Prima facie disallowance under section 143(1)(a) can raise a referable question of law on deductible expenditure.

A prima facie adjustment under section 143(1)(a) based on the disallowance of prospecting licence charges raised a question of law, so the Tribunal erred in treating the matter as confined to fact and refusing reference. The question was therefore referable, and the assessee succeeded on that issue. Guest-house maintenance expenses, however, were treated as prima facie inadmissible under the Income-tax Act because of the specific statutory provision governing such expenditure.

---

---

Issues: (i) Whether the Tribunal was justified in refusing to refer the question arising from the prima facie adjustment under section 143(1)(a) in respect of prospecting licence charges claimed as deductible expenditure; (ii) Whether guest-house maintenance expenses were prima facie inadmissible under the Income-tax Act.

Issue (i): Whether the Tribunal was justified in refusing to refer the question arising from the prima facie adjustment under section 143(1)(a) in respect of prospecting licence charges claimed as deductible expenditure.

Analysis: The adjustment made under section 143(1)(a) on the footing that the expenditure was prima facie inadmissible gave rise to a question of law. The rejection of the reference application on the ground that only a finding of fact was involved was held to be erroneous.

Conclusion: The question relating to prospecting licence charges was held to be referable, and the assessee succeeded on this issue.

Issue (ii): Whether guest-house maintenance expenses were prima facie inadmissible under the Income-tax Act.

Analysis: The expense on maintenance of a guest-house was treated as prima facie inadmissible in view of the specific provision of the Act.

Conclusion: The guest-house expenditure was held to be prima facie inadmissible.

Final Conclusion: The application under section 256(2) was allowed and the Tribunal was directed to refer the question concerning prospecting licence charges; the assessee obtained the substantive relief sought on the reference issue.

Ratio Decidendi: A refusal to refer a question is erroneous where the controversy over a prima facie disallowance under section 143(1)(a) raises a legal issue and is not confined to a mere finding of fact.

---