Law:

Section:

Section 185(5), read with section 144, of the income-tax act, 1961-firm-registration-refusal of-whether registration can be automatically refused or cancelled when best assessment is made due to assessee's default of the nature mentioned in section 144-held, no-whether in Such case, refusal of registration is discretionary and discretion has to be exercised not arbitrarily and capriciously but judiciously, lawfully and on the basis of materials and circumstances of case-held, yes Facts Since no legal representative of the assessee, a partnership firm, appeared before the ITO on the date fixed for hearing in the assessment proceedings for the year 1975-76, the ITO made the best assessment under section 144 and also refused registration to the assessee-firm. On revision application, the Commissioner rejected the assessee's petition challenging the refusal to register the assessee-firm. On writ: Held When an assessee commits a default of the nature contemplated in section 144, besides being compelled to face best assessment-which is mandatory in such a case-he may also face a penalty and that is the penalty of refusal of registration under section 185(5). But while best assessment under section 144 follows as a matter of course in every case, penalty of refusal of registration under section 185(5) need not necessarily follow in every case, because it is not automatic, inevitable or mandatory. Hence, whether such a penalty must be imposed in a given case would depend entirely on the facts and circumstances obtaining in that case. Similar is the position with regard to cancellation of registration. In other words, the assessing authority must be aware, while seeking to apply section 185(5), that it is within his discretion to grant registration or refuse registration under that provision and bearing in mind this duality, the discretion must be exercised in a lawful manner and consistent with judicial standards on the basis of the materials and circumstances present in a given case. On going through the assessment order in the instant case, it appeared that this was a case where the ITO thought that if there were sufficient reasons for making an ex parte assessment,…

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