A finding of fact arrived at by the Tribunal is binding on the court and cannot be challenged in a reference application under section 256(2) of the Income-tax Act.

1. This is an application under section 256(2) of the Income-tax Act requiring the Appellate Tribunal to state the case and to refer the following question of law:

"Whether, on the facts and circumstances of the present case, the Tribunal was justified in holding that the payment of Rs. 35,000 was made by the assessee under exceptional circumstances and the same is not hit under section 40A(3) of the Income-tax Act, 1961."

2. The assessee-firm, non-petitioner, filed a return of income declaring an income of Rs. 84,862 on June 30, 1975, for the assessment year 1975-76. The assessee was asked to state whether there was any payment in cash above Rs. 2,500. The assessee stated that no payment had been made in cash above Rs. 2,500. The assessing authority scrutinised examined the cash book of the firm and found that a sum of Rs. 35,000 was paid in cash to M/s. Kishore Trading Co. on May 14, 1974. The assessee filed a reply on October 28, 1977, claiming that the payment was made under exceptional circumstances at the request of M/s. Kishore Trading Company which is also an assessee. Copies of three letters, one addressed to the assessee by M/s. Kishore Trading Co.and a reply by the assessee to Kishore Trading Co. and a confirmatory letter by M/s. Kishore Trading Co. were also filed along with the reply dated May 14, 1974. The assessing authority disallowed the payment as it contravened the proviso to section 40A(3) of the Income-tax Act as it found that the three letters produced did not bear any reference number and they were only an after thought. The assessee preferred an appeal and the Appellate Assistant Commissioner confirmed the findings of the Income-tax Officer and held that the Income-tax Officer had correctly disallowed the cash payment. On further appeal by the assessee, the Income-tax Appellate Tribunal by its order dated June 7, 1980, found that the payment of Rs. 35,000 was made under exceptional circumstances and, therefore, it was not hit by section 40A(3) of the Income-tax Act. The Commissioner of Income-tax, Jaipur, filed an application under section 256(1) of the Income-tax Act requiring the Tribunal to draw up a statement of the case and refer the question quoted above to the High Court for its opinion, but the Tribunal rejected the said application by its order dated January 5, 1981, as in its opinion no question of law arose from the order of the Tribunal dated June 7, 1980. It is in these circumstances that the Commissioner of Income-tax has filed the present application under section 256(2) of the Income-tax Act before this court. Notice was issued to the assessee and Shri N.M. Ranka with Shri N.K. Jain has put in appearance and have opposed the said application.

3. We have heard learned counsel for the parties and perused the record of the case. Learned counsel for the Revenue has vehemently argued that the assessee firm and M/s. Kishore Trading Company were sister concerns and belonged to the Bangad Group and that the assessee in the first instance had denied that any payment in cash above Rs. 2,500 was made during the assessment year 1975-76 and thereafter, when the cash book and account books were scrutinised and examined by the Income-tax Officer, the assessing authority, it was found that a payment of Rs. 35,000 was made in cash to M/s. Kishore Trading Co. on May 14, 1974, and the letters produced by the assessee, non-petitioner firm do not bear any reference number and is merely an after-thought and the evidence has been manufactured for the purpose of showing that it was on account of unavoidable circumstances that the payment was made in cash of Rs. 35,000. Therefore, it is contrary to section 40A(3) and amounts to evasion of tax. On the other hand, learned counsel for the assessee has also very vehemently argued that there is no question of law arising out of the order of the Tribunal and the question whether the payment was made under exceptional circumstances is a finding of fact and, there