first appeal is by assessee and second one is by revenue. These are directed against common order of Commissioner (Appeals), by which he has partly sustained penalty imposed by ITO under section 271(1)(c) of Income-tax Act, 1961 ('the Act'). ITO imposed penalty of Rs. 5,23,427 which was reduced by Commissioner (Appeals) by his separate order to Rs. 22,620. assessee's appeal is against above retention of part of penalty imposed, while appeal by revenue is against deletion of Rs. 5,00,807, being balance of amount imposed. facts of case and background are identical. Accordingly, we consolidate appeals for disposal by this common order. 2. At first instance, we shall take up appeal by assessee in which it is submitted that Commissioner (Appeals) erred in sustaining penalty imposed to above extent as Commissioner (Appeals) has misdirected himself in holding that assessee claimed expenses which were of personal nature which amounted to fraud, gross or wilful neglect in furnishing return of income. It is also contention of assessee that merely on fact that assessee's explanation was not found satisfactory, it cannot be held that assessee had concealed part of income for penalty purpose and that without any positive evidence bringing home penalty to assessee, Commissioner (Appeals) has partly sustained order of ITO. It is also appeal by assessee that existence of mens rea or guilty intention has not been shown or established by authorities below. It is submitted that Commissioner (Appeals) has thereby violated principles of natural justice as penalty imposed in such item was not valid and proper on facts and in circumstances of case. It is submitted by assessee's learned counsel that actually there was no justification for Commissioner (Appeals) for changing figures of various items of disallowances which fact alone would go to show that penalty was wrongly sustained by him. 3. Briefly speaking in penalty order, ITO mentioned that assessee filed return showing loss of Rs. 9,89,905, which was completed by ITO under section 143(3) of Act, on total income of Rs. 6,72,863 on 29-3-1975. Return showing loss was filed on 21-2-1973. ITO invoked provision of Explanation to section 271(1)(c). Notice was issued to assessee and case was referred to IAC concerned, as minimum penalty imposable exceeded Rs. 25,000. He pointed out that assessment order was subject matter before AAC as well as before Tribunal and, therefore, proceedings were kept in abeyance till final disposal of appeal by Tribunal, which copy was received on 14-8-1980. He completed penalty order within limitation period. 4. Before passing order, ITO gave repeated opportunity to assessee to show cause why penalty should not be imposed under section 271(1)(c), but there was no compliance, and no written explanation was filed. In circumstances, ITO concluded that assessee had nothing to say and it was clearly at default and that in absence of assessee's reply, he had no option but to decide proceedings on merits and on facts of case. 5. He pointed out that after taking into account relief allowed by Tribunal, loss was reduced to Rs. 4,66,478. He pointed out that assessed income has been determined at such negative figure, i.e., Rs. 4,66,478 (loss), whereas assessee returned loss of Rs. 9,89,905 and after deducting assessed loss, balance of loss came to Rs. 5,23,427, which ITO treated to be representing concealed income of assessee. He referred to requirements of Explanation to section 271(1)(c). As mentioned above, assessee did not file any explanation or did not comply with show-cause notice issued by ITO. He, therefore, held that assessee's failure to return correct income was due to fraud, gross or wilful neglect on part of assessee and has concealed particulars of his income to extent of Rs. 5,23,427. He imposed minimum penalty and directed assessee to pay same accordingly. order was passed after obtaining prior approval of IAC concerned, whose order was stated to be dated 15-12-1980. 6. assessee filed appeal before Commissioner (Appeals), who heard assessee's learned counsel as well as ITO concerned, who appeared on behalf of department. Before Commissioner (Appeals) assessee filed written explanation, copy of which was sent by him to ITO for his comment, which was received and copy of which again was sent to assessee. Commissioner (Appeals) heard both sides at length. assessee's learned counsel contended that computation of penalty was absolutely incorrect as ITO has taken into account loss shown in return at Rs. 9,89,905 whereas total loss of Rs. 4,66,478 being income assessed. It was, however, pointed out that in ascertaining 20 per cent difference for purpose of Explanation, loss of earlier years brought forward should not be taken into account. It was clarified that loss of Rs. 9,89,905 included loss shown for year at Rs. 1,62,255. It was urged that ITO went wrong in taking into account loss brought forward from earlier years for purpose of present proceedings. Commissioner (Appeals) agreed with assessee on this point. He, therefore, considered that for penalty for present year under consideration, amount of Rs. 1,62,255 only which was returned loss for year, should be taken into account. 7. He pointed out that ITO has taken loss at Rs. 4,66,478 which was stated to be wrong as figure included earlier years' loss also. He found that after giving effect to order of AAC, income was reduced to Rs. 1,27,378 and after giving effect to Tribunal's order, income came down to Rs. 79,764, as against loss returned for year under consideration at Rs. 1,62,255. He considered provisions of Explanation to section 271(1)(c). On facts of case, he considered that figures which have to be taken into account for penalty purpose for year under consideration should be in respect of their returned loss at Rs. 1,62,255 and income assessed at Rs. 79,764, which would mean addition of Rs. 2,42,019. He pointed out that items of additions sustained by Tribunal were relating to groundnut and khali account for Rs. 1,67,195, soap account for Rs. 54,120, out of general expenses Rs. 29,669, and out of travelling account Rs. 3,904. These totalled to Rs. 2,54,888. small difference was due to certain adjustment in depreciation account. Commissioner (Appeals) was of view that section 271(1)(c), therefore, have to be considered in respect of Rs. 2,54,888 only, and ITO was wrong in not excluding earlier years' losses. 