Law:

Section:

Section 185, read with section 186 of Income-tax Act, 1961 – Firm – Position prior to 1-4-1993 – Assessment year 1963-64 – Registration of assessee-firm was continued under section 184(7) during relevant assessment year – Subsequently, in course of assessment proceedings, ITO having found that firm had not complied with notices under section 142(1) and 143(2) passed an order refusing to register firm under section 185(5) – AAC held that ITO did not have power to refuse registration, and that he could cancel registration under section 186(2) after giving due notice – He, therefore, directed ITO to reframe a proper order under proper provision of law - Tribunal, however, held that advice given by AAC to ITO was wrong, and it went on to hold that status of assessee should have been treated as that of registered firm – Whether ITO did not have power to refuse registration to assessee-firm under section 185(5) as said provision applies at initial stage of granting or recognising registration – Held, yes – Whether, therefore, subsequently ITO could, if at all, pass an order of cancellation of registration under section 186(2) after giving requisite notice and opportunity of being heard – Held, yes – Whether, in that view, it was right for AAC to direct ITO to proceed in accordance with law and follow proper method – Held, yes FACTS The assessee-firm was originally registered under section 26A of Indian Income-tax Act, 1922 for assessment year 1952-53. Since then the firm was granted renewal of registration every year. For the relevant assessment year also, the firm was granted continuation of the registration. During the assessment proceedings, the ITO found that the firm was not producing its books of account. He, ultimately, passed an order to the best of his judgment under section 144. He, however, passed an order refusing to register the firm under section 185(5) for the reason that the assessment was made ex parte under section 144 for non-compliance of notices under sections 142(1) and 143(2). The AAC held, that since the firm had automatically gained recognition under section 184(7), the ITO did not have power to refuse registration under section 185(5). The…

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