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TMI Blog1994 (11) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment passed an order under section 186 of the Act along with the assessment order. In this order he stated that the assessee had earned a gain of Rs. 11,68,268 out of which a sum of Rs. 8 lacs was transferred to the general reserve and the balance only was transferred to the partners capital accounts. The ITO thus came to the conclusion that the entire profits have not been divided which is a condition for getting registration. He therefore called upon the assessee to show cause as to why registration should not be cancelled. The assessee responded by objecting to the proposal. It was pointed out that the gain referred to by the ITO was not a commercial profit but was a capital gain assessed as such in the assessment order and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has to be upheld. As rightly pointed out by Mr. Singh there are various infirmities and illegalities in the order passed by the ITO, purporting to be an order under section 186 of the Act. Firstly, the order is vague and does not incorporate the relevant objections of the assessee. It does not even specify the year for which the registration already granted is cancelled. Under section 186 of the Act, registration already granted for a particular year can be cancelled subject to certain conditions. In the present case, the assessee-firm has filed an application under section 184(7) of the Act in Form No. 12 for continuation of registration. A perusal of Form No. 12 shows that a declaration with regard to the division of the profits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plated by the section to object the proposal of the ITO. In fact, there was no proposal to cancel the registration at all thereby denying the assessee an opportunity of effectively meeting the ITO's case. That apart, the registration was first granted to the firm in the assessment year 1980-81. Unless the registration for that year is cancelled there is no question of cancelling the registration for the assessment year 1987-88. It is beyond our imagination as to how the registration for the assessment year 1987-88 can be cancelled without even being granted ! The ITO apparently could not grasp the ingredients of the provisions of section 186 of the Act. There is also no merit in the ITO's case that the profits of the business have not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account were only Rs. 3,35,680 which were undoubtedly divided between the partners in the profit-sharing ratio, when they divided the profits of Rs. 7,03,948. Even assuming that the profits of the business as computed in the assessment order should be divided between the partners, that condition also is satisfied in the present case, since the profits of the businessaspertheassessmentorderareRs. 4,34,395. In the present case the partners have divided the business profits as well as that part of the capital profits which have not been transferred to the general reserve account ; thereby they have not in any manner violated the condition that the profits of the business have to be divided between them in accordance with the profit-shari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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