This appeal filed by assessee is directed against order of AAC passed in IT Appeal No. 1012/80-81 dt. 30th Nov., 1983. assessment year involved in this appeal is 1973-74, assessee filed return admitting income of Rs. 74,508. This comprised of income from house property, professional income and interest. During course of examination of accounts. ITO found that assessee had sold timber during assessment year which amounted to Rs. 50,000. Income under this head was not disclosed either in return or in statements enclosed along with return according to ITO. This was found out while working cash inflow and outflow during assessment year according to ITO. assessment was completed on 31st Dec., 1973 on total income of Rs. 1,38,510. This included short term capital gains amounting to Rs. 15,000 as result of sale of timber, AAC, Salem, in his order dt. 14th July, 1977 in ITA No. 1278/75-76 reduced total income to Rs. 1,04,820 on appeal in matter of assessment. On further appeal, Tribunal in its order in ITA No. 1417 (Mds)/77 dt. 20th Dec., 1978 fixed income from sale of timber at Rs. 45,000. As result of order, total income of assessee was determined at Rs. 1,06,320. On there facts, notice under s. 274 read with s. 271 (1) (c) was issued to assessee to show cause why penalty should not be imposed for concealment of income. assessee sent reply dt. 16th April, 1979. In said reply it was stated that though ITO had made addition of Rs. 21,512 under head profession , this was deleted by AAC. It was also stated that Tribunal had not disturbed order of he AAC except in matter of capital gains. Under these circumstances, request was made to drop penalty proceedings. ITO was of view that assessee s representative has conveniently omitted to furnish his explanation as to why assessee had not shown income from sale of timber. Therefore, ITO came to conclusion that in absence of explanation given by assessee in respect of profit on sale of timber earned by him and not disclosed to Department, penalty under s. 271 (1) (c) is warranted in this case. Relying on decision in case of India Sea Foods vs. CIT (1978) 114 ITR 124 (Ker) and in case of Addl. CIT vs. E. Bhoopalthy (1978) 113 ITR 188 (Mad), ITO levied penalty of Rs. 13,500 under s. 271 (1) (c) of IT Act, 1961. Aggrieved, assessee has filed appeal before AAC. Before AAC, assessee made following submissions: ITO was not justified in initiating penalty proceedings under s. 271 (1) (c) since there was no concealment at all. There is no mention of any concealment in assessment order. assessee did not conceal at any stage any income. perusal of order of ITO will show clearly that assessee had disclosed sale value of timber at Rs. 40,000. It was also submitted that it is not taxable. ITO has nowhere stated that sum of Rs. 40,000 was suppressed by assessee and unearthed by Department. Again, ITO in his letter dt. 15th Dec., 1975 eventhough he has mentioned about sale proceeds of he timber, there is no whisper in said letter to effect that sale of timber was concealed to Department. ITO has himself accepted in his letter dt. 12th Dec., 1975 that sale of timber has been brought to notice of Department. ITO was not correct in relying on decision in case of India Sea Foods vs. CIT (1978) 114 ITR 124 (Ker) and in case of Addl. CIT vs. E. Bhoopathy (1978) 113 ITR 188 (Mad). These case are not comparable to facts of this case. On hearing appellant and going through records. AAC came to following conclusion: (i) appellant did not disclose capital gains on sale of timber in return of income field by him. In statement showing position of wealth as on 31st March, 1972 and 31st March, 1973 also there is no mention about sale of timber. It was in course of examination of statements with Bank accounts of appellant that ITO found that there was discrepancy between incomings and outgoings during previous year to tune of Rs. 50,000. (ii) appellant did not disclose fact of sale of trees either in return of income or in statement of wealth filed subsequently. appellant s contention that he had brought it to notice of Department is. therefore, not correct. (iii) From letter of ITO dt. 12th Dec., 1975, it is quite clear that assessee came up with information about sale of trees any when he was confronted by ITO with unexplained surplus assets of more than Rs. 50,000 On perusal of ITO s order it is, quite clear that appellant has not admitted income from sale of trees. (iv) In instant case also, appellant had accepted computation of capital gains in respect of sale of trees of extent of Rs. 40,000. decision of Madras High Court in case of Addl. CIT vs. E. Bhoopathy (1978) 113 ITR 188 (Mad) is relevant to appellant s case. For all these reasons, AAC agreed with view taken by ITO in levying penalty under s. 271 (1) (c) in case of appellant. Not satisfied with order passed by AAC assessee is in appeal before us. ld. counsel appearing for assessee submitted before us as under: AAC erred in confirming penalty levied by ITO for alleged concealment of short term capital gains on sale of timber. AAC failed to not that assessee was under bona fide belief that sale of timber which were sold with roots of "cultivated silver oaks" were agriculture sale proceeds and hence not liable for capital gains tax, that admittedly assessee had stated in statement enclosed to return of income that there were