JUDGMENT

PATHAK, CJI. :— These appeals, by certificate granted by the High Court of Kerala, are directed against the judgment of that High Court answering the following question of law referred to it in an Income-tax Reference in favour of the Revenue and against the assessee:

"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalties levied under S. 271(l)(a) of the Income-tax Act, 1961, for the assessment years 1965-66 and 1966-67 ?"

2. The assessee is a registered firm trading in hill produce. The assessee did not file its income-tax return under the Income-tax Act, 1961 for the assessment year 1965-66 within the statutory period, that is to say by 30th June, 1965, and instead applied for time to file the return. Time was granted up to 31st August, 1966. Yet no return was filed. It was only after notice under S. 139(2) of the Act was served on the assessee on 22nd September, 1967 that it filed a return on the next day. Similarly for the assessment year 1966-67 no return was filed up to 30th June 1966. No application for extension of time was made either. When notice under S. 139(2) was served on the assessee on 21st Ju