Satish Chandra, C.J.
1. The assessee is a partnership firm. It carries on business of money lending as well as conducting teh~bazari contract work. It used to take on contract teh-bazari in respect of a plot of land owned by the District Board, Nainital, on which weekly markets were held on each Wednesday. In its return for the year 1970-71, the assessee declared some income from its money lending business but nil from the teh-bazari business. The ITO got information that the assessee had taken a teh~bazari contract in Patti Sultanpur, eight miles from Kashipur. The contract was taken in the name of Shiv Raj Saran, who was the real sister's husband of one partner and the son-in-law of the other partner, of the assessee-firm. The ITO issued notice under section 142 of the I.T. Act. requiring the assessee to produce the accounts of this contract business. The assessee replied by a letter that it had never taken any contract of teh-bazari of Patti Sultan-pur. The ITO, however, was not satisfied. He passed an assessment order to the best of his judgment Under-section 144. In it he included an amount of Rs. 81,750 as the net income from the teh-bazari contract. He also passed an order under section 186(2) cancelling the registration of the firm.
2. The assessee appealed. The AAC confirmed the findings but reduced the quantum of income of Patti Sultanpur contract from Rs. 81,750 to Rs. 35,433. The appeal from the order of cancellation of registration was dismissed.
3. The assessee then went up to the Tribunal. The Tribunal dismissed the appeal on the quantum side. In relation to the appeal relating to cancellation of registration the Accountant Member of the Tribunal held that Section 186(2) confers a discretion which has to be exercised carefully and after great circumspection. It has to be used by way of punishment of an assessee where there is conscious disregard of statutory obligation and not where there is possibility of two honest opinions to exist. The proceedings are quasi-criminal in nature. He concluded by saying that it appears to be harsh and inequitable to refuse registration to an otherwise valid, genuine and legally existing firm as an automatic consequence of making an assessment ex parte. The other Member, in a separate but concurrent opinion, observed that it cannot be said that the assessee was in fact maintaining the accounts of the contract for the present year. It had, in the past, maintained such accounts. In such a situation, it cannot be said with any certainty that the case of the assessee was entirely baseless.
4. In this view, the Tribunal allowed the appeal and directed that registration to the firm be granted.
5. At the instance of the Commissioner, the Tribunal has referred for our opinion the following question of law :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the Income-tax Officer's order under section 186(2) even though there was on the part of the assessee-firm such failure in respect of the assessment year 1971-72 which called for an assessment under section 144 of the Income-tax Act, 1961 '
6. The ITO having been informed that the assessee had carried on teh-bazari contract business at Patti Sultanpur, issued a notice under section 142 requiring the assessee to produce the account books relating to that contract. In a written reply, the assessee stated that it had not taken any such contract. After the ITO had framed the assessment order, to the best, of his judgment, he again issued a notice to the assessee requiring it to show cause why the registration be not cancelled. Even at this stage, the assessee stuck to his original stand that it had not taken the teh-bazari contract of Patti Sultanpur. There was hence no question of his having failed to produce the account books relating to that contract. The stand of the assessee was disbelieved and an ex parte assessment was made. The ex parte assessment has been maintained up to the Tribunal stage with the result that the view of the ITO that the assessee's case that it had not taken any contract of teh-bazari of Patti Sultanpur was false has also been maintained. The ITO had, in his notice under section 142 of the Act, required the assessee to prove the quantum of income from the teh-bazari contract of Patti Sultanpur. The assessee had admittedly failed to comply with that notice. In this view, the question whether the assessee had, in fact, maintained accounts of that business for this year or not was not very material. The material non-compliance of the notice under section 142 was the stand that the assessee had not taken any contract, a stand which was found to be false. In our opinion, the Tribunal was not justified in emphasizing that it cannot be said with any certainty that the assessee was in fact maintaining the accounts of such contract for the present year. As already observed, this question did not arise. In this view, since there was a conscious failure to comply with the notice under section 142, a case for cancellation of registration under section 186(2) was in fact and in law made out. It could not hence be said that the ITO exercised the discretion vested in him capriciously or arbitrarily.
7. In the present case, no one has appeared on behalf of the assessee. We would hence refrain from making a concluded opinion on the view expressed by the Tribunal that the discretion under section 186(2) for cancelling the registration of a firm can be used only by way of punishment where there has been a conscious disregard of statutory obligation or defiance of law, on the basis that the proceedings for cancellation are quasi-criminal in nature. We will leave the point open, after noticing the statement of the learned counsel for the department that the cancellation of registration is only denial of a benefit which has been conferred by Section 184 of the Act.
8. In the result, we answer the question referred to us in the negative, in favour of the department and against the assessee. As no one has appeared on behalf of the assessee, we make no order as to costs.