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TMI Blog1970 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the year 1958-59. It had applied for the renewal of the registration as a partnership firm in time for the year 1958-59 also. At the time of the inspection of the books of accounts by the Income-tax Officer, it transpired that the sales tax authorities had seized certain books of accounts of the firm from the possession of the firm and, accordingly, a notice under section 2(4) of the Act, calling upon the assessee to produce the seized books of account, was duly served, which was not complied with. Thereafter, summonses were issued under section 37 of the Act, in pursuance of which Babulal Bajaj, a partner of the firm, appeared and his statements were taken wherein he stated that the seized books were burnt. The Income-tax Officer did not rely on the said statement of Babulal Bajaj and as the seized books were not produced for inspection and scrutiny, best judgment assessment under section 23(4) of the Act was made by the Income-tax Officer and he also refused renewal of the registration of tile firm. The assessee filed an appeal before the Appellate Assistant Commissioner, who held that since the genuineness of the firm as well as the allocation of shares were not in doubt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment than those which would be applicable to the whole income of the firm when charged as a unit of assessment and reads thus : " 26A. (1) Application may be made to the Income-tax Officer on behalf of any firm, constituted under an instrument of partnership specifying the individual shares of the partners, for registration for the purposes of this Act and of any other enactment for the time being in force relating to income-tax or super-tax. (2) The application such be made by such person or persons and at such times and shall contain such particulars and shall be in such form, and be verified in such manner, as may be prescribed ; and it shall be dealt with by the Income-tax Officer in such manner as may be prescribed. " The manner of disposal of such a case is prescribed by rule 2 to 6 of the Income-tax Rules, framed under section 59 of the Act, and the rule vant for our consideration is rule 4, which runs thus : " 4. (1) If, on receipt of the application referred to in rule 3, the Income-tax Officer is satisfied that there is or was a firm in existence, constituted as shown in the instrument of partnership and that the application has been properly made, he shall enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s non est and the registration was obtained on account of misrepresentation or deception. This power is inherent in the power of granting registration. The scope of the aforesaid two provisions came to be considered in the case of Y. Narayana Chetty v. Income-tax Officer, Nellore, in a somewhat different context, and the following observations of their Lordships of the Supreme Court may be usefully referred to : " The cancellation of registration under section 23(4) is in the nature of a penalty and the penalty can be imposed against a firm if it is guilty of any of the defaults mentioned in the said sub-section. It would be noticed that where registration is cancelled under section 23(4), there is no doubt that the application for registration had been properly granted. The basis of an order under section 23(4) is not that the firm which had been registered was a fictitious one, but that, though the registered firm was genuine, by its failure to comply with the requirements of law, it had incurred the penalty of having its registration cancelled. That is the effect of the provisions of section 23(4). On the other hand, rule 6B deals with cases where the Income-tax Officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same, otherwise the application for registration would be rejected and the assessment would be made under section 23(4) of the Act. Another opportunity was given to the assessee on the 20th January, 1962, to produce the books by 8th February, 1962, and the working partner of the assessee, Shree Babulal Bajaj, was also summoned under section 37. The assessee did not choose to produce the books and it was stated that the books were destroyed. Before the assessing officer reliance was, placed on this statement of the working partner of the assessee, which was rejected by the assessing officer and the following extract from his order may, usefully be quoted : " No strong reliance can be placed on the statement of the assessee. The books seized were the books of accounts and the assessee is an old income-tax assessee, he cannot brush aside the importance of the books as children play with dolls and destroy the same, even when the income-tax assessment was pending. The assessee did not prefer an appeal against the sales tax order, but meekly and silently accepted the same. The assessee has filed the sales tax order as early as 1958, so it was none of the business to destroy the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted and affirmed by the Tribunal. The Tribunal also allowed the appeal of the income-tax department against the order of the Appellate Assistant Commissioner and restored the best judgment assessment order of the Income-tax Officer. Thus, there is no substance in the submission of the learned counsel that there was no material before the assessing officer to discredit the explanation of the assessee regarding the destruction of the books. The order of the assessing officer has been filed as annexure " A " and forms part of the statement of the case. It is obvious that the assessing officer has given sufficient reasons for refusal of the renewal of registration, which have been accepted by the Tribunal, and the order of refusal of renewal of registration is not automatic, merely because of the best judgment assessment under section 23(4) of the Act. It is true that the assessing officer, in the proceeding under section 26A, for the assessment year 1958-59, has observed as follows : " The assessee had filed an application for renewal of registration on June 26, 1958, for 1958-59 assessment year. The registration has been rejected vide my assessment order for 1958-59 of date. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce : (1) a best judgment assessment, and (2) in the case of firms refusal to register or cancellation of the existing registration, if any. It is, therefore, incumbent upon the Income-tax Officer to consider the question of registration on the materials available before him instead of refusing registration on the ground that a different conclusion would be illogical or not self-consistent. What consideration should weigh with the officer in the matter of his decision regarding registration cannot of course be laid down exhaustively or comprehensively. Suffice it to say that the matter is purely one of discretion to be exercised by the officer and, therefore, he should exercise it not arbitrarily or capriciously, but in a manner consistent with judicial standards. This, in our opinion, is the true scope of section 23(4) of the Act. In the instant case, from the foregoing discussions it must be held that the Income-tax Officer was justified in refusing renewal of the registration under section 26A of the Act, while exercising his discretion under section 23(4) of the Act and the question must be answered in the affirmative and against the assessee, who must pay a cost of Rs. 200 (t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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