Provisions u/s Sec.185(5),Income Tax Act 1961. - Income Tax - 1221/CBDT

INSTRUCTION NO. 1221/CBDT Dated : November 23, 1978 Section(s) Referred: 185(5) ,186(2) Statute: Income - Tax Act, 1961 Sec.185(5) provides that where there is on the part of the firm such failure as entails a best judgement assessment u/s.144, the ITO may refuse to register the firm. Sec.186(2) provides that in such cases the registration which is granted or which has effect u/s.184(7) for the relevant assessment year, may be cancelled. The Board have noticed some cases where the ITO misapplied sec.185(5) to the facts which called for invoking the provisions of section 186(2). Further it is noticed that the ITO while making the assessment u/s.144 merely treated the firm as unregistered in the assessment order and did not pass an order refusing to register or cancelling the registration of the firm. 2. It is clarified that sec.185(5) applies to a case where an application for registration has been made for the first time and not to the case where the firm has been registered or its registration has effect u/s.184(7). The ITO can refuse registration to a firm either u/s.185(1)(b) or u/s.185(5). The provisions of sub-section (5) would override the other provisions of section 185 because of the non-obstante clause "notwithstanding anything contained in the section". Thus the ITO can refuse registration to a firm for the reasons which entail ex-parte assessment only in a case where an application for initial/fresh registration has been made. In a case where the assessee has been allowed registration for the preceding year and a declaration for continuation of registration u/s.184(7) has been filed in the subsequent year, the ITO will invoke sec.186(2) if there is, on the part of the firm any such failure as is mentioned in sec.144, and such power under that section could be exercised only after giving the firm not less than 14 days' notice intimating the intention to cancel its registration and after giving the firm a reasonable opportunity of being heard. Likewise in a case where the registration has already been allowed to the firm for a particular year and an ex-parte assessment u/s.144 is made on a later date, the ITO may, if satisfied that the failure of the assessee as is mentioned in sec.144 justified cancellation of registration already granted, invoke the provisions of sec.186(2). 3. It is further clarified that in both the situations of refusal to register as well as cancelling registration, the ITO is expected to pass a positive order of refusal or cancellation separately.