Discretionary refusal of registration must meet judicial standards; refusal unsupported where no material to infer concealed books.

Whether a revenue officer lawfully applied the proviso permitting refusal of firm registration after a best judgment assessment is addressed by distinguishing the mandatory duty to assess from the discretionary power to refuse registration; the discretion must be exercised with judicial standards and not as an automatic consequence of assessment. Non production constitutes 'default' only where there is material permitting a reasonable inference that additional concealed books exist; mere discrepancies or unconvincing explanations are insufficient. On the facts summarised, the specified books were produced and there was no material to infer withheld books, so prerequisites for treating the assessees as defaulters and refusing registration were not met.

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Issues: Whether the Tribunal was right in holding that the Income-tax Officer lawfully applied the proviso to section 23(4) to refuse registration of the firm under section 26A by treating the assessees as defaulters for not complying with the notice under section 22(4).

Analysis: Section 23(4) authorises the Income-tax Officer to make an assessment to the best of his judgment where an assessee fails to comply with notices under section 22, and in the case of a firm the officer "may refuse" or cancel registration; the statutory language distinguishes the obligatory duty to assess ("shall make the assessment") from the discretionary power to refuse registration ("may refuse"). The discretionary power to refuse registration must be exercised consistently with judicial standards and is not an automatic or inevitable consequence of a best judgment assessment. Non-production of books called for under section 22(4) constitutes default only where there is material from which it is reasonable to infer that undisclosed books or documents exist; mere discrepancies or unconvincing explanations do not alone permit a presumption that additional books were maintained and withheld. In the present facts the specified account books were produced and there was no adequate material to infer the existence of other concealed books; therefore the prerequisites for treating the assessees as defaulters for the purpose of refusing registration under section 23(4) were not established. The officer and the Tribunal failed to apply the discretionary standard properly in deciding to refuse registration.

Conclusion: The question is answered in favour of the assessees; the Tribunal was not correct in upholding refusal of registration under section 23(4) on the facts of the case.

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