1986 (7) TMI 188 - AT - Income Tax

Summary

Issues:
- Refusal of continuation of registration after best judgment assessment under s. 144 of the IT Act, 1961.
- Discretionary power of the ITO to refuse registration under s. 185(5) of the Act.
- Consideration of registration on merits even after best judgment assessment.
- Requirement of proper reasons for refusal of registration.

Analysis:
The judgment revolves around the issue of the refusal of continuation of registration to a firm following a best judgment assessment made under section 144 of the Income Tax Act, 1961. The Income Tax Officer (ITO) refused to grant continuation of registration to the firm based on the best judgment assessment and the failure of the firm to comply with notices under sections 143(2) and 142(1) for the relevant year. The firm appealed to the Appellate Assistant Commissioner (AAC) who upheld the ITO's decision. Subsequently, the firm appealed to the Appellate Tribunal.

The crux of the argument presented by the firm's counsel was that even after a best judgment assessment, the decision to grant or refuse registration should be based on merits. The ITO's power to refuse registration under section 185(5) is discretionary and should not be exercised arbitrarily. On the other hand, the Departmental representative argued that the ITO's power to refuse registration after a best judgment assessment is valid and has been exercised fairly.

The Tribunal analyzed the provisions of section 185(5) and emphasized that the word "may refuse" indicates a discretionary power vested in the ITO, not a mandatory refusal. The Tribunal referred to various legal precedents to support the view that registration cannot be automatically refused solely based on a best judgment assessment. Proper reasons must be provided for the refusal, as highlighted in previous court decisions.

The Tribunal cited cases such as CIT Madras vs. Krishnamma & Co., Phoolchand Ramsahia vs. CIT, and J.M. Seth vs. CIT to underscore the requirement for the ITO to consider the question of registration on the available materials and not simply refuse registration based on a best judgment assessment. The Tribunal further referenced the Kerala High Court's decision in C.K. Abdul Khadar & Co. vs. ITO to emphasize that the ITO's discretion must be exercised lawfully and in accordance with judicial standards.

Ultimately, the Tribunal held that the ITO's decision to refuse registration solely on the grounds of a best judgment assessment was not sustainable. The ITO was directed to reconsider the question of allowing continuation of registration based on the available materials. Consequently, the Tribunal allowed the firm's appeal, emphasizing the need for a fair and reasoned consideration of registration even after a best judgment assessment.