R. C. Lahoti, J. ( 1 ) THIS common order shall govern the disposal of ITCNoand. 65/92 and 66/92. In both the cases the parties and the facts and the questionof law arising for decision are common except for a change of the assessment yearand the amount of taxable income. ITC No. 65/92 relates to the assessment year1967-68 and ITC No. 66/92 relates to the assessment year 1966-67. ( 2 ) THE facts in brief, in so far as relevant for the present purpose, may benoticed. The assessee is an individual. He had a business of share broker. One ofhis clients was the Late Rana Babar Shansher Jang Bahadur. On behalf of Rana theassesses was entering into transactions of purchase and sale of shares. Later on therana gave a power of attorney to the assessee who then started transactingbusiness in his own name though according to him that was on behalf of hisprincipal, the late Rana. Thus the assessee was having under his name severalshares of limited companies. The value of shares standing in the name of theassessee, but apparently on behalf of Rana, was worth about Rs. 38 lacs in the year1961-62. There were Income-tax recoveries against the Rana and the departmentin their efforts to recover the Income-tax dues issued garnishee order on theassessee, because his books showed the Rana as creditor. The assessee did notmake any payment. So the department attached his property at New Delhi. ( 3 ) AGAINST the attachment and reccovery proceedings the assessee took twolines of action. He denied his owing any money to the Rana and disputed thevalidity of the garnishee proceedings. The reason given for his denial was thatalthough he did owe money to the Late Rana to begin with, with the passing awayof the Rana on 12. 5. 1960 and the legal heirs having not filed their claim with theassessee, the same had gone barred by limitation and hence nothing had remaineddue by him to the Rana. The other step was in respect of his own assessments. Sincethe books of account showed large credits, they were subject to scrutiny by thedepartment. In fact the department had made asssessment for the assessment year1961-62 making an addition of Rs. 11,84,062. 00and Rs. 1,67,145. 00. The assessee fileda petition before the CIT, New Delhi on 24/08/1966 for settling his Income-tax affairs. Sincethe books of account showed large credits, they were subject to scrutiny by thedepartment. In fact the department had made asssessment for the assessment year1961-62 making an addition of Rs. 11,84,062. 00and Rs. 1,67,145. 00. The assessee fileda petition before the CIT, New Delhi on 24/08/1966 for settling his Income-tax affairs. In this petition, he agreed that originally he was having dealings withthe Rana on principal to principal basis, purchasing shares in his own name. Theamount due by him to the Late Rana had become barred by limitation. However,he had stated that because the credit amounts had been claimed and allowed astrading liability to him in the earlier orders and the liability in respect thereof hadceased, if proper entries were made in the account books indicating cessation ofliability with a corresponding credit to the profit and loss account, these amountscould be offered under Section 41 of the Income Tax Act, 1961. To quote from hisapplication (Para 9):- "that if the first settlement subject to the scheme of payment suggested by theapplicant is accepted, he would make proper entries as on 31. 3. 1965 of thesum of Rs. 26,14,672. 00 for inclusion in 1965-66 assessment and Rs. 4,27,168. 00in the assessment year 1966-67. The other items of Rs. 25,750. 00 will fall forconsideration in 1967-68. The total Income-tax liability would be in theneighbourhood of Rs. 15 lacs. ( 4 ) THE ITC by his order dated 13. 2. 1967accepted the assessee s contention. Inparagraph I he wrote as follows:- "your proposal to offer for taxation the following amounts under Section 41of the Income Tax Act, 1961 is accepted:-Assessment year 1965-66 Rs. 28,51,593. 00assessment year 1966-67 Rs. 4,27,168. 00assessment year 1967-68 Rs. 2,57,500. 