ 7% on the face value of the licence. The giving up of the claim for adjustment of tax deducted at the port, amounted to admission that no proof existed to lodge this claim. The assessing officer recorded this fact in the body of the order by way of abundant precaution because I.T.30(on which the tax is computed) has no column for such elaboration. As respects agreement for payment of penalty at 100% of the tax evaded, Mr. Qudratullah expressed the view that it did not prejudice (or invalidate) the agreement because it (in a way) extended a concession to the respondent by assuring him that in an order to be passed separately, the penalty would not exceed 100% of the tax evaded, lest the assessing officer may jump it to 2‑1/2 times, a limit to which he could go remaining within the four corners of law. In this background, the D.R. summarized, the agreement should be upheld on merit moreso when it could not be characterized as void or "out of jurisdiction'. 6, The learned counsel for the respondent on his turn relied upon this Tribunal's decision dated 14‑3‑1985 (ibid), the present respondent's own case in which, while dealing with the penalty, it was observed that the agreement in respect of same was in violation of the provisions of section 24 read with section 23 of the Contract Act and, thus, void. The learned counsel also referred to the same authorities on which reliance was placed by learned Commissioner (Appeals) particularly P L D 1966 SC 1; P L D 1958 SC 104; P L D 1974 Lah. 434 and (1975) 101 ITR

457. It was insisted that the agreement was void and, therefore, the limit of time did not act as a bar for admitting it and for adjudicating upon it as was done by the learned Commissioner.

7. The summarized facts in respect of all the assessment years are as under: Assessment year 1978-79 1979-80 1980-81 1981-82 (a) Income Originally declared Rs. 133.454 Rs.147,520 Rs.183,748 Rs.208,169 (b) Assessment under Section 59(1) --do-- --do-- --do-- --do-- (c) Face value of licence Rs. 2,500,000 Rs.1,433,000 Rs.1,873000 Rs.3,263,000 (d) Income assessed Under section 65 Rs.308,454 Rs.1,433,00 Rs.296,120 Rs.403,949 (e) Concealed income (By agreement) Rs. 175,000 Rs.85,000 Rs.112,380 Rs.195,780 As per order sheet entry signed by the respondent, his AR., the IAC and the Commissioner besides the I.T.O., the agreement related to-- ?the quantum of income and extent of concealment, at `d' and `e' above; penalty to be equivalent to 100% of the tax evaded in addition to concealment, as agreed; no benefit to be claimed/allowed in respect of tax deducted at import stage.

8. After hearing the rival arguments of the two sides we are of the view that it is not in controversy that the assessing officer Circle VII, Lahore had the jurisdiction to make the assessment on the respondent and the records of income for earlier years, as also the years under consideration, were filed. Furthermore, as pointed out by the learned D.R. any objection to assumption of jurisdiction stood ruled out in view of subsection (5) of section 5 and subsection (6) of section 154 of the Ordinance. It also is beyond doubt that the assessing officer validly issued notices under sections 65, 61 and