8. Before Commissioner (Appeals), on behalf of revenue, it was contended that assessee failed to comply with show-cause notice in spite contended that assessee failed to comply with show-cause notice in spite of repeated opportunities given to it, and, therefore, assessee should not be allowed to adduce any evidence at appellate stage against levy of penalty, which stand was resisted by assessee's learned counsel, as according to him, assessee did file application on 24-10-1980 for adjournment as director was busy and that, even before this in original proceeding before IAC, assessee filed letter dated 5-8-1977 and explained why penalty should not be imposed. It was, therefore, argued that even if ITO did not get proper reply from assessee, he has still to pass n order which would show what were various additions sustained by appellate authorities and that why ITO considered that assessee had committed fraud, etc., in respect of those items of additions sustained. It was urged that no new evidence was produced and all additions have been thoroughly discussed in assessment order and in order of appellate authorities. Commissioner (Appeals) found that no entries have been made i n order sheet for year to show that ITO had fixed hearing of penalty on 24-10-1980 and whether anybody appeared on that date. He also observed that even ITO's covering letter sending matter to IAC for approval was not on record and in circumstances it was not possible to verify whether assessee had applied for adjournment or not. Commissioner (Appeals) considered facts of case and development after assessment and he was of view that provisions of Explanation to section 271(1)(c) clearly were applicable, and, therefore, onus was on assessee to prove that there was no fraud, gross or wilful neglect on part of assessee in not furnishing correct return of its income. In this connection, reference was made to number of decisions of Hon'ble Allahabad High Court in which scope of Explanation had been considered, as in Rukmani Bahu v. Addl. CIT [1979] 116 ITR 468, etc. decision of Hon'ble Supreme Court in Addl. CIT. v. Swastik Mineral Corpn. [1979] 118 ITR 583 was also considered. 9. Commissioner (Appeals) went on to consider addition in respect o f Rs. 1,67,195, relating to addition in groundnut and khali account, which fact and details were dealt with in assessment order as well as order of appellate authorities. Briefly speaking, assessee was producing groundnut oil and khali by solvent extraction plant of its own. He pointed out that ITO noted that yield of oil was at 36.6 per cent as against 37 per cent of earlier year. yield of oil extracted by processing khali was 5.9 per cent. ITO noticed that there were lot of cuttings and erasures and additions in production register in respect of quantities of dana and he, therefore, did not accept production figures furnished in accounts. According to ITO, suppressed production of oil came to 674 quintals for which Rs. 3,06,670 were added. Similarly he came to conclusion that there were suppressing of production of khali of 157 quintals, for which Rs. 72,433 were added. For khali addition on account of suppressed addition was Rs. 22,640. Thus, total addition came to Rs. 4,01,745. On appeal by assessee, appellate authorities reduced addition to Rs. 1,67,195. contention of assessee before Commissioner (Appeals) was that sustained addition was on estimate and it has all along been case of estimate till stage of Tribunal. Extract of order of Tribunal dated 21-7-1980 (para 16) was reproduced in impugned order, which is necessary to be reproduced here also: "In view of this, we feel that authorities below are justified in discarding said register as not reflecting full and true record of assessee's production of groundnut seed from groundnut and thus resorting to making best judgment estimate of assessee's production. Once finding is reached that assessee's production of dana cannot be accepted at its face value on account of various defects pointed out in production register of assessee by authorities below and which have been upheld by us, no option is left to us but to estimate assessee's production." 10. It was argued on behalf of assessee that yield percentage cannot, in circumstances of case be uniform, depending on number of variable factors. It was stated that assessee had shown that during year most of groundnut was purchased from Hardoi and Lakhimpur Kheri Districts and quality of groundnut obtained from these areas was inferior, which resulted in lower production as compared to earlier years. assessee relied on certificate of oil expert and other association as placed before Commissioner (Appeals). Commissioner (Appeals). 