1. These two appeals are by the revenue and relate to the assessment years 1976-77 and 1977-78. The appeals are against the orders of the AAC directing grant of registration to the assessee-firm.
2. The orders which were passed by the ITO under Section 185(1)(b) of the Income-tax Act, 1961 ('the Act') which are subject of appeal, were dated 27-3-1979 for the assessment year 1976-77 and 14-3-1980 for the assessment year 1977-78. For the assessment year 1976-77, the ITO merely wrote that the assessee-firm had entered into business for maintenance of the administration of Parvati Combines, Visakhapatnam, and as a matter of fact the firm had entered into a sham transaction and there was no real business. As it was a firm without real business activity, the ITO held that registration could not be granted. For the assessment year 1977-78, on the same basis registration was refused.
3. The matter went up in appeal. the AAC stated that the firm came into existence under a deed dated 1-4-1975 with four partners and it was stated that the nature of the business was to organise managerial service to two theatres--Geet and Sangeet--owned by another firm Parvati Combines. There were 4 partners there also who were the relations of the partners in the assessee-firm. The AAC came to the conclusion that the firm did carry on a business and on merits it was entitled to registration.
4. Before the AAC- however, a point was urged by the assessee that the ITO had promised to send the assessee the order of registration. The AAC stated that he found some sort of a draft order dated 27-2-1979 made by the ITO granting registration to the firm but that order was never communicated to the assessee and it was cancelled by the ITO on 27-3-1979, when another order refusing registration was passed by him.
According to the AAC, the expression 'order' in the Act meant an order of which the party affected has actual or constructive notice and since the assessee had not received the order in question, he could not accept the assessee's contention that the ITO's action by refusing registration was only a change in opinion. According to the AAC, the only order passed by the ITO was that communicated to the assessee and dated 27-3-1979. (This was the date of the order for 1976-77 for 1977-78 the date should have been 14-3-1980).
5. The revenue is in appeal. Before going to the contentions of the revenue, it is necessary to deal with the contention put forth on behalf of the assessee, viz., that the ITO was not competent to pass the impugned orders. This arose out of the point decided by the AAC on the plea put forth by the assessee that there was an earlier order dated 27-2-1979.
6. We have looked into the records and we find that for the assessment year 1976-77, there was an order dated 27-2-1979 duly signed by the ITO granting registration to the assessee. So also, for the assessment year 1977-78, there was an order duly signed by the ITO dated 27-2-1979 granting registration to the assessee. The AAC considered these to be draft orders because they were not communicated to the assessee. It is not necessnry that for an order to be final, it should be communicated to the assessee. The case relied on by the AAC, i.e., Petlad Bulakhidas Mills Co. Ltd. v. Raj Singh  37 ITR 264 (Bom.), deals with the point of limitation for filing an appeal or revision and not the finalisation of the order itself. We have very carefully considered the contentions of the learned departmental representative, in support of the conclusion of the AAC, but we are unable to subscribe to the same.
This is because under the provisions of Section 184 of the Act, an application for registration is to be made and on receipt of the application, the ITO is to process the same as required by Section 185 and if he is satisfied that there is a genuine firm in existence, he has to pass under Section 185(1)(a) an order in writing registering the firm for the particular assessment year. So also, Section 185(1)(b) says that if he is not so satisfied, he must pass an order in writing refusing registration to the firm. In the present case, an order under Section 185(1)(a) was duly passed by the ITO on 27-2-1979 when the said order had been signed by him. Section 186 of the Act provides that where a firm has been registered and the ITO is of the opinion that there was during the previous year no genuine firm in existence, he may, after giving the firm a reasonable opportunity of being heard and with the previous approval of the IAC, cancel the registration of the firm for that assessment year. Therefore, once the ITO passes an order under Section 185(1)(a), if he is to cancel the registration, he has to proceed under the provisions of Section 186. In the present case, the ITO, for the assessment year 1976-77, has left the order dated 27-2-1979 as it is and for the assessment year 1977-78, has just drawn two red lines across the order and made the endorsement 'cancelled'. It is not open, in our view, to the ITO to cancel an order passed by him granting registration under Section 185(1)(a) in the aforesaid manner.
It can be done only in a manner prescribed under law. If any authority is necessary in support of our finding, there are the observations of the Supreme Court in ITO v. S.K. Habibullah  44 ITR 809 where after referring to the observations of the Privy Council in CIT v.Khemchand Ramdas  6 ITR 414, 424 the Supreme Court observed as under: The orders of assessment are, subject to the provisions relating to appeals, revisions, reassessment and rectification, final; it is not open to the ITO to reopen the assessment because he thinks fit to do so. The provisions relating to assessments and rectification or reopening thereof are exhaustive, and may not be extended by analogies. The right to rectify an assessment may, therefore, be exercised in strict compliance with conditions prescribed by the statute in that behalf....
So also, the right to rectify an order granting registration can be exercised only in strict compliance with the conditions prescribed by the statute in that behalf and that is by having recourse to the provisions of Section 186. In the present case, the ITO did not have recourse to the provisions of Section 116 and, therefore, the orders passed by him on 27-2-1979 granting registration stand even today. In the face of such an order, the ITO for the same assessment year could not have passed an order declining to grant registration. He could do so only if he got the earlier orders out of the way in a manner recognised in law, which he has not done in the present case.
Therefore, the subsequent orders declining registration for the assessment year 1976-77 dated 27-3-1979 and for the assessment year 1977-78 dated 14-3-1980 are non est and have no validity in the eye of law. In view of this, the assessee-firm stands entitled to registration for both the years as long as the original orders granting registration dated 27-2-1979 stand. Those orders stand as on today and, therefore, there is no merit in the appeals of the department. In the view that we have taken, we do not go into any of the other contentions urged by the revenue because there is no valid order of the ITO as far as the present appeals are concerned on the basis of which it would be open to the revenue to urge any contentions before us.