JUDGMENT
1. At the instance of the Revenue, the Income-tax Appellate Tribunal referred the following question for the assessment year 1961-62 for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the order under Section 26A of the Indian Income-tax Act, 1922, dated November 8, 1965, for the assessment year 1961-62 ceased to exist in view of the fact that the assessment itself ceased to exist and that the Income-tax Officer should have passed a fresh separate order under Section 26A of the Indian Income-tax Act, 1922, at the time of making fresh assessment under Section 23(3)/27 of the Indian Income-tax Act ?"
2. The facts, as stated in the statement of the case, are that an assessment for the assessment year 1961-62 was framed under Section 23(4) of the Indian Income-tax Act, 1922 (briefly, the Act), on November 8, 1965. On that very date, the Income-tax Officer made an order under Section 26A of the Act refusing the renewal of registration to the assessee-firm. (order passed under Section 26A is not filed with the statement of the case),
3. An appeal was filed against the order refusing the renewal of registration by the assessee-firm, which was dismissed on the ground of being barred by limitation by the Appellate Assistant Commissioner. The best judgment assessment made under Section 23(4) came to be set aside later and then a fresh assessment order on merits was made on the assessee-firm. In that assessment, the Income-tax Officer took the status of the assessee-firm as that of "URF".
4. Aggrieved, the assessee-firm filed an appeal against the fresh assessment order made under Section 23(3), in so for as renewal of registration was refused by the Income-tax Officer thereunder.
5. The Appellate Assistant Commissioner rejected the appeal observing that a separate appeal was provided against the order made under Section 26A and this question could not be considered in an appeal filed against the order, made under Section 23(3) of the Act.
6. On further appeal, the Appellate Tribunal held as follows :
"The assessee, of course, availed of the right of filing an appeal against the order passed by the Income-tax Officer under Section 26A on November 8, 1965, and remained unsuccessful. A revision was also filed before the Commissioner, which as well was dismissed. In view of the fact that assessment itself ceased to exist, in our opinion, that order under Section 26A also ceased to exist. When the Income-tax Officer passed a fresh assessment order, he should have passed a separate order under Section 26A as well. In the present case, what he has done is that he has not passed any separate order under Section 26A as the appeal had been dismissed by the Appellate Assistant Commissioner as being time barred ... In our opinion this approach is not correct because while making a fresh assessment, he should have passed a separate order under Section 26A of the Act and if he had done so, then alone it could have been said that the assessee's right in the matter of registration was to prefer an appeal against such an order. When in the assessment order itself, the Income-tax Officer has considered this aspect, the assessee can dispute the status only in an appeal against the assessment order. (underlining*by court) In view of the matter (sic), appeal would also be maintainable . . . In our opinion, therefore, the matter has to be referred back to the Appellate Assistant Commissioner for decision of the question of registration afresh on merits and hence we restore the appeal to this file for that purpose- ..."
7. We see force in the reasoning given by the Appellate Tribunal. It will be seen that the basis of the order passed under Section 26A was that the best judgment assessment had been made by the Income-tax Officer under Section 23(4). So the renewal of registration was refused by way of penalty. Best judgment assessment having been set aside and fresh assessment having been made under Section 23(3), the basis of the order passed under Section 26A had disappeared. Therefore, the Tribunal was right in holding that when a fresh assessment order under Section 23(3) was made whereby the assessee-firm was treated in the status of URF, the assessee would have a right to appeal against that order, in so far as that relates to the refusal of renewal of registration.
8. Similar view was taken by the Andhra Pradesh High Court in CIT v. Vijaya Chemicals [19891 175 ITR 311.
9. The above mentioned question is, therefore, answered in the affirmative, that is, in favour of the assessee and against the Revenue.