Question of law on rejection of books and deletion of addition justified a reference under tax law

A question of law arose on whether the Tribunal had material to delete the addition and accept the assessee's book results, justifying a reference under section 256(2) of the Income-tax Act, 1961. The opposing view treated the Tribunal's findings as factual and therefore not referable, but the Court found prima facie that the material before the Tribunal was insufficient to support acceptance of the books as reliable. On that basis, the proposed question was held to involve a question of law arising from the Tribunal's order, and a reference was directed on whether there was material justifying deletion of the addition.

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Issues: Whether a question of law arose from the Tribunal's order so as to justify a reference under section 256(2) of the Income-tax Act, 1961 on the deletion of the addition of Rs. 6.50 lakhs and the acceptance of the assessee's book results.

Analysis: The petition sought a reference on the ground that the Tribunal had deleted the addition despite the material on record and had accepted the book results for the relevant assessment year. The opposing contention was that the Tribunal had returned a finding of fact comparing the results with the preceding year, making the proposed reference merely academic. For the purpose of the petition, the Court found prima facie that the material before the Tribunal was insufficient to sustain the conclusion that the books of account were reliable and could not be rejected. On that basis, the Court held that the proposed question involved a question of law arising out of the Tribunal's order.

Conclusion: The reference was directed and the Tribunal was required to state a case on whether there was material before it justifying deletion of the addition of Rs. 6.50 lakhs.

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