Renewal of registration can be challenged in appeal where the assessment underlying the refusal has been set aside.

When a best judgment assessment under section 23(4) of the Indian Income-tax Act, 1922 is set aside and a fresh assessment is made under section 23(3), an earlier order refusing renewal of registration under section 26A does not survive if it was founded on that assessment. The assessee may then contest the status reflected in the fresh assessment in an appeal against that assessment, rather than being confined to a separate challenge against the earlier registration order. The legal basis of the refusal having disappeared, the issue could be raised in the appeal against the fresh assessment.

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Issues: Whether, after a best judgment assessment under section 23(4) of the Indian Income-tax Act, 1922 is set aside and a fresh assessment is made under section 23(3), the earlier order under section 26A refusing renewal of registration ceases to survive and can be challenged in an appeal against the fresh assessment.

Analysis: The refusal of renewal of registration was founded on the existence of the best judgment assessment. Once that assessment was set aside and a fresh assessment was made, the foundation of the earlier refusal order disappeared. In that situation, the assessee was entitled to contest the status adopted in the fresh assessment in so far as it reflected refusal of renewal of registration, and the appeal could not be confined only to a separate challenge against the earlier registration order.

Conclusion: The question was answered in the affirmative. The assessee was entitled to raise the issue in the appeal against the fresh assessment, and the answer was in favour of the assessee and against the Revenue.

Ratio Decidendi: When the legal basis of an order refusing renewal of registration disappears because the assessment on which it rests is set aside, the assessee may challenge the resulting status in the appeal against the fresh assessment.

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