There wasn't any reason to rip out the seats in the Bijou. They were renovating the building and there was no audience participation. The audience wasn't let in until the place had the "Grand re-opening". The only thing that happened of a destructive nature, was the silver screen was torn, while Mr Quill (Peter Sellers) was supposed to be repairing it, whilst up a ladder!
As stated previously, the scene appears in "Barnacle Bill" (aka "All At Sea"), in the cinema on the pier.
If you think through the film, logically, that scene could not have appeared in "The Smallest Show on Earth"; what would they have put in place of the seats? I could hardly imagine the "punters" standing, as though they were at a football match!