11. In respect of addition, it was contended that mens rea and mala fide intention cannot be attributed and, therefore, in respect of such items, no penal action could be taken. It was also urged that addition was sustained by rejecting books of account and applying provisions to section 145(2) of Act, as held by Tribunal in para 30 of said order. It was stated by Tribunal in that order that numerous mistakes and discrepancies pointed out by ITO in assessee's production register, had not been denied by assessee and that such mistake would, however, merely justify resort to section 145(2) and making best judgment assessment. It was, therefore, urged that addition no doubt was sustained by resorting to estimates after applying said proviso. assessee's learned counsel went on further to argue that in circumstances there was no scope for consideration of imposing penalty as done by ITO. It was urged that mere suspicion alone would not warrant penalty as preponderance of probabilities would be sufficient to prove negative fact. According to assessee, there was no failure to return correct income which would amount to fraud or gross or wilful neglect and, therefore, onus that lay on assessee should be deemed to have been discharged particularly when there was nothing to suggest that assessee with guilty intention avoided lawful revenue. It was urged that element of mens rea has to be established by revenue. Reference was made to different decisions as in CIT v. Babu Ram Ajit Prasad [1977] 106 ITR 818 (All.), Addl. CIT v. Horilal Kunj Behari Lal [1977] 106 ITR 720 (All.), CIT v. Harnam Singh & Co. [1977] 106 ITR 532 (All.), CIT v. K.L. Mangal Sain [1977] 107 ITR 598 (All.), Addl. CIT v. Chatur Singh Taragi [1978] 111 ITR 849 (All.), Addl. CIT v. Smt. V. Kanakammal [1979] 118 ITR 94 (Mad.) and CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat.). 12. Commissioner (Appeals) considered facts of case and ratio of decisions relied on by assessee. According to assessee, ITO had not shown any fraud or gross or wilful neglect and that assessee h d discharged onus of proof that there was no fraud or gross or wilful neglect on part of assessee, and that addition was made merely on estimate. It was submitted that even if there was defect in accounts, penalty was not justified unless positive evidence was proved. It was also contended that in past also, assessee maintained accounts in same manner and there was no charge of suppressing sales or inflation of expenses. It was pointed out that there was nothing to show that assessee had really earned income outside accounts. It was stated further that production register was subject to scrutiny of different authorities concerned and even if some mistakes occurred in accounts, same would not mean that assessee was guilty of fraud or gross or wilful neglect as alleged. It was, therefore, submitted that penalty may be deleted entirely. 13. On behalf of revenue, it was urged that before ITO, assessee had failed to show cause in response to show-cause notice issued under section 271(1)(c) and in fact there was no compliance. department was also relying on decisions of different High Courts, to stress that penalty on facts of case was correctly levied. assessee concerned submitted written explanation which was considered by Commissioner (Appeals). It was stressed that there were numerous cuttings and overwritings in register and additions on both sides of page 26 of production register. It was also pointed out that subsidiary records on which entries or alterations were made, had not been produced before ITO and, therefore, manipulations noticed by ITO stand proved. Reference was made to observation of Tribunal in quantum appeal at para 16 of said order, in which it has been mentioned that production register which has been commented upon by ITO and AAC, was also produced before Tribunal and after going through same, Tribunal agreed with view of AAC in holding that such register cannot be regarded as verifiable and reliable record of assessee's day-to-day production. It was noted that there were numerous overwritings, etc., and assessee did not produce record of original entry, on basis of which corrections were made. It was pointed out that Tribunal noted that authorities below were justified in discarding production register as not reflecting full and true record of assessee's production of groundnut seeds from groundnut and thus resorting to making best judgment estimate of assessee's production. It was, therefore, urged on behalf of department that since assessee did not offer any explanation whatsoever in respect of various discrepancies ITO has correctly imposed penalty, relying on decisions as in Addl. CIT v. Swatantra Confectionery Works [1976] 104 ITR 291 (All.), Addl. CIT v. Brij Nandan Prasad Deen Dayal [1979] 119 ITR 959 (All.), Yelavarti Gopalakrishnaiah v. CIT [1968] 67 ITR 184 (AP), CIT v. Laxmi Auto Stores [1977] 106 ITR 626 (Ori.), CIT v. Gyan Prakash [1979] 116 ITR 513 (All.), Addl. CIT v. Ram Prakash [1980] 121 ITR 774 (All.), CIT v. Kedar Nath Ram N t h [1977] 106 ITR 172 (All.), F.C. Agarwal v. CIT [1976] 102 ITR 408 (Gauhati) and Chhotalal & Co. (Esso) v. CIT [1976] 104 ITR 500 (Guj.). It was urged, therefore, that penalty may be sustained in full. 14. Commissioner (Appeals) considered all authorities cited before him and ratio of various decisions. Commissioner (Appeals) went through observations of ITO and his findings as given in assessment order as well as in orders of appellate authorities on different points and he observed that though additions have been prompted by various difficulties pointed out in production register, additions have been entirely on estimate of production at different levels rather than positive finding of suppression anywhere. He also observed that there was no doubt that various overwritings, cuttings and erasures in production register and absence of subsidiary records had strengthened case of revenue for sustenance of such additions to groundnut and khali account. But he was of view that nowhere it has been shown that there was positive finding of suppression or production because if that was so, then only additions relating to such suppression or production would have been sustained. As pointed out earlier, he noted that addition was substantially reduced by appellate authorities and that too on estimate basis. It was stated also that Appellate Tribunal accepted yield of oil at certain percentage after making certain adjustment, which fact would go to show that in ultimate analysis additions have been sustained on account of low yield and supported by discrepancies in accounts, and there was case of rejection of accounts which have not been properly maintained. It was stated before Commissioner (Appeals) that there had been clerical mistakes in records by staff, which would not, however, mean that there was fraud or gross or wilful neglect on part of assessee, as accounts were audited and no serious defects were pointed out by audit, more so, when accounts were scrutinised by excise department. 