Law:

Section:

Section 256, read with section 40A(8), of the Income-tax Act, 1961 - Reference - Question of fact - Whether Tribunal's finding that a payment exceeding Rs. 2,500 is made under exceptional circumstances and, therefore, is not hit by section 40A(3) is a finding of fact and where such finding as such is not challenged, no referable question could arise - Held, yes Facts The assessee-firm filed a return of income, for the relevant assessment year. On being asked, the assessee stated that no payment had been made in cash above Rs. 2,500. The assessing authority examined the cash book of the assessee and found that a sum of Rs. 35,000 was paid in cash to K. The assessee filed a reply along with copies of three letters claiming that the payment was made under exceptional circumstances at the request of K. The assessing authority disallowed the payment under section 40A(3) on the ground that the three letters produced did not bear any reference number and they were only an afterthought. The AAC confirmed the ITO's order. The Tribunal found that the impugned payment was made under exceptional circumstances and, therefore, was not hit by section 40A(3). Further, the Tribunal rejected the application seeking reference, as no question of law was invoked. On reference application under section 256(2): Held Whether the impugned payment was made by the assessee under exceptional circumstances, was a pure finding of fact based on the evidence and material before the Tribunal and that finding of fact was not challenged by the revenue before the Tribunal in the reference application under section 256(1) nor it had been challenged before the Court in the application under section 256(2). Therefore, the Court was bound by the same and could not go behind the finding arrived at by the Tribunal. Moreover, it could not be a case of avoidance of tax because the firm was also an assessee and the amount of Rs. 35,000 paid in cash was verifiable and the assessing authority could have cross-checked whether the said amount was in fact received by K. Thus, the application under section 256(2 ) was rejected. Cases referred to Registhan (P.) Ltd. v. CIT [1984] 146 ITR 620 (Raj.) and CIT v.…

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