timber sale for approximately Rs. 50,000 that ITO had in his letter to assessee dt. 15th Dec., 1975 issued prior to assessment had proposed to assess said sale proceeds as receipts from adventure in nature of trade that ITO however, computed short term capital gains on sale of timber by estimating capital gains at 30per cent of sale proceeds on basis of order of ITAT, in case of M. K. Veeraiah Thevar, ITA No. 1017/73-74 that assessee had challenged levy as capital gains on sale of timber on ground that sale proceeds represented agricultural sale proceeds and said receipts were of capital nature not liable to be taxed under IT Act, that ITO was clearly aware of receipts by way of sale of timber and that in circumstances charge of non-disclosure of sales of timber was baseless. ld. counsel further stated that AAC had erred in stating in para 4 of his order that there was no mention about sale of timber in return. In this connection, ld. counsel pointed out that Department in its grounds of appeal filed in quantum appeal before Tribunal has stated that in statement excludes to return of income, assessee has clearly stated that during year, liability of Leelavathy was discharged out of timber sale of Rs. 50,000 approximately "The facts appearing in Addl. CIT vs. E. Bhoopathy (supra), is distinguishable on facts and said ruling is not applicable to facts of this case. Therefore it was pleaded that penalty under s. 271 (1) (c) should be cancelled. On other hand, learned Departmental Representative while supporting order passed by authorities below placed reliance on extract from order sheet entries filed by him. According to him, it was only after ITO put question to know how loan to Leelavathi was repaid that t h e assessee came forward by disclosing that loan to Leelavathi was discharged by sale of timber. We have heard rival submissions made by parties. This is appeal filed against order levying penalty under s. 271 (1) (c). appellant is advocate. appellant was maintaining no books of accounts. In course of assessment proceedings according to AAC appellant was asked to file statement of wealth from 31st March, 1972 to 31st March, 1973. On comparison of statement of wealth on 31st March, 1972 and 31st March, 1973 and on going through bank pass book, ITO found that income returned by appellant was not commensurate with accretion to wealth as on 31st March, 1973. In course of discussion with ITO, assessee s representative seems to have pointed out that out of surplus assets of Rs. 50,000, Rs. 40,000 represents sale of timber according to ld. AAC. On 12th Dec., 1975 ITO wrote letter to assessee asking him to furnish details of sale of timber and mode of receipt of sale proceeds etc. ITO again wrote letter dt. 15th Dec., 1975 stating that even after taking into account sale of land and timber sum of Rs. 21,512 still remains to be explained and that, therefore, he proposed to treat this as undisclosed income of appellant. Accordingly to AAC both these letters were not replied by appellant. ITO completed assessment taking short replied by appellant. ITO completed assessment taking short term capital gain at 30per cent of sale of timber at Rs. 50,000. assessee filed appeal against assessment to AAC. As regards short term capital gains, only objection taken by appellant was that ITO wrongly adopted sale of timber at Rs. 50,000 as against Rs. 40,000 admitted by appellant. There was no dispute regarding estimate of capital gains at 30per cent of sale proceeds. AAC accepted appellant s contention and reduced sale proceeds to Rs. 40,000 and capital gains to Rs. 12,000 (30per cent of Rs. 40,000). As against assessment Department filed appeal before Tribunal. Regarding short term capital gains, Tribunal held that sale proceeds should be taken at Rs. 45,000 Accordingly, short term capital gains was worked out to Rs. 13,500, i. e., 30per cent of Rs. 45,000. It is on this background, one of points made against assessee by AAC was that appellant did not disclose capital gains on sale of timber in return of income filed by him. According to him, even in return of income filed and in statements showing position of wealth as on 31st Jan., 1972 and 31st March, 1973 there was no mention about sale of timber. ld. counsel appearing for assessee submitted that conclusion arrived at by AAC is not correct. He has pointed out that even in grounds of appeal field by Department in quantum appeal before Tribunal in ITA No. 1417 (Mds)/77-78 it was stated as under: "In statement enclosed to return of income, assessee has clearly stated as under: "During year, liability of Leelavathy was discharged out of Timber sales of Rs. 50,000 approximately." Form this, is was contended that AAC was not correct in stating that t h e sale of timber was not disclosed even in return of income. Such statement was also shown to us. Under those circumstances, we are of view that assessee has disclosed sale of timber in statement enclosed to return of income. Another point made out by AAC against assessee was that it is after ITO put question as how loan to Leelavathi was discharged, assessee came forward with explanation that it was discharged from sale proceeds of timber. This cannot be obviously correct. Since assessee has stated in statement enclosed to return of income that during year liability of Leelavathy was discharged out of timber sale of