15. Commissioner (Appeals) considered various submissions made before him and he found that contentions of assessee was valid. He referred to decisions cited before him in which it was held that department had not established that additions made would represent assessee's real income--Babu Ram Ajit Prasad's case. He also referred to other decisions as in Horilai Kunj Behari Lal's case and Harnam Singh & Co.'s case. He also considered other decisions as discussed by him in impugned order, before inferring that even if accounts were not properly maintained and additions were made to trading result, would not constitute fraud or gross or wilful neglect, unless it can be shown that assessee had income which was not accounted for. According to Commissioner (Appeals) although assessee's accounts have been found to have not been properly maintained as there were overwritings, cuttings and erasures, still additions to trading accounts have been maintained on estimate and there was nothing to show that assessee had earned some real income which he had not accounted for and which would certainly have made assessee-company guilty of fraud or gross or wilful neglect. He pointed out that if department in this case has been able to show some suppressed sales or purchases outside books, decisions would have been different entirely. He was, therefore, of opinion that even if additions were sustained in groundnut and khali account it cannot be said that there had been any concealment of income or furnishing of inaccurate particulars of income and assessee has, therefore, discharged onus cast on it under section 271(1)(c). According to Commissioner (Appeals) assessee has been able to show that its accounts have been kept in regular manner and that overwritings, cuttings, etc., could have been done by staff from day-to-day and that accounts have been maintained in same manner as in past and that trading results shown by it had been rejected merely on basis of low yield and estimated additions have been made at various levels. He found that explanation of assessee was reasonable beyond doubt and was in realm of preponderance of probabilities and, therefore, assessee has discharged onus, and once onus had been discharged, burden has shifted to revenue to prove that there was any fraud or gross or wilful neglect on part of assessee, which he found to be lacking in this case. 16. Commissioner (Appeals) also considered various decisions relied on by ITO before him. He went through ratio of those decisions, but he found that none of them supported view that where account books were rejected and income was estimated, penalty would be leviable. He, therefore, concluded that deletion of Rs. 1,67,195 sustained in groundnut and khali account by Tribunal would not tantamount to any fraud or gross or wilful neglect on part of assessee. He found that decisions relied on by assessee support case of assessee fully. He, therefore, directed that no penalty would be leviable on this addition. 17. revenue has come up in respect of above deletion. addition of Rs. 54,120 had not been sustained in soap account. Similar contentions were raised in respect of this account also on behalf of both sides. 18. Commissioner (Appeals) considered matter afresh and noted that addition in soap account was more on consideration of technical details and certain assumptions resorted to by ITO, learned AAC as well as by Tribunal rather than on bringing out any suppression of real income. Commissioner (Appeals) reproduced part of assessment order, in appellate order. He also reproduced conclusion of AAC as well as of Tribunal at para 46 and para 47 of impugned order. He noted that of course additions were prompted by discrepancies in accounts, but that very fact that estimates of suppressed production varied at level of ITO and before Tribunal, made matter clear that additions have been sustained on mere estimate and not based on finding of actual suppression supported by any unaccounted sale of stock. On similar reasons, he found that addition of Rs. 54,120 in soap account cannot be sustained. revenue has filed appeal in respect of this point also. 19. Commissioner (Appeals) also took into consideration other additions made on account of disallowances in respect of various expenses which were considered to be of personal in nature as well as disallowances sustained by Tribunal. Commissioner (Appeals) went through facts of case and findings of ITO as well as of appellate authorities in quantum appeal and was of view that if it was found that assessee has claimed certain expenses which were in nature of personal expenses, such claim would clearly tantamount to fraud or gross or wilful neglect on part of assessee and, therefore, Explanation to section 271(1)(c) would be applicable. He dealt with disallowances of Rs. 29,669, which included Rs. 12,049 on account of basa expenses, Rs. 5,620 on account of general expenses, Rs, 5,000 on account of car expenses and Rs. 7,000 on account of store account. In travelling expenses, Rs. 3,904 also had been disallowed. AAC held that part of expenses were for directors and accordingly sustained portion of disallowance of Rs. 12,049 and Tribunal endorsed that finding. Commissioner (Appeals), however, pointed out that AAC in quantum appeal had not stated as to how much was expenses for directors and, therefore, Commissioner (Appeals) estimated same at Rs. 5,000 for which Commissioner (Appeals) considered that expenditure was not bona fide claim for assessee's business purposes and, therefore, to that extent only penalty would be leviable. He noted that assessee had not been able to show any reasonable explanation or any preponderance of probabilities as to why this expenditure was claimed as business expenditure when it was clearly for directors' personal expenses. 