00you may proceed to make the necessary entries in your account books and filethe returns for the years 1965-66 and 1966-67 accordingly. The return for1967-68 may be filed in due course in the next financial year. " ( 5 ) IN compliance with this settlement, the assessee filed revised returns for thethree assessment years, consistently with the order of CIT. The Income Tax Officer madeassessments accordingly. ( 6 ) HOWEVER, it appears that there were certain other additions made than theamount agreed to. For the assessment year 1965-66 the assessee appealed to theaac against the other additions. The assessee did not object to the inclusion of Rs. 28,51,593 / - for that year. The Income Tax Officer madeassessments accordingly. ( 6 ) HOWEVER, it appears that there were certain other additions made than theamount agreed to. For the assessment year 1965-66 the assessee appealed to theaac against the other additions. The assessee did not object to the inclusion of Rs. 28,51,593 / - for that year. He was satisfied that it was correctly includible as per thissettlement. In respect of the assessment years 1966-67 and 1967-68 the assessee hadsecond thoughts about the acceptance of these additions as per the settlement. Heappealed to the AAC who accepted the contention that the settlement with Commissioner of Income Tax orfurnishing of revised return was no bar for seeking exclusion of the amount. Theaac set aside the order of the Income Tax Officer and directed him to make a fresh assessmentafter examining the assessee s contention. The department went in appeal againstthe order of AAC but the tribunal upheld the A AC s action. ( 7 ) THE Income Tax Officer started the assessment proceedings again. This time the assesseedid not co-operate. The Income Tax Officer completed the assessment ex parte in which heincluded the disputed amounts. Again the assessee went in appeal. The CIT (appeals)opined that when the department was proceeding against the assessee on merits ofthe case, the assessee closed the avenue by making a settlement. Now when theavenue was closed, the assessee wanted the department to examine the case onmerits. With the passage of time it would be difficult to process the case especiallywhen important clues had been lost. The assessee kept on changing the stand to suithis convenience and avoding the tax liability. In the year 1966 he came with aproposal for taxing the same. The Commissioner of Income Tax further held that once anaddition was madeon settlement, the assessee could not be treated as an aggrieved party. Therefore,the assessee did not have the option of appeal at all. On these findings the Commissioner of Income Tax heldthat the additions made by way of settlement were correct and there could be no appeal. ( 8 ) THE assessee went in further appeal to ITAT. Therefore,the assessee did not have the option of appeal at all. On these findings the Commissioner of Income Tax heldthat the additions made by way of settlement were correct and there could be no appeal. ( 8 ) THE assessee went in further appeal to ITAT. The Tribunal accepted boththe contentions of the appellant that, the settlement arrived at was not binding onthe assessee as an assessee could not be stopped from relying upon a proper construction of the relevant statute and preventing the department from providing abasis of assessment different from what was laid down in the act and consequentlythat the onus was on the department, it was not discharged and so the disputedamount could not be brought to tax. The tribunal also noticed that the assessee hadfiled an application under Section 131 for inspection of the records to satisfy himselfif the deductions were allowed in the earlier year of assessment which alone wouldattract the applicability of Section 41 but the records were not examined. Thetribunal accordingly allowed the assessee s appeal for the assessment years 1966-67 and 1967-68. The tribunal also noticed that the assessee hadfiled an application under Section 131 for inspection of the records to satisfy himselfif the deductions were allowed in the earlier year of assessment which alone wouldattract the applicability of Section 41 but the records were not examined. Thetribunal accordingly allowed the assessee s appeal for the assessment years 1966-67 and 1967-68. ( 9 ) SECTION 41 (i) of the Income Tax Act, 1961, the provision relevant for thepresent purpose, reads as under:-"where an allowance or deduction has been made in the assessment for anyyear in respect of loss, expenditure or trading liability incurred by theassessee (hereinafter REFERRED TO to as the first-mentioned person) and subsequently during any previous year,- (A) the first-mentioned person has obtained, whether in cash or in anyother manner whatsoever, any amount in respect of such loss orexpenditure or some benefit in respect of such trading liability by wayof remission or cessation thereof, the amount obtained by such personor the value of benefit accruing to him shall be deemed to be profits andgains of business or profession and accordingly chargeable to Income-tax as the income of that previous year, whether the business orprofession inrespect of which the allowance or deduction has beenmade is in existence in that year or not; or (B) the successor in business has obtained, whether in cash or in any