COMMISSIONER OF Income Tax vs A.K. TIMBER TRADERS.

S. S. SODHI J. - By his best judgment assessment order u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the Income Tax Officer granted registration to the assessee-firm, A.K. Timber Traders, Pathankot.

According to the Commissioner, the Income Tax Officer should, in fact, have cancelled the registration of the assessee-firm and failure on his part to do so constituted an error within the meaning of section 263 of the Act. The matter then went up before the Tribunal where the question arose as to whether failure on the part of the Income Tax Officer in cancelling the registration of the assessee-firm, constituted an error within section 263 of the Act, inasmuch as the error was such that caused prejudice to the interests of the Revenue. The Tribunal came to the conclusion that according to the judgment of the Supreme Court in Y. Narayana Chetty and Another Vs. The Income Tax Officer, Nellore and Others, penalty should not necessarily be imposed upon the assessee wherever it is provided under the law and it was thus not imperative on the part of the Income Tax Officer to levy penalty on the assessee and consequently no error was committed by him in not cancelling the registration lawfully granted earlier to the assessee. It was, therefore, held that there being no error in the order of the Income Tax Officer, the Commissioner was not right in exercising jurisdiction u/s 263 of the Act.

It was in this context that the following question of law came to be referred to this court for its opinion:

"Whether, on the facts and in the circumstances, the Tribunal is right in law in holding that there was no error in the order of the Income Tax Officer in granting registration and that. Therefore, the Commissioner had no jurisdiction u/s 263 in respect thereof ?"

The question posed stands answered by the judgment of the High Court of Patna in Commissioner of Income Tax Vs. Standard Mercantile Co., where it was held that section 186(2) of the Act lays down that where there has been any failure on the part of a registered firm in regard to matters stated in section 144 of the Act, the Income Tax Officer may cancel the registration of the firm and further that in terms of all the three clauses of section 144, it is possible to take the view that there has been no willful default by the assessee, if the assessee-firm can satisfy the Revenue that there has been no wilful default, the benefit of continuation of registration may not be denied. But once a conclusion is reached that the default was wilful, the benefit conferred by section 185 must be denied. Applying the ratio of Commissioner of Income Tax Vs. Standard Mercantile Co., the question referred must be answered in the affirmative. In favour of the assessee and against the Revenue. There will be no order as to costs.