TaxTMI 
TaxTMI 
1982 (6) TMI 40
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....ereafter, the first respondent passed a fresh order, Ex. P-4, fixing the tax liability of the petitioner. According to the petitioner, both the statutory authorities, respondents 1 and 2, committed serious error of law in regard to the refusal of registration of the firm under s. 185(5) of the I.T. Act, 1961. The petitioner would contend that the statutory authorities did not exercise their discretion in regard to this matter but proceeded on the misconception that refusal of registration is an automatic consequence of failure under s. 144 of the Act. The learned standing counsel for the Revenue rebutted these submissions and contended that both the authorities have exercised their discretion and in a proper manner and the same was not liable to be interfered with. There were parallel provisions in the Indian I.T. Act, 1922. Section 23(4) of that Act provided: " If any person failed to make the return required by any notice given under sub-section (2) of section 22 and has not made a return or a revised return under sub-section (3) of the same section or fails to comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return....
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.... found in two different limbs of the same section, there cannot be a better legislative pointer to indicate that the first is obligatory and the second is discretionary. We have no doubt that the statute does not compel the officer to deprive the assessee of the benefit of registration under the last part of section 23(4). In other words, it would be wrong to assume that the defaults listed in section 23(4) of the Act would lead to a twofold Penal consequence-: (1) a best judgment assessment, and (2) in the case of firms, refusal to register or cancellation of the existing registration, if any. It is, therefore, incumbent upon the Income-tax Officer to consider the question of registration on the materials available before him instead of refusing registration on the ground that a different conclusion would be illogical or not self-consistent." (emphasis supplied) In Trivandrum Tobacco Combines' case [1967] 63 ITR 813, a Division Bench of this court held that an order to the effect " in view of the fact that the assessment is completed under section 23(4), I would have refused registration under section 26A " is not sustainable since the ITO had not exercised his discretion. This....
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....th an altogether different matter. The observation that penalty of cancellation " can be " imposed under s. 23(4) supports the view that the power of cancellation is discretionary and not imperative. The provisions in s. 23(4) of the Indian I.T. Act, 1922, have been split up and incorporated in different sections of the I.T. Act, 1961, namely, ss. 144, 185(5) as also 186(2). Section 144 deals with the circumstances under which best of judgment assessment has to be made. It is on lines with the corresponding provisions of s. 23(4) of the earlier Act. The provision dealing with refusal to register the firm found in s. 23(4) of the earlier Act is now found in s. 185(5) of the present Act. Similarly, the provision regarding cancellation of registration obtaining in s. 23(4) of the earlier Act is now incorporated in s. 186(2) of the present Act. It appears, on a comparison of the corresponding provisions of the two Acts, that no significant change has been brought about in regard to the circumstances under which registration could be refused or cancelled. Under the present Act also the consequence of any failure mentioned in s. 144 is best of judgment assessment, expressed as " shall....
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....he assessing authority must be aware, while seeking to apply s. 185(5) of the Act, that it is discretionary to impose the penalty or refrain from imposing the penalty, that is, it is within his discretion to grant registration or refuse registration under that provision and it is bearing in mind this duality of power that the discretion must be exercised. If the assessing authority proceeds under the belief that the penalty of refusal of registration must inevitably follow the failure of the assessee to do anything as contemplated in s. 144, certainly, it cannot be said that the authority has exercised his discretion. It will be a case where the discretion has not been exercised. The discretion must be exercised one way or the other, not arbitrarily or capriciously, but in a lawful manner and consistent with judicial standards, on the basis of the materials and circumstances present in a given case. It has to be borne in mind that a firm, subject to the formalities and conditions prescribed, has a right to obtain registration certificate and enjoy the benefits flowing therefrom and cancellation made under s. 185(5) of the Act is in the nature of a penalty, depriving the assessee of....