Stock valuation dispute can raise questions of law fit for reference when Tribunal deletes a related tax addition.

A difference between closing stock value shown in the assessee's books and the higher value disclosed to the bank led to an addition that the ITAT deleted. The Kerala High Court held that the Revenue's proposed questions, especially questions 1 and 4, did arise as questions of law from the Tribunal's appellate order and were fit for reference under section 256(2) of the Income-tax Act, 1961. The reference application was allowed to that extent, and the Tribunal was directed to refer those questions with the statement of the case.

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Issues: Whether the questions proposed by the Revenue arose as questions of law from the order of the Income-tax Appellate Tribunal so as to warrant a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The dispute concerned a difference between the value of closing stock shown in the assessee's books and the higher stock value disclosed to the bank. The Tribunal had affirmed deletion of the addition made on that basis. The Court found that, on the facts stated, the proposed questions, particularly questions 1 and 4, did raise questions of law arising out of the Tribunal's appellate order and were fit to be referred for decision.

Conclusion: The reference application was allowed to the extent of questions 1 and 4, and the Tribunal was directed to refer those questions along with the statement of the case.

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