SATISH CHANDRA J. - Messrs. Radha Kishan Banwari Lal carried on business in the status of a partnership firm. This firm was originally registered under s. 26A of the Indian I.T. Act. 1922, for the assessment year 1952-53 by an order of the ITO dated September 8, 1952. Since then the firm was granted renewal of registration every year till 1961-62. For the assessment year 1962-63, when the I.T. Act, 1961, came into force, the registration of this firm was continued on the basis of declaration filed by it under s. 184(7) of the Act. For the year 1963-64, which is the year now in question, the firm filed the usual declaration of June 28, 1963. The firm filed its return of income on July 23, 1963. The ITO found everything in order and recognized the continued registration of this firm. 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 s. 144 of the Act. He, however, passed an order refusing to register the firm under s. 185(5) for the reason that the assessment was made ex parte under s. 144 for non-compliance of notices under ss. 142(1) and 143(2) of the Act.
The assessee went up in appeal against this order refusing registration. The AAC held, and in our opinion correctly, that since the firm had automatically gained recognition under s. 184(7) of the Act, the ITO did not have power to refuse registration under s. 185(5) of the Act. The case fell under s. 184(2) whereunder the ITO could cancel registration of the firm on the ground that the assessment was made under s. 144; but this power could be exercised only after giving the firm at least 14 days notice intimating his intention to cancel its registration and after giving it a reasonable opportunity of being heard. Admittedly, neither any notice was issued nor any such opportunity was afforded to the firm. The order under appeal was held to be invalid. It was set aside with a direction to the ITO 'to reframe a proper order in law and under the proper provision after giving the statutory opportunity to the appellant of being heard'.
Aggrieved by this appellate order, the assessee went up to the Tribunal. The Tribunal short-circuited the entire thing by holding that having come to the conclusion that the order of the ITO was wrong, the AAC was wholly wrong in tendering an advice to the ITO and giving him a direction to pass a fresh order in accordance with that advice. The Tribunal went on to hold that the status of the assessee should have been treated as that of a registered firm.
The Tribunal has, at the instance of the CIT, referred the following question of law for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the AAC having come to the conclusion that the declaration under s. 184(7) of the I.T. Act, 1961, had been properly filed by the assessee and no change had taken place in the constitution of the firm during the relevant previous year, the filing of declaration having the effect of automatic recognition of registration for this year also, was wrong in tendering an advice to the ITO and in directing him to pass a fresh order in accordance with that advice and further in holding that the status of the assessee should be treated as that of a registered firm ?
The crucial fact relevant for determining the controversy whether the Appellate Assistant Commissioner was, in the circumstances, justified in remanding the matter, was whether the ITO had power to refuse registration under s. 185(5). Clearly he did not, as that provision applies at the initial stage of granting or recognizing registration. Subsequently, the ITO could, if at all, pass an order of cancellation of registration under s. 186(2) of the Act. That could be done after giving the requisite notice and opportunity of being heard. The AAC was aware of the situation that the assessment had, in fact, been passed under s. 144. That was a ground relevant for refusing registration as well as cancellation of registration. Since in the present case the firm had already gained registration under s. 184(7), the only material question was whether its registration could be cancelled. The ITO purported to do it but he did not exercise the appropriate power and in accordance with the prescribed procedure. In this view, it was but right for the AAC to have directed the ITO to proceed in accordance with law and follow the proper method. We are unable to agree with the view that the AAC gave any advice. This was not a case of tendering gratuitous advice to the ITO. He recorded a material and relevant finding and issued consequential direction.
Accordingly, we answer the question in the negative, in favour of the department and against the assessee. As no one has appeared for the assessee, there will be no order as to costs. The fee of the counsel for the department is assessed at Rs. 200.