20. Similarly in respect of general expenses, car expenses, disallowances out of stock account, Commissioner (Appeals) was of view that assessee had failed to discharge onus cast by Explanation to section 271(1)(c) and, therefore, penalty would be attracted in respect of such items. 21. In respect of travelling expenses, Commissioner (Appeals) noted that appellate authorities confirmed additions which, however, show that disallowance was for reason that there were no vouchers and purpose of journeys was not known. He had, therefore, held that no penalty was leviable in respect of these items. Accordingly, Commissioner (Appeals) sustained penalty relating to those similar items as mentioned (Appeals) sustained penalty relating to those similar items as mentioned above and deleted penalty relating to groundnut and khali account and soap account. Hence, appeal by revenue against deletion and appeal by assessee against retention of part of penalty. As noted above, facts of case and points involved are identical. 22. We shall take up appeal by assessee at first instance. It was submitted by assessee's learned counsel that there was no justification for Commissioner (Appeals) to sustain penalty even to above extent s , in fact, there was no fraud or gross or wilful neglect on part of assessee as to file return showing amount which was below assessed amount even after giving effect to appellate orders. It is urged that assessee did claim expenses specifically, but which were held to be in nature of personal expenses, but on that fact alone it cannot be argued that there was fraud or gross or wilful neglect on part of assessee, particularly when Commissioner (Appeals) failed to acknowledge and appreciate that merely on fact that explanation of assessee was not accepted, assessee cannot be held to have concealed particulars of income. It is urged also that there was no positive evidence to establish guilt of assessee but penalty was wrongly sustained by Commissioner (Appeals), specially without showing existence of mens rea or guilty intention on part of assessee. According to assessee's learned counsel, action of Commissioner (Appeals) was erroneous and contrary to principles of natural justice. It is also urged that as pointed out earlier, assessee has filed loss return of substantial amount, including loss of earlier years brought forward and that after giving effect to appellate orders, amount of such loss was reduced. It is contended that it was not case of concealing any income when, in fact, there was huge loss even after excluding loss brought forward for earlier years, from consideration. It is submitted also that in respect of those 4 items amounting to Rs. 22,620 which were made under different heads, ITO himself did not initiate penalty proceedings specifically, which fact would prove that ITO was not fully satisfy that such disallowances did not represent concealed income or expenses for purpose of Explanation to section 271(1)(c). It is also urged that there was no justification for imposition of penalty and even otherwise penalty was excessive and arbitrary. 23. At time of arguments, learned counsel for assessee also submitted that ITO who initiated penalty proceedings, referred matter to concerned IAC as per provisions of section 274(2) of Act, which was subsequently amended. It is urged, therefore, that ITO once correctly referred matter to IAC, would not get back that jurisdiction so as to empower him to pass penalty order as done in instant case. It is pointed out that relevant changes in section have been brought out with effect from 1-4-1976. It is stressed before us that in return assessee has shown loss and such loss was reduced as per order of appellate authorities and in such circumstances no penalty was called for. In this connection, assessee's learned counsel referred to decision in case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), in order to stress claim that if there were two possible interpretations, view that was favourable to assessee should be adopted. In this context, it is urged that Commissioner (Appeals) has referred to relevant observations and findings of Appellate Tribunal in quantum appeal in which according to assessee's learned counsel, addition was made on estimate, at every level right from ITO stage till stage of Tribunal and, therefore, disallowances could not be treated as basis for imposition of penalty, on facts of case. It is also urged that in present case returned loss was there and assessed loss was at reduced loss and in such situation penalty was called for as there is significance of word 'income', i.e., 'coming in' which is conceptually contradictory to 'loss'. Reference is made to decision of Hon'ble Madhya Pradesh High Court in CIT v. Jaora Oil Mill [1981] 129 ITR 423. Reference is also made to decision in Addl. CIT v. Murugan Timber Depot [1978] 113 ITR 99 (Mad.) in which similar situation was dealt with. It is assessee's case that on loss there would be no tax and, therefore, no penalty could be imposed. It is vehemently urged that even if provision of Explanation was applied, no penalty was called for as tax would be nil and such penalty cannot be imposed on negative income. 