JAGANNATHA SHETTY, J. ( 1 ) THIS is a reference under Section 256 (1) of the I. T. Act, 1961. The Income-tax Appellate tribunal, Bangalore Bench has referred the following question: "whether, on the facts and in the circumstances of the case, there should have been a specific order in writing under Section 184 (7) giving effect to continuance of registration to the assessee firm for assessment year 1974-75 before Income-tax Officer could cancel the registration under Section 186 (2)? ( 2 ) THE question required by the assessee for reference was not in this form. The assessee suggested the following two questions: (1) "on the facts and in the circumstances of the case, whether the Tribunal was justified in law in holding that registration to the assessee firm was rightly cancelled under Section 186 (2) of the Income-tax Act, 1961 for the assessment year 1974-75?" (2) "on the facts and in the circumstances of the case, whether registration for the assessment year 1974-75 can be cancelled without first granting the registration?" ( 3 ) THE assessee is a firm which had been registered upto the assessment year 1973-74. The relevant assessment year concerned in this case is 1974-75. The assessee filed a declaration in Form No. 12 and that declaration was within the prescribed time. The assessee could not file the return of income as required under Section 139 (1) on or before July 31, 1974. So, the income-tax Officer issued a notice under Section 139 (2 ). But there was no response from the assessee. Thereafter the Income-tax Officer issued two notices under Section 142 (1) requiring the assessee to produce the books of accounts. The assessee unfortunately did not respond to these notices also. Consequently the income-tax Officer made an assessment exparte under Section 144 and cancelled the registration of the firm under Section-186 (2 ). Before cancelling the registration under Section 186 (2) of the Act, the I. T. O. had issued a notice dated February 25, 1975 calling upon the assessee to show cause why the registration granted should not be cancelled. It appears, there was no reply from the assessee even to this notice. ( 4 ) HERE we may pause to mention one other fact. The I. T. O. did not intimate the date of hearing which is required to be given to the assessee under Section 186 (2 ). It appears, there was no reply from the assessee even to this notice. ( 4 ) HERE we may pause to mention one other fact. The I. T. O. did not intimate the date of hearing which is required to be given to the assessee under Section 186 (2 ). In fact, he did not fix any date for hearing the assessee. The assessee preferred an apeal to the appellate Assistant Commissioner. The a. A. C. held that the discretion exercised by the I. T. O. in cancelling the registration was not reasonable. He observed that since Form no. 12 had been filed in lime and that the assessee had been generally complying with the various provisions of the Act, the I. T. O. ought not to have cancelled the registration. The assessee appears to have urged before the A. A. C. that since no specific date of hearing had been given by the I. T. O. there was no opportunity of being heard to the assessee as required under Section 186 (2 ). The A. A. C. was not impressed with that contention. He said: "just because no specific date of hearing had been given, it cannot be said that opportunity of being heard had not been given to the appellant". He, however, held that, having regard to the circumstances of the case, the cancellation of the registration was arbitrary and the I. T. O. should have exercised the discretion in favour of the assessee and should not have cancelled the registration. He accordingly directed the i. T. O. to grant registration to the assessee firm. ( 5 ) THE Department took up the matter in appeal before the appellate Tribunal. The Tribunal after noticing the facts and circumstances of the case found that there was no judicial impropriety committed by the I. T. O. in exercising the discretion against the assessee by cancelling the registration. The Tribunal also dealt with the scope of Section 184 (7 ). It held that there is an automatic contuance of registration if the firm has been registered for prior years if two conditions are satisfied, namely, that there is no change the constitution of the firm and the declaration in the prescribed form is filed within time. The Tribunal also dealt with the scope of Section 184 (7 ). It held that there is an automatic contuance of registration if the firm has been registered for prior years if two conditions are satisfied, namely, that there is no change the constitution of the firm and the declaration in the prescribed form is filed within time. When these two conditions are satisfied, there would be an automatic continuance of registration and it was that continuance of registration which was cancelled by the I. T. O. under Section 186 (2 ). ( 6 ) ON the merits of the matter, the Tribunal however came to the conclusion that the exercise of discretion by the I. T. O. to cancel the registration was proper and justified. The primary question for consideration is whether, having regard to the facts and circumstances of the case, the I. T. O. was justified in cancelling the registration under Section 186 (2 ). Section 186 (2) reads:"if, where a firm has been registered or its registration has effect under sub-section (7) of section 184 for any assessment year, there is, onme part of the firm, any such failure in respect of the assessment year as is mentioned in Section 144, the Income-tax Officer may cancel the registration of the firm for the assessment year, after giving the firm not less than fourteen days' notice intimating his intention to cancel its registration and after giving it a reasonable opportunity of being heard. ( 7 ) THIS sub-section covers not only the firm which has been registered but also the firm whose registration has the effect under sub-section (7) of section 184 for any assessment year. Sub-section (7) of Section 184 reads: "where registration is granted to any firm for any assessment year, it shall have effect for every subsequent assessment year" proviso thereunder prescribes two condi. (i) that there is no change in the constitution of the firm or the shares of the partners as evidence by the instrument of partnership on the basis of which the registration was granted and (ii) the firm furnishes within the stipulated time under Section 139 (1) and (2) a declaration in the prescribed form and verified in the prescribed manner. If these two conditions are satisfied in the subsequent assessment year, registration granted to the firm for the earlier assessment year shall be continued to be operative even for the subsequent year. Sub-section (7) of Section 184 does not require any specific order to be made by the i. T. O. for continuance of the registration. If the assessee satisfies the two requirements under the proviso there-under, the earlier registration proprio vigore continues to operate for the subsequent year and the I. T. O. must assess the firm as a registered firm. A specific order may be necessary to discontinue the effect of registration and not to continue the effect of registration. ( 8 ) SECTION 186 (2) provides procedure for cancellation of the registration of the firm. It requires the I. T. O. to give not less than 14 days' notice to the firm intimating his intention to cancel the registration. It also imposes a duty on the I. T. O. to afford an opportunity of being head. The mere notice intimating the I. T. O's intention to cancel the registration of the firm is not sufficient. The I. T. O. must also afford an opportunity of being heard to the assessee in addition to the notice giving not less than fourteen days. ( 9 ) IN the instant case, all that the I. T. O. did was that he had issued a notice to the assessee firm giving 14 days' time intimating his intention to cancel the registration. It was hardly sufficient. Without affording an opportunity of being heard, the I. T. O. has no jurisdiction to cancel the registration granted to the assessee firm. The cancellation of the registration was, therefore, illegal. In the result, we answer the question in the nagative. We, however, hold that the cancellation of registration under Section 186 (2) was improper and illegal. --- *** --- .