Penalty cancellation based on factual findings did not raise a referable question of law under the Income-tax Act

The Tribunal cancelled penalty under section 271(1)(c) on appreciation of the evidence and surrounding facts, and treated the matter as one turning on factual findings rather than any referable question of law. The High Court found no illegality or perversity in that approach and held that the proposed questions did not justify a reference under section 256. The refusal to refer was therefore upheld and the application under section 256(2) was rejected.

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Issues: Whether the Tribunal was justified in refusing to refer the proposed questions of law under section 256 of the Income-tax Act, 1961 on the ground that the order cancelling penalty under section 271(1)(c) was based on findings of fact and did not give rise to a referable question of law.

Analysis: The Tribunal had cancelled the penalty after appreciating the evidence and considering the facts and circumstances of the case. Its refusal to make a reference proceeded on the view that the cancellation of penalty rested on factual findings and that no perversity or other question of law arose from the order. On examination of the Tribunal's order, the High Court found no illegality in that approach and held that the proposed questions did not warrant reference.

Conclusion: The refusal to refer the questions of law was upheld and the application under section 256(2) was rejected.

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