2002 (3) TMI 245 - AT - Income Tax

Summary

Issues:
1. Validity of cancellation of registration under section 186(1) of the IT Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune concerned the cancellation of registration of an assessee-firm under section 186(1) of the IT Act. The Revenue challenged the cancellation of the registration order passed by the Assessing Officer (AO) under section 186(1). The assessee-firm, consisting of three partners, had filed a return of income declaring Rs. 40,000 and was granted registration under section 185(1)(a). Subsequently, during search proceedings, two lady partners were examined, leading to the cancellation of registration for certain years. The AO issued a notice for cancellation of registration for the year under appeal, the first year for which registration was granted.

The AO contended that the firm was not genuine and was floated to divert income, leading to the cancellation of registration under section 186(1). The AO relied on the statements of the lady partners during the search proceedings to support the cancellation. However, the CIT(A) reversed the AO's finding, stating that the proper remedy for any failure in granting registration was under section 263, not section 186(1). The CIT(A) held that ignorance of the lady partners did not necessarily invalidate the firm's genuineness, citing the concept of agency in partnerships.

Regarding the maintenance of proper books of account and the motive behind forming the firm, the CIT(A) held that non-maintenance of books was not sufficient reason for refusing registration. The CIT(A) also dismissed the claim that the firm was floated to divert income, stating that the motive behind forming a partnership firm was irrelevant. The CIT(A) concluded that the AO had not provided valid reasons to justify the finding that the assessee-firm was not genuine, and therefore, cancelled the order under section 186(1), reviving the original registration order under section 185(1)(a).

In the final analysis, the Appellate Tribunal upheld the CIT(A)'s decision, stating that the cancellation of registration based on the lady partners' lack of acquaintance with the firm's affairs was not sufficient to deem the firm non-genuine. The Tribunal cited relevant case law to support the decision and declined to interfere with the CIT(A)'s findings, ultimately dismissing the appeal brought by the Revenue.