M.K. Srinivasa Iyengar, J.—The Income Tax Appellate Tribunal, Banglore Bench, has referred the following question under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court in R. A. No. 394 (Bang) 1974-75 on its file :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of the Explanation to section 271(1)(c) are not applicable to this case ?"

2. The commissioner of Income Tax had sought for referring three questions. But, the Tribunal referred only one question. Subsequently, the Commissioner moved this court in C. P. No. 18 of 1976 for directing further questions to be referred to this court. An order was made by this court dated December 1, 1976, in C. P. No. 18 of 1976 and, pursuant to that order, the following question has also been referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the penalty of Rs.5 lakhs levied under section 271(1)(c) of the Income Tax Act, 1961 ?"

3. As both the references arise out of the same order of the Tribunal, they are dispos