24. It is vehemently urged that expenses disallowed and partly sustained b y appellate authorities cannot be treated as basis for imposition of penalty as, in fact, that was not case of ITO for initiating penalty proceedings. In this connection, reference is also made to decision of Hon'ble Gujarat High Court in CIT v. Lakhdhir Lalji [1972] 85 ITR 77, in order to stress claim of assessee that in present case ITO had referred matter to IAC and after reference ITO did not get back jurisdiction to impose penalty and was as such without legal jurisdiction and, therefore, penalty on that score may be quashed. It is submitted further that even observation of Commissioner (Appeals) in penalty order did not find support from findings of Tribunal in quantum appeal and, therefore, conclusion of Commissioner (Appeals) was not justified, keeping in view fact that in past similar additions were made on account of similar expenses which had not been considered as concealed income of assessee on account of basa kharach, motor car expenses, etc. It is submitted, therefore, that in present case for year under consideration there was no justification for change of approach. Similar stress is made on fact that disallowances which were considered by Commissioner (Appeals) as concealed income for present purpose were only made on estimates. It is urged that claim may have been made wrongly but that would not justify imposition of penalty. assessee's learned counsel refers to various pages of paper book in order to stress his point. In short, it is urged that penalty in respect of these disallowances as per order of Commissioner (Appeals) in penalty appeal, cannot be sustained. 25. On other hand, learned departmental representative supports order of Commissioner (Appeals). It is submitted that in first instance there was no dispute that ITO had initially and legally initiated penalty proceedings which were referred to concerned IAC and penalty was imposed after observing legal requirements and as such order of Commissioner (Appeals) in respect of penalty order required to be sustained. Reference is made to decision of Hon'ble Allahabad High Court in case of CIT v. Om Sons 1978 Tax LR 922. It may be pointed out here that assessee's learned counsel has referred to decision of Tribunal, Chandigarh Bench, in case of Sudha Pharmaceutical (P.) Ltd., dated 30-7- 1983, copy of which has been placed in our file in order to stress case of assessee that penalty was wrongly imposed on facts of case, when there was no tax payable. learned departmental representative submits that facts of present case are distinguishable as accounting year followed by assessee and date of filing return were different. He refers to decision in CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.), in which it was stated that amount on which penalty was leviable was on figure which was finally assessed and it will also apply in case where assessee had suffered loss. It is stressed on behalf of revenue that on facts of present case, there was indisputably difference of returned income and assessed income and, therefore, application of Explanation was properly sustained by Commissioner (Appeals). It is urged, therefore, that even in respect of disallowances, Commissioner (Appeals) has given clear finding that assessee had failed to show that claims on different grounds was not due to any fraud, gross or wilful neglect on part of assessee. He refers to decision of Hon'ble Punjab and Haryana High Court in Kedar Nath Sanwal Dass v. CIT [1978] 111 ITR 440 in order to stress that penalty would be justified even on basis of finding that claim of loss was false. Reference is also made to two other decisions in Durga Dutta Chunni Lal v. CIT [1979] 120 ITR 319 (All.) and Kedar Nath Ram Nath's case. It is stressed that disallowances were expenses which were not for business purpose and that was why estimate of such expenses had to be resorted to by Tribunal, and fact remains that all authorities have agreed that such expense was falsely claimed by assessee. He also refers to decision of Hon'ble Allahabad High Court in case of Addl. CIT v. D.D. Lamba & Co. [1981] 128 ITR 564, in order to stress that burden is on assessee to show that income returned was on basis of book kept and that addition was made on basis of estimate, which resulted in addition but assessee has yet to show that failure to return correct income did not arise due to fraud, gross or wilful neglect on part of assessee, which in instant case, assessee had failed to discharge. It is also submitted that disallowances had been sustained even by Appellate Tribunal in quantum appeal and, therefore, application of proviso to section 271(1)(c) cannot be challenged. 26. We have heard both sides at length and we have gone through orders of authorities below for our consideration. It is seen that ITO did make disallowances in respect of various items of expenses claimed by assessee to have been incurred for purpose of his business, which were found by ITO as well as by appellate authorities to be not so. Of course, ITO disallowed higher amount while appellate authorities reduced such disallowances as discussed briefly in earlier paragraphs. We have gone through various authorities cited by both sides for our consideration. In our opinion, fact that addition was made on estimate, would not be sufficient to say that provisions of Explanation were not attracted. In fact, in instant case, it has been found before ITO that no response was made and no show cause was shown by assessee when called upon to show cause by ITO under section 271(1)(c). In our opinion, non-submission of any explanation before ITO would by itself justify imposition of penalty. It is seen that before Commissioner (Appeals) assessee did furnish explanation in respect of various disallowances as discussed by us in preceding paragraphs and as recorded by Commissioner (Appeals) in impugned order. It is seen, however, that all authorities below as well as Tribunal retained part of disallowances of such expenses. True estimate was resorted to in determining such disallowances. But fact remains that returned income and assessed income even considering disallowances only, was very much there. burden was on assessee as per requirements of provisions of said Explanation. After considering findings of authorities in quantum appeal as well as in impugned order of Commissioner (Appeals) and after taking into consideration submissions of both sides, we find that assessee has not discharged burden of proof that returned income was not correctly made, which resulted in difference between assessed income and returned income as such. In circumstances, we are of view that Commissioner (Appeals) was justified in coming to this conclusion as far as items relating to disallowances, etc., were concerned. We find no justification to interfere with this part of order, which we hereby sustain. 