Law:

Section:

Section 256 of the Income-tax Act, 1961 - Reference - Question of law - Whether a question of law arose from order of Tribunal setting aside order of Commissioner (Appeals) on point of provision for contingency and restoring matter to IAC for computing income exactly in same manner as had been done in two earlier assessment years - Held, yes Facts In the return for the assessment year 1976-77, the assessee showed total income of Rs. 3,45,842 after claiming deduction of Rs. 19,92,263 for contingency provisions, the similar claim of the assessee had been disallowed in the earlier years 1974-75 and 1975-76. The assessing authority, in the present case allowed deduction of Rs. 5,97,867, only and disallowed the balance claim of Rs. 13,94,396. On appeal, the Commissioner (Appeals) observed that the excess sum of Rs. 41,84,285 which represented provision for contingency allowed in the trading account up to the assessment year 1975-76 was taxable in the assessment year 1975-76. He further stated that since there was a double addition of Rs. 13,94,396 in the contract account, deduction of Rs. 13,94,396 had to be given from the excess contingency of Rs. 41,84,285 and thus only sum of Rs. 27,89,889 was available to be brought to tax in the assessment year 1976-77. On second appeal, the Tribunal knocked off the enhancement made by the Commissioner (Appeals) and restored the matter to the IAC for computation of income exactly in the same manner as had been done in the assessment years 1974-75 and 1975-76. The Tribunal observed that the method of accounting adopted by the assessee in the assessment years 1974-75 and 1975-76 continued in the assessment year 1976-77 and since there had been no departure made by the assessee, there was no reason to make a total departure by holding that some of the provisions of the contingency made by the assessee did not qualify for deduction at all. The Tribunal also rejected the assessee's application for reference under section 256(1) on the ground that this was a question of fact. On an application for reference under section 256(2) : Held The income-tax law makes a distinction between an actual liability in praesenti and a liability de…

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