Circumstantial evidence supported penalty relief, so no referable question of law arose for income-tax reference.

Circumstantial evidence was held sufficient to support the Tribunal's finding that the assessee surrendered the amount at the persuasion of the Income-tax Officer. On that basis, the proposed challenge to cancellation of penalty under section 271(1)(c) did not raise a referable question of law. Because the first proposed question was not referable, the dependent second question also failed. The application under section 256(2) for reference was therefore rejected, as no question of law arose from the Tribunal's order.

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Issues: Whether the Revenue was entitled to a direction under section 256(2) of the Income-tax Act, 1961 for reference of the proposed questions of law arising from the Tribunal's order, including the challenge to cancellation of penalty under section 271(1)(c).

Analysis: The Tribunal's conclusion was based on circumstantial evidence showing that the assessee had surrendered the amount in question at the persuasion of the Income-tax Officer. Circumstantial evidence is legally admissible, and the conclusion reached by the Tribunal was supported by such material. Since the first proposed question did not give rise to a referable question of law, the second question, being dependent on the first, also did not survive.

Conclusion: No question of law arose for reference. The application under section 256(2) was rightly rejected.

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