Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is justified in confirming the order passed by the Commissioner of Income-tax (Appeals) directing grant of registration to the firm for the asst. yr. 1977-78

Counsel Appeared

M. Suryanarayana Murthy, for the Revenue : P.V. Narayana Rao, for the Assessee

JEEVAN REDDY J. :

The Tribunal referred the following question under s. 256(1) of the IT Act, 1961 :

“Whether, on the facts and in the circumstances of the case, the Tribunal is justified in confirming the order passed by the Commissioner of Income-tax (Appeals) directing grant of registration to the firm for the asst. yr. 1977-78 ?”

2. The relevant facts are that the assessee-firm filed an application in Form No. 11 on January 31, 1976, enclosing the partnership deed dated January 28, 1976, for registration of the firm for the assessment year 1977-78. In the first instance, the ITO made a best judgment assessment. It was set aside on an application made under s. 146. Thereafter, assessment was made again under s. 144 on the ground that the assessee has failed to produce the account books called for by a notice issued under s. 143(2) of the Act. Simultaneously with the assessment order, the ITO passed an order, on March 31, 1978, under s. 185(1)(b) of the IT Act refusing registration on two grounds, viz., (i) that though the assessee has filed the partnership deed along with Form No. 11, they have not produced the account books called for to show that the profits/losses have been distributed in accordance with the terms of the partnership deed, and (ii) that inasmuch as the assessment has been completed under s. 144, the firm is not entitled to registration. Against this order, the assessee filed an appeal. The AAC, in an elaborate order, accepted the explanation of the assessee and held that there was ample justification on the part of the appellant for non- production of the account books. Indeed, it is his finding that the account books were not in the custody of the assessee at the relevant time. He held that the mere fact of non-production of account books cannot be a ground for refusing registration. He also held that the mere fact that the assessment was completed under s. 144 would not, by itself and without reference to the relevant circumstances, be a ground for refusing registration. This order of the Appellate Asstt. CIT has been confirmed by the Tribunal.

In our opinion, once the appellate authority has accepted the asses see’s explanation for non-production of account books, the very basis for making the assessment under s. 144 disappears. If that is so, there will be equally no justification for refusing registration either under sub-s. (5) of s. 185 or under cl. (b) of sub-s. (1) of s. 185. In this view of the matter, it is unnecessary to go into the question whether sub-s. (5) of s. 185 applies only for cancellation ofregistration or applies equally for refusing the initial request for registration. Both the authorities have gone into the facts and found that there was ample justification for the non-production of account-books when called for by a notice under s. 143(2) of the Act. It has been found that those account books were not in the custody of the assessee. In view of the abovesaid finding of fact, it must be held that the Tribunal was justified in confirming the order passed by the CIT (Appeals) directing the grant of registration for the assessment year 1977-78.

The question referred is accordingly answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

[Citation : 175 ITR311]