Commissioner of Income Tax vs Vijaya Chemicals

Jeevan Reddy, J.—The Income Tax Appellate Tribunal referred the following question u/s 256(1) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in confirming the order passed by the Commissioner of Income Tax (Appeals) directing grant of registration to the firm for the assessment year 1977-78 ?"

The relevant facts are that the assessee-firm filed an application in Form No. 11 on January 31, 1976, enclosing the partnership deed dated January 28, 1976, for registration of the firm for the assessment year 1977-78. In the first instance, the Income Tax Officer made a best judgment assessment. It was set aside on an application made u/s 146. Thereafter, assessment was made again u/s 144 on the ground that the assessee has failed to produce the account books called for by a notice issued u/s 143(2) of the Act. Simultaneously with the assessment order, the Income Tax Officer passed an order, on March 31, 1978, u/s 185(1)(b) of the Income Tax Act refusing registration on two grounds, viz., (i) that though the assessee has filed the partnership deed along with Form No. 11, they have not produced the account books called for to show that the profits/losses have been distributed in accordance with the terms of the partnership deed, and (ii) that inasmuch as the assessment has been completed u/s 144, the firm is not entitled to registration. Against this order, the assessee filed an appeal. The Appellate Assistant Commissioner, in an elaborate order, accepted the explanation of the assessee and held that there was ample justification on the part of the appellant for non-production of the account books. Indeed, it is his finding that the account books were not in the custody of the assessee at the relevant time. He held that the mere fact of non-production of account books cannot be a ground for refusing registration. He also held that the mere fact that the assessment was completed u/s 144 would not, by itself and without reference to the relevant circumstances, be a ground for refusing registration. This order of the Appellate Assistant Commissioner has been confirmed by the Tribunal.

In our opinion, once the appellate authority has accepted the assessee''s explanation for non-production of account books, the very basis for making the assessment u/s 144 disappears. If that is so, there will be equally no justification for refusing registration either under sub-section (5) of section 185 or under clause (b) of sub-section (1) of section 185. In this view of the matter, it is unnecessary to go into the question whether sub-section (5) of section 185 applies only for cancellation of registration or applies equally for refusing the initial request for registration. Both the authorities have gone into the facts and found that there was ample justification for the non-production of account-books when called for by a notice u/s 143(2) of the Act. It has been found that those account books were not in the custody of the assessee. In view of the abovesaid finding of fact, it must be held that the Appellate Tribunal was justified in confirming the order passed by the Commissioner of Income Tax (Appeals) directing the grant of registration for the assessment year 1977-78.

The question referred is accordingly answered in the affirmative, i.e., in favour of the assessee and against the Revenue.