1. This is a reference under Sec.256(1) of the I.T. Act, 1961, made by the Income-tax Appellate Tribunal, Patna "A", for the assessment year 1965-66. The Tribunal has referred the following two questions of law for opinion of this court :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that no penalty could be imposed in this case under Sec.271(1)(c) of the Income-tax Act read with its Explanation ?

(2) If the answer to the above question is in the negative, whether the Tribunal was correct in folding that the quantum of penalty in this case was to be governed by the provisions of the law which were in force before April 1, 1968?"

2. From the statement of case submitted, the relevant facts that appear are these.

3. The assessee is a registered co-operative society manufacturing guns under licence from the Government. In the course of the assessment proceedings, the ITO found certain discrepancies between the balance in the Central Bank of India and the accounts of that bank in the books of the assessee. The balance as per books was Rs. 7,974 whereas the pass book showed a balance of Rs. 28,105. At the time of assessment,