Om Prakash, J.

1. By order dated November 19, 1977, the Income-tax Appellate Tribunal (Delhi Bench-A, Delhi), has referred the following question under Section 256(1) of the Income-tax Act, 1961 (briefly "the Act, 1961"), for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the penalty of Rs. 46,500 paid by the assessee to the customs authorities on import of 'plastic sponges' constitutes an allowable deduction under Section 28 or 37(1) of the Income-tax Act ; or in the alternative, could the amount of the aforesaid penalty paid form part of the cost of the goods to be assessed?"

2. The facts as found in its order dated January 11, 1977, by the Appellate Tribunal in I. T. A. No. 4296 of 1974-75 pertaining to the assessment year 1971-72, briefly, are that the assessee had obtained licences for import from Agra Charen Kala Kendra Pvt. Ltd. and thereunder the assessee imported plastic sponges. The, Customs Authorities held that, under those import licences, the assessee could have imported only natural sponges and not plastic sponges but the latter had been illegally imported without any import licence. The Tribunal found that, under the