Rs. 50,000 approximately under such circumstances we consider that assessee disclosed facts even prior to pointing out by ITO. Accordingly, we hold that assessee disclosed sale of timber in return of income filed. One of contentions raised by assessee was that ITO has not given definite finding as to concealment for levying penalty under s. 271 (1) (c). In this respect, we have seen assessment order as extracted by AAC in that ITO has clearly stated that there is suppression of income derived from sale of timber. Another ground raised by assessee in this appeal was that assessee under bona fide impression that sale of timber which were sold with roots (cultivated silver oaks) were agricultural sale proceeds and hence not liable for capital gains tax. In fact, this ground was taken even before AAC. But there was no discussion about this point in AAC order. Even in ITO s order also there is no discussion on this point even though in statement enclosed in return of income it was stated by assessee that during this year, liability of Leelavathy was discharged out of timber sale. Though in assessment proceedings assessee has not contested as to levy of short term capital gain on ground that sale proceeds of timber are agricultural sale proceeds and hence capital in nature, not liable to tax, still it is open to assessee to submit in penalty proceedings that assessee was under bona fide impression that sale proceeds of timber is not liable to capital gain-tax, and accordingly non-disclosure of same will not lead to conclusion that assessee concealed such income. penalty proceedings is independent proceeding. levy of penalty i s not automatic concomitant of assessment and that safeguards were provided for in Act it self to see that penalties were levied only in appropriate case [B. Muniappo Gounder vs. CIT (1976) 102 ITR 787 (Mad)]. Since penalty proceedings are penal in character, burden is on Department of establish that assessee in liable to penalty. Department must establish that receipt of amount in dispute constitutes income of assessee and that assessee has concealed particulars of such income. finding given in assessment proceedings for determining or computing tax cannot be said to be conclusive but it is good evidence which may be considered for coming at finding in penalty proceedings. Before penalty can be imposed, entirety of circumstances must reasonably point out that disputed amount represented income and that assessee had conclusively concealed particulars of his income or it deliberately furnished inaccurate particulars. [CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) and CIT vs. Khoday Eswarsa & Sons. 1972 CTR (SC) 295: (1972) 83 ITR 369 (SC)]. Question often arises whether receipt form sale etc., of trees, on freehold or leasehold land is of capital or revenue nature. If trees are removed together with their roots and there is no prospect of regeneration or of any production of return therefrom, it can be said that source ceases to be one which can produce any income. In such case. receipt form sale such trees is capital in nature [AK. T.K. M. Vishnudatta Antharjanom vs. Commr. of Agrl. IT (1970) 78 ITR 58 (SC), Oucheterlony Valley Estate vs. Commr. of Agrl. IT (1963) 50 ITR 18 (Mad), N. K. Leela Thampatty vs. Commr. of Agrl. IT (1972) 83 ITR 903 (Mad),. Commr. of Agrl. IT vs. H. Y. Casim Sait (1974) 94 ITR 467 (Mad), State of Kerala vs. Karimbeawi Tea Estate Ltd. (1966) 60 ITR 275 (SC), Nelleyappan Sastha & Bros. vs. Cammr. of. Agrl. IT (1972) 86 ITR 151 (Mad). Under such circumstances, when assessee sold silver oak s trees with roots, assessee could have entertained bona fide belief that sale proceeds of silver oak trees roots are not liable to capital gains -tax. "The preliminary responsibility to show reasonable cause is that of assessee. It is then task of ITO or AAC to satisfy himself whether cause advanced is reasonable or not. If assessee dose not give any cause at all, it is against task of ITO or AAC to satisfy himself whether circumstances which emerged from record indicate any reasonable cause or not. Insuch case. task of Officer concerned in reaching that satisfaction becomes very light . When, however, some reason has been advanced, it is his duty to examine it and find out whether it is reasonable or not in circumstances of case and situation of assessee". [ Addl. CIT vs. Dargapandarinath Tulijayya & Co. (1977) 107 ITR 850 (AP---FB)]. Dargapandarinath Tulijayya & Co. (1977) 107 ITR 850 (AP---FB)]. Thus on going through facts we hold that he assessee has disclosed sale of timber in statement enclosed with return of income filed. facts also warrant us to come to conclusion that assessee could have entertained bona fide belief that sale proceeds of silver oaks trees with roots are capital in nature no liable to capital gain-tax. Under such circumstances, it cannot be said that assessee has concealed any particulars with regard to sale of timber so as to attract provisions of s. 271 (1) (c) of IT Act, 1961. Accordingly, we hold that assessee has not concealed any particulars of his income of furnished inaccurate particulars of such income as contemplated under s. 271 (1) (c). In that view, of matter, we cancel penalty levied under s. 271 (1) (c) and allow appeal filed by assessee. In result, appeal is allowed. *** M. N. RANGACHARI v. SECOND INCOME TAX OFFICER