27. We shall now come to appeal by revenue being IT Appeal No. 361 (All.) of 1982. As indicated earlier, facts and background of case are same. But department has brought this appeal against deletion of part of penalty relating to claim that assessee did conceal income in groundnut, khali account and soap account. It is submitted that initially it has to be considered whether all columns of return have been correctly and properly filled up by assessee in order to ascertain whether there was any difference of returned income and assessed income. learned departmental representative highlights point that assessee has claimed higher amount of losses which were inclusive of loss brought forward from earlier years and there was no basis for Commissioner (Appeals) for changing figures adopted for present purpose. Reference is made to decision in Kedar Nath Sanwal Dass's case in order to stress claim that there was finding in assessment proceedings and appellate proceedings that claim made by assessee was false and on that basis alone materials were sufficient for imposition of penalty. Reference is made to another decision in Rajpal Automobiles v. CIT [1979] 116 ITR 436, decided by Hon'ble Allahabad High Court, in which one item of income was not shown in return and no explanation was offered and that claim that omission was due to assessee's illiteracy was not accepted. It is pointed out that in present case also assessee did not furnish any explanation to ITO when called upon to do so and, therefore, there was no presumption that ITO acted on surmises only. It is stressed that when no explanation was furnished to ITO, how can assessee now come and claim that there was no concealment of income or there was no fraud or gross or wilful neglect on part of assessee when penalty had to be imposed by ITO and at that stage. It is submitted that it was not burden of ITO to establish that there was guilt of assessee in this respect. Reference is made to decision in Hanutram Ramprasad v. CIT [1978] 112 ITR 187 (Guj.). Reference is also made to another decision of Hon'ble Allahabad High Court in case of D.D. Lamba & Co., in which burden cast on assessee so far as Explanation to section 271(1)(c) is concerned, was dealt with. It is urged that in instant case Tribunal in quantum appeal had given finding that entire claim of assessee cannot be conceded to. Certain observations and findings of Tribunal in quantum appeal have been referred repeatedly, as noted by Commissioner (Appeals) in impugned order. It is urged that those findings of Tribunal are conclusive findings of fact that accounts of assessee did not reflect correct income and in particular production register did not record certain transactions which were held by ITO earlier to be transactions outside books of account. It is, therefore, urged that it would be different preposition to say that accounts had been rejected under section 145 and even then assessee would still have burden cast on him, to discharge. It is urged that in present case there were reasons recorded by ITO and as substantially sustained by Tribunal, that there were transactions on basis of which additional income of assessee had to be computed and added. It is urged in circumstances and facts of case supported by findings in quantum appeals till it was disposed of by Tribunal would do to show and establish that penalty imposed by ITO was justified beyond doubt. Reference is made to different paragraphs of order of authorities, given in quantum appeal, copies of which have been filed before us. Thus, it is urged that Commissioner (Appeals) was palpably wrong in cancelling penalty even after considering additions made on account of groundnut, khali and soap account. Reference is made to decision as in V. Subramonia Iyer v. CIT [1978] 113 ITR 685 (Ker.). 28. learned departmental representative highlights findings made b y ITO in assessment order that there was suppression of sale and other transactions which was not recorded in books of account, which brought out addition and which was conclusively sustained by Tribunal though there was some relief. It is urged, therefore, that these facts would speak for itself and, therefore, Commissioner (Appeals) made mistake of fact and law in cancelling penalty relatable to groundnut oil, khali and soap account. It i s submitted, therefore, that taking totality of facts and in circumstances of case, keeping in view decisions cited, and submissions made before us, this part of order of Commissioner (Appeals) requires to be reversed and appeal by revenue may be allowed. 