othermanner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit inrespect of the trading liability REFERRED TO to in clause (a) by way ofremission or cessation thereof, the amount obtained by the successorin business or the value of benefit accruing to the successor in businessshall be deemed to be profits and gains of the business or profession,and accordingly chargeable to Income-tax as the income of thatprevious year. " ( 10 ) THE department moved an application under Section 256 (i) of the Act fordrawing up a statement of the facts of the case and staling the following questionsfor the opinion of the High Court:- (for the assessment year 1966-67) 1. "whether, on the facts and in the circumstances of the case and havingaccepted in principle that the move of the assessee for the settlementhad foreclosed the Department s option of considering the issue onmerits, the I. T. A. T. is right in law in deleting the addition of Rs. 4,27,168. "whether, on the facts and in the circumstances of the case and havingaccepted in principle that the move of the assessee for the settlementhad foreclosed the Department s option of considering the issue onmerits, the I. T. A. T. is right in law in deleting the addition of Rs. 4,27,168. 00 voluntarily surrendered by the assessee u/sec. 41 (1) of thei. T. Act. " 2. "whether, on the facts and in the circumstances of the case and in theabsence of any evidnece having subsequently been brought by theassessee on record, the I. T. A. T. is legally correct in holding thatprovisions of Section 41 (1) were not applicable to the amount of Rs. 4,27,168. 00 initially admitted by the assessee to represent cessation ofliability and treated by him as such. " 3. "whether, on the facts and in the circumstances of the case and withoutgiving the Department any opportunity to examine the matter onmerits, thus violating the principles of natural justice, the Tribunal islegally correct in accepting the assessee s plea that provisions ofsection 41 (1) were not applicable to the amount of Rs. 4,27,168. 00 (For the assessment year 1967-68) 1. "whether, on the facts and in the circumstances of the case and havingaccepted in principle that the move of the assessee for the settlementhad foreclosed the Department s option of considering the issue onmerits, the I. T. A. T. is right in law in deleting the addition of Rs. 2,57,500. 00 voluntarily surrendered by the assessee u/sec. 41 (1) of thei. T. Act. " 2. "whether, on the facts and in the circumstances of the case and in theabsence of any evidence having subsequently been brought by theassessee on record, the I. T. A. T. is legally correct in holding thatprovisions of Section 41 (1) were not applicable to the amount of Rs. 2,57,500. 00 initially admitted by the assessee to represent cessation ofliability and treated by him as such. " 3. "whether, on the facts and in the circumstances of the case and withoutgiving the Department any opportunity to examine the matter onmerits, thus violating the principles of natural justice, the Tribunal islegally correct in accepting the assessees s plea that provisions ofsection 41 (1) were not applicable to the amount of Rs. 2,57,500. 00. " 3. "whether, on the facts and in the circumstances of the case and withoutgiving the Department any opportunity to examine the matter onmerits, thus violating the principles of natural justice, the Tribunal islegally correct in accepting the assessees s plea that provisions ofsection 41 (1) were not applicable to the amount of Rs. 2,57,500. 00. " ( 11 ) THE applications have been rejected by the Tribunal forming an opinionthat the questions sought to be stated for the opinion of the High Court werequestions of fact and no question of law arose out of the appellate order of thetribunal. During the course of its order the Tribunal has also expressed an opinionthat the department ought to have either challenged the earlier order of thetribunal or sought for a reference therefrom, failing which the matter was concluded by the earlier order of the Tribunal. ( 12 ) AT this juncture, a very significant fact deserves to be taken note of in thematter of assessment for the assessment year 1965-66. The assessee having lostfrom the Tribunal had filed a writ petition under Article 226-227 of the Constitutionwhich was disposed off by this Court by order dated 29. 8. 