Best judgment assessment does not automatically justify refusal of firm registration; discretion must be exercised on proper judicial grounds.

Failure to comply with a notice under section 22(4) may justify a best judgment assessment, but it does not automatically require refusal or cancellation of a firm's registration. The power to refuse registration is discretionary and must be exercised on judicial grounds, not arbitrarily or capriciously. On the facts, the books called for were produced and the record did not support any inference of suppression or withholding of undisclosed account books, so the default was not proved. Refusal of registration was therefore not justified, and the issue was resolved in favour of the assessee.

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Issues: Whether refusal of registration of the firm was justified on the alleged default in complying with the notice under section 22(4), and whether section 23(4) made cancellation or refusal of registration an automatic consequence of a best judgment assessment.

Analysis: Failure to comply with a notice under section 22(4) may attract a best judgment assessment under section 23(4), but the power to refuse or cancel registration in the case of a firm is couched in discretionary language. The use of "may refuse" shows that refusal of registration is not an inevitable consequence of every default leading to best judgment assessment. The officer must consider registration independently and exercise the discretion judicially, not arbitrarily or capriciously. On the facts, the material did not justify the inference that the assessee had withheld undisclosed account books or suppressed accounts; the books called for were produced, and the finding of default was unsupported by evidence.

Conclusion: The refusal of registration was not justified, and the question was answered in favour of the assessee.

Final Conclusion: A default leading to best judgment assessment does not by itself compel refusal of registration, and the discretion under section 23(4) must be exercised on proper judicial grounds.

Ratio Decidendi: Under section 23(4), best judgment assessment is mandatory on the specified default, but refusal or cancellation of registration of a firm is discretionary and cannot be imposed automatically without evidence justifying the inference of suppression or withholding of books.

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