Law:

Section:

Section 256(2) of the Income-tax Act, 1961 - Reference - Direction to tribunal to state question of law - ITO made additions to returned income by invoking provisions of section 145 - Tribunal did not permit revenue to rely on certain documents on the ground that no opportunity was given to assessee to rebut material contained in those documents and deleted impugned additions - Whether question of law arose from tribunal's order - Held, on facts, yes Facts The assessee, a registered firm, derived income from property, manufacture and sale of woollen yarn, shawls and woollen fabrics, etc. For the accounting year ended 31-3-1969 relevant to the assessment year 1969-70, it declared an income of Rs. 3,27,966 and filed an audited copy of the profit and loss account as well as the balance sheet. The ITO, however, found fault with the figures mentioned in the return and for various reasons estimated the sales at Rs. 70 lakhs and applied the gross profit rate of 25 per cent. He thus made an addition of Rs. 7,72,953 by invoking provisions of section 145. He also disallowed a claim of Rs. 83,766 as loss on exports without any discussion in the assessment order. On appeal, the AAC upheld the addition of Rs. 7,72,953. On further appeal, the department sought to support the impugned addition on the strength of a number of documents having a bearing on the excessive shortage and extra profit charged on sale of imported wool tops and yarn, etc. The Tribunal, however, disallowed the revenue's claim observing that no opportunity was given to the assessee to rebut the material contained in those documents. It deleted the addition of Rs. 7,72,953, holding that neither proviso to section 145(1) nor section 145(2) was applicable. It also dismissed the revenue's application for reference under section 256(1). On reference under section 256(2), the assessee pleaded that no questions of law arose out of the Tribunal's order because no plea was raised by the revenue before the Tribunal for giving the assessee an opportunity to rebut the material sought to be relied upon by the revenue. Held The impugned material could not be undoubtedly used against the assessee without giving it an…

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