1983. The decision isreported as M. R. Dhawan v. CIT, Delhi (Central) 1984 (149) ITR 160 . This Courtheld:- "it was clear from an examination of the application for settlement that theassessee admitted that the impugned amount represented a trading liabilityand claimed deduction of the same. The deduction had not been allowedearlier but it was allowed under the settlement. There had thus been anallowance for trading lilability satiating the first requirement under Sec. 41. In the application for settlement the petitioner admitted in terms that thisliability had ceased to exist. In para 3, it had been clearly stated that the heirsof late Rana had not come forward to claim this amount for various reasons. Bar of limitation was, therefore, not the only reason. It was significant that inthe application for settlement the assessee had stated that, earlier also, he hadmade an offer to surrender this income but subject to the condition that in casethe Rana s heirs succeeded in getting a decree for this amount, the necessaryadjustment would be allowed by the Department but now he was notattaching this condition. The assessee thus admitted in clear terms that thisliability had finally ceased to exist. The assessee thus admitted in clear terms that thisliability had finally ceased to exist. He could not now be allowed to resile fromthis admission. It could not be said that the admissioin was erroneous. Nogood ground had been made to withdraw these admissions of fact. Thesecond requirement under Sec. 41, therefore, also stood satisfied. Moreover,in writ proceedings, the Court would not investigate questions of fact. Theassessee had not also pursued the alternate remedy of reference. The assesseehad failed to prove that the impugned settlement or impugned assessmentorder for the assessment order for the assessment year 1965-66 suffered froma patent lack of jurisdiction. " (underlining by us) ( 13 ) REVERTING back to the case at hand, at the hearing the learned Counsel forthe department submitted that questions of law do arise out of the order of thetribunal and being questions of law they ought to have been REFERRED TO by thetribunal to the High Court. The learned Counsel for the assessee has vehementlyopposed the contention of the learned Counsel for the department and submittedthat the issues were eclipsed by the earlier order of the Tribunal and hence thepresent proceedings were incompetent. The learned Counsel for the assessee hasalso cited a number of decisions (as per list) submitting that there was no estoppel,that the foundational facts attracting applicability of Section 41 of the Act were notsatisfied and that the onus lay on the department which was not discharged and c. Suffice it to say that whatever has been urged by the learned Counsel for theassessee is pre-mature indeed and certainly beyond the scope of hearing undersection 256 (2) of the Act. In Commissioner of Income Tax, Punjab v. Jai Parkashom Prakash Company Ltd. , 1964 (52) ITR 23 their Lordhsips of the Supreme Courtdealing with pan materia provision contained in Section 66 (2) of the Income Taxact, 1961 held- "when an application was made under Section 66 (2) to the High Court for anorder directing the Tribunal to state a case and refer a question of law arisingout of its order, the Hilgh Court could not deal with it by answering thatquestion. "in Commissioner of Income Tax Ernakulam v. Managing Trustee, Jalakhabai Trust, 1967 (66) ITR 619their Lordships have held:-The High Court in dealing with the application under Section 66 (2) of the Actis not called upon to decide whether the question may ultimately be decidedin favour of assessee, the High Court had only to consider whether aquestionof law which may be supported by reasonable arguments, arose out of theorder of the Tribunal". ( 14 ) IN our opinion the earlier order of the Tribunal had not decided anything. It had only confirmed an order of remand made by the AAC. The Income Tax Officer was to makean assessment afresh. The merits of the contentions raised by either party were leftto be at large before the assessing authority. Till the assessment was made andliability of the assessee to pay the tax was fixed, the questions raised by either partywould have been academic merely. It is only when the liability to pay the tax wasfixed by the assessing authority and that order was either maintained or set asidefinally by the final Appellate Tribunal, the questions arising as those of law wouldbecome ripe for being REFERRED TO to the High Court for its opinion. ( 15 ) THE questions framed by the department are questions of law and do arisefrom the order of the Tribunal. ( 16 ) FOR the forgoing reasons both the applications are allowed. The Tribunalis directed to draw up a statement of the facts of the case in each of the two casesand refer the questions for the opinion of the High Court. ( 17 ) THE costs shall be determined while disposing off the matter finally onreference being made by the Tribunal. One copy each of this order shall be placed on the records of ITC Nos-65/92and ITC 66/92.