Reference on penalty computation was warranted where the validity of the return raised a disputed question of law.

A disputed question of law arising from the Tribunal's order was held fit for reference under section 256(2) of the Income-tax Act. The proposed issue concerned levy and computation of penalty under section 271(1)(b) / section 271(1)(ii), and the legal validity of the return was treated as relevant to that computation. On that basis, the court found that a statement of the case and reference on the question of law were warranted, and the application was allowed.

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Issues: Whether the applicant was entitled to a direction under section 256(2) of the Income-tax Act, 1961, requiring the Tribunal to draw up a statement of the case and refer the proposed question of law on levy and computation of penalty under section 271(1)(b) / section 271(1)(ii).

Analysis: The question proposed by the Revenue arose out of the Tribunal's order and involved a question of law. The existence of a disputed legal issue concerning the validity of the return and its relevance for computing penalty made the matter fit for reference under section 256(2).

Conclusion: The direction for reference was warranted and the application was allowed.

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