1996 (6) TMI 85 - HC - Income Tax

Summary

Issues:
1. Cancellation of registration under section 186(1) of the Income-tax Act, 1961 for all the four years.
2. Non-production of all partners leading to cancellation of registration.

Analysis:

The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, where two questions were referred regarding the cancellation of registration of a firm under the Act. The firm, registered under the Partnership Act, had its registration cancelled for the assessment years 1979-80, 1980-81, 1981-82, and 1982-83 by the Income-tax Officer due to doubts about the genuineness of the firm. The cancellation was based on the firm's failure to produce all partners for examination, which led to the conclusion that the firm was not genuine. The Appellate Assistant Commissioner upheld the cancellation citing non-production of partners as a sufficient ground. The Income-tax Appellate Tribunal also affirmed the cancellation, emphasizing the importance of producing partners for verification of genuineness.

The assessee contended that subsequent registration of the firm in later years indicated genuineness, but the court found no evidence of subsequent events on record to support this claim. Under section 186 of the Act, the Income-tax Officer has the authority to cancel registration if a genuine firm is not found to be in existence. In this case, the cancellation was not solely based on differing signatures but on the failure to produce partners for verification. The court reiterated that it is the duty of the Income-tax Officer to ensure the genuineness of a firm before registration, and non-production of partners can be a valid ground for cancellation.

The court reviewed the Tribunal's judgment and agreed that the cancellation was justified based on the failure to produce partners, emphasizing that the Income-tax Officer acted within his obligations. The absence of partners for examination and lack of evidence regarding subsequent events led the court to uphold the decision of the Income-tax Officer and the Tribunal. Consequently, the questions were answered in favor of the Revenue and against the assessee, affirming the cancellation of registration.

In conclusion, the judgment underscores the significance of producing all partners for verification in maintaining the genuineness of a firm for registration under the Income-tax Act. The court upheld the cancellation of registration based on the failure to produce partners, emphasizing the statutory duty of the Income-tax Officer to ensure the authenticity of registered firms.