Bona fide profit-sharing mistake did not justify cancellation of partnership firm registration; registration was restored.

The Tribunal held that registration of a partnership firm could not be cancelled under section 263 merely because profits were not divided exactly in accordance with the partnership deed, where the discrepancy was shown to be a bona fide and inadvertent mistake later rectified. It also found that the Commissioner had failed to consider the assessee's explanation and the supporting judicial authorities. On that basis, the cancellation of registration was unsustainable and the original grant of registration to the firm was restored.

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Issues: Whether the Commissioner was justified in cancelling the registration granted to the assessee-firm under section 263 on the ground that the profits had not been distributed exactly in accordance with the partnership deed, and in directing the firm to be assessed as an unregistered firm.

Analysis: The assessee's case was treated as factually identical to an earlier Tribunal decision on the same type of error in profit distribution. The Tribunal found that the Commissioner had not dealt with the assessee's contention that the discrepancy was a bona fide mistake, nor with the supporting High Court and Tribunal authority. On the material before it, the Tribunal accepted that the incorrect division of profits was inadvertent and subsequently rectified, and that the grant of registration was not liable to be disturbed on that basis.

Conclusion: The cancellation of registration under section 263 was not sustainable, and the order granting registration to the assessee-firm was restored.

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