This is assessee's appeal against order under s. 263 of IT Act , 1961 passed by CIT Jabalpur, setting aside order passed by ITO allowing continuation of registration to assessee firm and directing him to make fresh order after enquiring whether profits of firm have been divided between partners in accordance with profit sharing ratio as is evident by Partnership Deed. We have heard learned counsel for appellant and learned Departmental Representative. facts are that there was Sales-tax raid on business premises of assessee and it was detected that assessee was conducting business transactions outside books of account. ITO estimated sales outside books at Rs. 2,20,000 and estimating net profit at rate of 10 per cent he made addition of Rs. 20,000 (should have been Rs. 22,000) to assessee s income. CIT initiated proceedings under s. 263 on assumption that aforesaid extra profit earned on transaction outside books of account had not been distributed amongst partners in accordance with profit sharing ratio. In its reply filed before ITO assessee denied that any profit earned by assessee was not distributed amongst partners and asserted distributed amongst partners and asserted that profits were duly distributed as per profit sharing ratio as given in Deed of Partnership. learned Commissioner, however, passing aforesaid order relying upon certain rulings which we shall presently discuss. leaned counsel for assessee pointed out that there is no material whatsoever to hold that so-called extra profits were not distributed amongst partners in accordance with profit sharing ratio. He referred to assessee's reply before CIT in proceedings under s. 263 in which in paragraph 1 it was specifically stated that profits were duly distributed amongst partners. From order of learned Commissioner we find that Commissioner has not mentioned any evidence whatsoever on basis of which it may be assured that extra profits were not shared by partners in profit sharing ratio. His assumption that profits were not so shared is based on mere fact that extra profit was not recorded in account books and in account books only book profit was divided. Hon'ble Rajasthan High Court in case of CIT vs. Swaroop Chand Kojuram (1986) 54 CTR (Raj) 104: (1985) 154 ITR 660 (Raj) has held that non-disclosure of income is not one of grounds for cancellation of registration of firm under s. 186(1). Hon'ble High Court held that it would be fair to presume that undisclosed income would have been distributed among partners in same way as disclosed income had been divided and not ruling to contrary has been cited by learned Departmental Representative and, therefore, learned CIT was not authorised to assume that profits which were not accounted for in books had not been distributed amongst partners in connection with profit sharing ratio. learned Commissioner had relied upon judgment of Supreme Court in case of Khanjan Lal Sewak Ram vs. CIT (1972) 83 ITR 175 (SC). In that case Tribunal had found that firm had earned profits in black market and thought it had distributed its book profits among partners according to instrument of partnership it had not distributed profits earned by it in black market amongst partners according to instrument of partnership. On this basis Hon'ble Supreme Court held that assessee was not entitled to continuation of registration. This ruling is based on provisions of 1922 Act and referred to r. 6 of Indian IT Rules which required certificate from partners that profits have been divided or will be divided according to profit sharing ratio. Hon ble Supreme Court explained reasons for r. 6 in following words; "The reason behind r. 6 was that at relevant time registered firm as such was not taxable. Only partners of firm could be taxed. That being so, if portion of profits earned by firm was not divided amongst partners or credited to their accounts to that extent profits earned by firm escaped assessment. Therefore certificate contemplated by r. 6 is not mere formality. It has definite purpose. If portion of profits earned by firm was and actually divided amongst partners or credited to their accounts then only course open to ITO was not to register that firm and to tax partner of firm as AOP. By giving false certificate that profits earned by firm had been divided or credited in manner shown in application, assessee firm was trying to evade tax. Hence we must held that the assessee firm was trying to evade tax. Hence we must held that application for renewal of registration made by assessee did not comply with conditions prescribed in paragraph 3 of r. 6. Hence ITO was justified to refuse to renew registration". Now registered firms are also liable to tax and profits allocated in IT assessments return are assessed to tax in hands of partners as well and, therefore, distribution of profits in manner not in accordance with profit sharing ratio is not likely to affect Revenue adversely. In any case, as is evident from judgment of Hon'ble Supreme Court in that case Tribunal had found as fact that profits had not been distributed in accordance with profit sharing ratio. There is no such finding in case before us. As matter of fact, learned CIT appears to have got confused at one place he observes "I hold that assessee firm was not entitled to benefit of registration At another place he directs ITO to make fresh enquiries. learned Commissioner has also relied upon judgment of Hon'ble Punjab and Haryana High Court in case of CIT vs. Ram Saran Inder Singh (1973) 87 ITR 22 (Pat). In that case, in account books, profits were not divided amongst partners profit sharing ratio and after several years according to assessee instead of rectifying accounts executed deed of rectification rectifying original partnership deduction deed itself to bring profits sharing ratio in accordance with accounts. That was thus case of very different facts in which profits had admittedly not been divided in accordance with partnership deed in force and learned CIT has wrongly impressed this into service. Lastly, learned CIT relied upon case of Setha Ram Dhanvir Singh vs. CIT (1980) 123 ITR 150 (All) In that case also fact that profits had not been divided in accordance with profit sharing ratio provided in partnership deed. In account books profits were equally divided amongst six partners while according to partnership deed four partners had 2 Annas 6 pie shares each and other two had 3 Anna shares each. This too, thus was case in which profits had not been divided according to agreed profit sharing ratio. As already stated that profits have not been divided according to profit sharing ratio. In our view therefore, in absence of provision of nondivision of profits according to profit sharing ratio there was no reason for ITO to have refused registration. He rightly allowed continuation of registration and his order could not be said to be erroneous or prejudicial to interest of revenue. We are, therefore, unable to uphold order passed by learned CIT. We accordingly allow this appeal and quash order passed by CIT. In result appeal is allowed. *** GURU NANAK SARI BHANDAR v. INCOME TAX OFFICER