Penalty cancellation and referable question of law arose where no finding was made on sufficient cause for delayed accounts.

Penalty under section 271(1)(a) of the Income-tax Act, 1961 was cancelled by the Tribunal on the basis of delay linked to finalisation of firm accounts, but no finding was recorded on whether there was sufficient cause for not finalising those accounts. That omission gave rise to a legal question on whether the cancellation could be sustained without such a finding, and whether the matter was referable under section 256(2). The High Court held that a question of law did arise and directed the Tribunal to state the case and refer the reframed question.

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Issues: Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty under section 271(1)(a) of the Income-tax Act, 1961 despite the absence of a finding that there was sufficient cause for not finalising the accounts of the firms in which the assessee was a partner, and whether such order gave rise to a referable question of law under section 256(2) of the Income-tax Act, 1961.

Analysis: The Tribunal had cancelled the penalty by accepting the explanation of delay linked to finalisation of the firm accounts, but it had not recorded any finding on whether there was sufficient cause for the non-finalisation of those accounts. In those circumstances, the order raised a legal question as to whether the Tribunal could sustain cancellation of penalty on that basis.

Conclusion: The question of law was held to arise, and the Tribunal was directed to state the case and refer the reframed question to the High Court.

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