1985 (4) TMI 27 - HC - Income Tax

Summary

Issues:
- Whether the Tribunal was correct in allowing continuation of registration to the firm based on the facts and circumstances of the case.

Analysis:
The case involved the assessment years 1962-63 to 1965-66 of a firm in Patna. The Income-tax Officer refused the continuation of registration to the firm for the assessment year 1962-63, citing that the books of account were deliberately not furnished, indicating clandestine business activities. The Appellate Assistant Commissioner and the Appellate Tribunal also found default on the part of the assessee in not producing the required books of account. However, the Tribunal considered the degree of contumaciousness of the assessee and concluded that despite the default, it was not a fit case for denial of registration. The Tribunal emphasized that registration is a privilege and must be denied to those withholding materials, but in this case, the Revenue had not suffered due to the withholding of account books as assessments were done based on available materials.

The High Court judge, Uday Sinha, disagreed with the Tribunal's approach, stating that once it is established that the assessee defaulted in producing books of account, the benefit of registration must be denied. He highlighted that the Tribunal's reliance on assessments done using materials supplied by the assessee was irrelevant, as the Department had to resort to best judgment assessment due to the lack of proper documentation. Judge Sinha emphasized that registration is a benefit conferred upon the assessee, and in cases of default, it must be denied as per the provisions of section 186(2) of the Income-tax Act.

Judge Sinha further explained that discretion under section 186(2) should be exercised based on established judicial norms and that the expression "may" in the section must be read as mandatory in cases of wilful default. He criticized the Tribunal's attempt to water down the findings of default and emphasized that once the authorities establish wilful default, registration must be cancelled. He concluded that the Tribunal erred in allowing the continuation of registration to the firm and ruled in favor of the Department.

Judge Nazir Ahmad concurred with Judge Uday Sinha's opinion, leading to the decision that there was no legal basis for allowing the continuation of registration to the firm. The judgment favored the Department, indicating that the Tribunal's decision was incorrect in law.