62. He exercised his powers within law when he summoned evidence from the United Bank Limited by resort to section 144 of the Ordinance. Our conclusion, therefore, is that the conduct of the proceedings for the framing of the assessment was within the legal competence of the assessing officer, hence, any objection to the assumption of jurisdiction for framing the assessment is of no avail on legal grounds. As respects agreement (which is the basis of assessment) we find that it was in three parts. The first dealt with the computation of income, the second with the computation of tax, and the third part with the levy of penalty. Even if, for argument sake, it is accepted that the agreement in regard to the penalty or adjustment of taxes, was against the statute or in violation of certain law (or certain provision of law), still the determination of total income, which is the primary purpose of an assessment, was clearly founded on an agreement of which the validity cannot be disputed. We recall a decision, reported as (1964) 9 Tax 25 (Trib.), where facts before this Tribunal were that an agreement was reached (on order‑sheet) in assessee's own handwriting which was duly signed by him agreeing to be assessed on a specified amount. When the validity of the agreement was disputed, this Tribunal relying on an earlier decision reported as (1964) 9 Tax 15 (Trib.), held that such an agreement was binding on an assessee who consented to it and agreed to the adoption of a particular quantum of income. The Member then constituting the Bench benefited from a ruling of Indian jurisdiction In re: Seth Gujar Mal Modi and others (1963) ITR 101, an extract from which is reproduced below: "There is yet another serious obstacle in the way of the petitioners and that is that in substance their claim is for quashing a term of the settlement voluntarily made, which was arrived at on the basis of an offer made by the petitioners and accepted by the Central Board of Revenue. Such a settlement was of a contractual nature. It was a voluntary one, which had the effect of completely bypassing 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 at which the tax was to be levied and also whether penal would be eligible or not. Once the normal procedure has been given the go‑by and the dispute is of a contractual nature, it is well‑settled that the Court will not interfere in the exercise of its extraordinary jurisdiction in such dispute." ? In yet another decision reported as P L D 1975 Lah. 287, the learned Judges of the Lahore High Court drew support from the decisions reported as P L D 1964 SC 829 and AIR 1957 SC 397 to rule that when a person is assessed on a consolidated income, strictly according to his agreement, he would become disentitled to any relief even if the assessment is found to have been passed without limitation. The learned Judges quoted (as under) from a decision in Rex v. William Phillips = (1914) IKB 609. "A party litigating must act consistently. It is a wholesome doctrine of law that a party cannot be allowed to play fast and loose blow hot and cold and approbate and reprobate, to the detriment of his opponent. Where a person knowingly and wilfully invites the Court to adopt a procedure, be cannot be permitted to turn around and blame the Court for the very same procedure which he himself invited the Court to follow. When the conduct of the applicant has been such as to disentitle him to the assistance of the Court no writ can be issued at his instance even though the impugned order may in fact be found to have been passed by the authority concerned without any jurisdiction. It is not that the order under attack has been clothed with any legality but because of the fact that the mouth of the person who has acquiesced in it is shut against it and in equity, he cannot be heard to say any thing against it. The Court will refuse in circumstances. A person can be said to have been aware of the defect of jurisdiction in the Tribunal with the exercise of due diligence but did not object to the usurpation of the power by the Tribunal and invited it to exercise the jurisdiction which is lacked." In the light of the guidance provided by the above authoritative pronouncements, we see no difficulty to conclude that the learned Commissioner misdirected himself in holding that the order passed by the assessing officer was (in entirety) a nullity in the eye of law. Therefore, the argument by the learned Departmental Representative gains persuasive force where he pleaded that the order as a whole was neither beyond jurisdiction nor void. In fact the Tribunal's decision dated 14‑3‑1985 has already declared: "Since the penalty orders have been passed on the basis of an agreement, the learned Commissioner of Income‑tax rightly quashed the penalty orders. We, therefore, dismiss the departmental appeal." Obviously, the verdict on the part of the agreement pertaining to penalty had already attained finality and the Commissioner was left only to see whether the appeal against the other two parts of the agreement, relating to quantum of income and the computation of tax, were in time (or could be admitted even beyond the prescribed time) particularly when these were identifiable separate parts of the agreement and were not beset with invalidity as the penalty part did. The Commissioner (Appeals) having not appreciated the precise nature of the separatability of the agreements between valid and invalid parts admitted the appeal as in time treating the entire order as null and void which he quashed as (according to him) appeals against order could be admitted even beyond time.

10. The infirmity of the course adopted by the Commissioner is evident from the fact that while only the concealment penalty appeal was found to be devoid of legal force, he quashed the entire order little realizing that other parts of the same agreement relating to quantum of income and computation of tax were not beset with any illegality and that appeals against the valid parts of the order should have been filed within the prescribed period of limitation.

11. Having reached the above conclusion we see no hazard to hold that the learned Commissioner did not properly exercise his authority nor did he carry out the directions given by this Tribunal on 14‑3‑1985 directing him to specifically exercise powers under subsection (3) of section 130 after ascertaining whether the appeals were in time in respect of those parts of the agreement which had no invalidity. The learned Commissioner failed to appreciate the subtlety which the issue involved and cancelled the order in its entirety. We have already held that only one part of the agreement which related to imposition of penalty could be called invalid in law but not the other two parts concerning determination of income and computation, of tax. Obviously, therefore, appeal against these valid parts of the agreed assessment should have been filed in time. This having not been done, the learned Commissioner clearly erred in admitting appeals against these, which were hopelessly barred by time, on the mistaken assumption that the entire order being illegal was not hit by limitation. In this view of the matter we VACATE the order by the learned Commissioner with the result that the assessment STANDS GOOD as respects quantum of income and payment of tax.

12. As already discussed in the preceding paragraphs 2 and 8, the facts and circumstances in all the four years under appeal are identical. Therefore, on the conclusion reached by us in paragraph 11 above, the order by the learned CIT(A) is VACATED in all the years and the assessment allowed to STAND GOOD, thus, ACCEPTING all the four appeals. M.B.A./887/T ???????????????????????????????????????????????????????????????????????????????????? Appeals accepted