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Issues:
Assessment of income from teh-bazari business, cancellation of registration of the firm under section 186(2). Analysis: The judgment pertains to a partnership firm engaged in money lending and teh-bazari contract work. The Income Tax Officer (ITO) issued a notice under section 142 to produce accounts of teh-bazari business in Patti Sultanpur, which the firm denied. Subsequently, the ITO passed an assessment order under section 144, including income from the disputed contract. The firm's registration was also canceled under section 186(2). The Appellate Authority confirmed the findings but reduced the income amount. The Tribunal, in a detailed analysis, emphasized the discretion under section 186(2) should be used judiciously and not as a punitive measure for an honest disagreement. The Tribunal allowed the appeal and directed the registration to be granted. The High Court considered the issue of cancellation of registration under section 186(2). The Court noted that the firm consistently denied the existence of the teh-bazari contract, leading to an ex parte assessment. The Court held that the firm's failure to comply with the notice under section 142, coupled with the false denial of the contract, justified the cancellation of registration. The Court disagreed with the Tribunal's emphasis on maintaining accounts, stating that the crucial aspect was the firm's non-compliance with the notice. The Court refrained from conclusively deciding if cancellation under section 186(2) is punitive, leaving the issue open for future consideration. In conclusion, the High Court answered the question in favor of the department, upholding the cancellation of registration. The Court highlighted the firm's conscious failure to comply with the notice as grounds for the cancellation, dismissing the Tribunal's lenient approach. As the firm did not appear during the proceedings, no costs were awarded.
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