Reference under section 256(2) allowed where rejection of books and sustaining additions raised arguable questions of law.

The High Court held that the proposed questions raised under section 256(2) were fit for reference because they involved arguable issues on the rejection of books of account under section 145(1) and the sustainability of the addition made by the Tribunal. It found no reason to accept the Tribunal's refusal to state the case. The Tribunal was therefore directed to refer the questions of law to the High Court, and the reference application was allowed.

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Issues: Whether the application under section 256(2) of the Income-tax Act, 1961 deserved to be allowed and the Tribunal directed to state the case and refer the proposed questions of law, including the challenge to rejection of books of account under section 145(1) and the sustainability of the addition made.

Analysis: The Court found itself not satisfied with the Tribunal's view in rejecting the assessee's prayer for reference. It held that the proposed questions disclosed issues fit for reference, including whether the books of account were rightly rejected under section 145(1) and whether the addition sustained by the Tribunal could be upheld. On that basis, the Court directed the Tribunal to state the case and refer the questions to the High Court.

Conclusion: The application under section 256(2) was allowed and the Tribunal was directed to make the reference.

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