Penalty cancellation based on factual settlement did not raise a referable question of law under tax reference provisions.

The Tribunal's finding that the assessee accepted the addition, withdrew the appeal to buy peace, and did so on the clear understanding that no penalty would be levied was treated as a finding of fact. On that basis, the Rajasthan HC held that the cancellation of penalty under section 271(1)(c) did not raise any referable question of law under section 256(2), and the reference application was rejected.

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Issues: Whether, on the facts found by the Tribunal, any referable question of law arose from cancellation of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Analysis: The Tribunal had recorded that the assessee agreed to the addition and withdrew the appeal to buy peace and avoid litigation on the clear understanding that no penalty would be levied. The finding was treated as a finding of fact. In such circumstances, the court held that the controversy did not give rise to a question of law warranting reference under section 256(2) of the Income-tax Act, 1961.

Conclusion: No referable question of law arose; the reference application was rejected.

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