Rastogi, J.

1. THE Income-tax Appellate Tribunal, Delhi Bench 'B' in compliance with the direction of this court dated May 6, 1976, has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in cancelling the penalty ?"

2. THE assessment year involved is 1965-66. THE respondent-assessee, a private limited company, was engaged in the business of running a cold storage and manufacture and sale of kattha. For the aforesaid assessment year, the assessee filed its return showing an income of Rs. 1,74,613. During the course of the assessment proceedings the ITO found that the assessee had also purchased firewood trees at auction and that though transport charges in respect of firewood were debited in the accounts, the firewood transported from the jungle did not find a place in the books of account. On enquiry the assessee explained that it had consumed firewood in its boiler in the manufacture of kattha and part of the same was sold in the market for Rs. 28,624. Quantitative details of the firewood extracted and consumed in the manufacture of kattha were not available and hence the IT