TMI Blog1982 (6) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the tax liability of the petitioner. According to the petitioner, both the statutory authorities, respondents 1 and 2, committed serious error of law in regard to the refusal of registration of the firm under s. 185(5) of the I.T. Act, 1961. The petitioner would contend that the statutory authorities did not exercise their discretion in regard to this matter but proceeded on the misconception that refusal of registration is an automatic consequence of failure under s. 144 of the Act. The learned standing counsel for the Revenue rebutted these submissions and contended that both the authorities have exercised their discretion and in a proper manner and the same was not liable to be interfered with. There were parallel provisions in the Indian I.T. Act, 1922. Section 23(4) of that Act provided: " If any person failed to make the return required by any notice given under sub-section (2) of section 22 and has not made a return or a revised return under sub-section (3) of the same section or fails to comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r legislative pointer to indicate that the first is obligatory and the second is discretionary. We have no doubt that the statute does not compel the officer to deprive the assessee of the benefit of registration under the last part of section 23(4). In other words, it would be wrong to assume that the defaults listed in section 23(4) of the Act would lead to a twofold Penal consequence-: (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." (emphasis supplied) In Trivandrum Tobacco Combines' case [1967] 63 ITR 813, a Division Bench of this court held that an order to the effect " in view of the fact that the assessment is completed under section 23(4), I would have refused registration under section 26A " is not sustainable since the ITO had not exercised his discretion. This court followed the reasoning adopted in the two decisions referred to abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n " can be " imposed under s. 23(4) supports the view that the power of cancellation is discretionary and not imperative. The provisions in s. 23(4) of the Indian I.T. Act, 1922, have been split up and incorporated in different sections of the I.T. Act, 1961, namely, ss. 144, 185(5) as also 186(2). Section 144 deals with the circumstances under which best of judgment assessment has to be made. It is on lines with the corresponding provisions of s. 23(4) of the earlier Act. The provision dealing with refusal to register the firm found in s. 23(4) of the earlier Act is now found in s. 185(5) of the present Act. Similarly, the provision regarding cancellation of registration obtaining in s. 23(4) of the earlier Act is now incorporated in s. 186(2) of the present Act. It appears, on a comparison of the corresponding provisions of the two Acts, that no significant change has been brought about in regard to the circumstances under which registration could be refused or cancelled. Under the present Act also the consequence of any failure mentioned in s. 144 is best of judgment assessment, expressed as " shall make the assessment of the total income or loss to the best of his judgment an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is discretionary to impose the penalty or refrain from imposing the penalty, that is, it is within his discretion to grant registration or refuse registration under that provision and it is bearing in mind this duality of power that the discretion must be exercised. If the assessing authority proceeds under the belief that the penalty of refusal of registration must inevitably follow the failure of the assessee to do anything as contemplated in s. 144, certainly, it cannot be said that the authority has exercised his discretion. It will be a case where the discretion has not been exercised. The discretion must be exercised one way or the other, not arbitrarily or capriciously, but in a lawful manner and consistent with judicial standards, on the basis of the materials and circumstances present in a given case. It has to be borne in mind that a firm, subject to the formalities and conditions prescribed, has a right to obtain registration certificate and enjoy the benefits flowing therefrom and cancellation made under s. 185(5) of the Act is in the nature of a penalty, depriving the assessee of the benefits flowing from registration. There is certainly a difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned that the reasons for making ex parte assessment have been given elsewhere. The passage does not make it clear that those reasons were considered by him or were found to be sufficient by him for refusing registration. In other words, this is a case where the statutory authority thought that if there are sufficient reasons for making an ex parte assessment, that by itself would be sufficient for refusing registration. This approach ignores the serious consequences the assessee had to suffer as a result of refusing registration. The impugned order would go to suggest that the assessing authority thought that whenever there are sufficient reasons to make an ex parte assessment, there should inevitably follow an order refusing registration also. The assessing authority appears to have proceeded on the basis that there did not vest in him any particular discretion to grant or refuse registration. This is evident from the passage extracted above. The present is a case where the assessing authority was apparently not conscious of the discretion vested in him and failed to exercise the discretion. I may incidentally mention that the assessing authority also thought that the failure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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