29. learned counsel for assessee, however, supports order of Commissioner (Appeals) so far as deletion of penalty amount relating to khali, groundnut oil, soap account, is concerned. It is urged that even before to khali, groundnut oil, soap account, is concerned. It is urged that even before ITO no explanation was filed, appellate authorities would have to consider assessee's explanation in order to ascertain whether penalty would lie. Reference is made to decision of Hon'ble Kerala High Court in V. Subramonia Iyer's case. According to learned counsel, prior approval of IAC concerned should have been obtained and there was no finding on that score. Reference is made to comment of Palkhivala, Vol. 1, 2810, etc., in order to stress another fact that income was returned at loss and was so assessed at lessor figure and no tax was payable, therefore, no penalty would b e attracted. According to assessee, Explanation to above section was not attracted at all as return was loss and appellate authorities in their turn, allowed certain relief and after excluding losses of earlier years, there was only small difference, if at all. It is urged that there was no positive income at all so as to constitute basis for imposition of penalty. It is urged that only income alleged to have been concealed could for argument sake, be considered for purpose of penalty, as was view of Hon'ble Madhya Pradesh High Court in case of Jaora Oil Mill. assessee's learned counsel stresses inapplicability of provision of Explanation. He repeatedly refers to decisions of first appellate authority in quantum appeal as well as in penalty appeal to highlight claims of assessee. It is different matter if explanation of assessee was not found satisfactory, but on fact alone, penalty could not be imposed. 30. It is also stressed by assessee's learned counsel that finding in assessment order is finding by itself and in quantum proceedings, additions in such ground may be sustained. But it is urged that it is different matter for purpose of penalty. It is stressed again that even Tribunal in quantum appeal had resorted to estimates as far as production of oil, soap, etc., was concerned. He also draws our attention to certificate regarding production, as per copy placed at page 10 of paper book to stress claim that production of these products cannot remain consistent throughout years as factors may vary. It is assessee's case that assessee has discharged onus cast on him as there was preponderance of probability that failure to file correct income was not due to fraud or gross or wilful neglect on part of assessee and Commissioner (Appeals) has already come to conclusion that Explanation was not applicable. It is urged that penalty was imposed on hypothetical basis without giving finding that there was income which assessee had earned, but had failed or had deliberately kept outside books of account. It is submitted that it is not sufficient for department to rely on findings made in quantum appeal. It is urged that on facts and in circumstances of case and in view of findings of Tribunal in quantum appeal as well as in finding of Commissioner (Appeals) in penalty appeal impugned before us, appeal by revenue may be dismissed. 31. We have gone through detailed facts of case as noted in orders of authorities below as well as in quantum appeal and findings of different authorities given therein. We have also gone through different case laws cited before us by both sides. We have also taken into account contentions of both sides for our careful perusal. At this stage, we have to refer again portions of Tribunal's decision in quantum appeal as referred to in impugned order as well as in contentions by both sides. At outset, it has to be taken note of fact that before ITO assessee has not furnished any explanation or shown cause when called upon to do so by ITO in course of penalty proceedings. In our opinion, ITO was justified in proceeding with case and come to his conclusion. Of course, before Commissioner (Appeals), assessee made various submissions and contentions which were duly considered by Commissioner (Appeals). So before us also we have to take stock of all these circumstances. In assessment order, ITO has pointed out to production register, which according to him, was effected by assessee outside books of account, which facts were noted by Tribunal as well. Appellate Tribunal at para 16 of quantum appeal amongst other things observed that it had also perused production register referred to by authorities below and after considering said register, Tribunal was one with AAC in stating that said register cannot be regarded as verifiable and reliable record of assessee's day-to-day production as there were erasures, overwritings, cuttings and as ITO had pointed out that assessee did not produce record of original entry on basis of which various cuttings, etc., might have been done by assessee from time to time. Tribunal concluded that authorities below were justified in disregarding production register as not reflecting full and true record of assessee's production of oil from groundnut and, thus, best judgment estimate of production, had to be made. It is also seen that assessee did furnish explanation which Tribunal found to be too general and vague to be of much help, more particularly when actual purchases made by assessee were subject to laboratory analysis, while considering claim of assessee that there was poor crop during year. 32. Amongst other things, Tribunal also considered central excise register, but Tribunal observed that such register cannot be relied upon for giving total picture of assessee's production for part of input was not recorded therein. Tribunal dealt at length various facts and figures of purchases of raw materials, production, etc., in respect of khali account, oil account as well as soap account and came to conclusion as it was done by it in order referred to earlier. 33. ITO noted in penalty order that there was concealment of income by assessee for which penalty was called for. Commissioner (Appeals) considered various decisions cited before him in coming to conclusion that assessee has discharged onus cast by Explanation to section 271(1)(c) in respect of these accounts, that there was no fraud or gross o r wilful neglect on part of assessee. According to Commissioner (Appeals), once onus was discharged, onus shifts to revenue to prove that there was fraud on part of assessee to conceal income, etc. Commissioner (Appeals) at para 31 of his impugned order amongst other things noted that ITO referred to non-production of subsidiary records, so that real nature of these alterations could be seen. Commissioner (Appeals) went through various orders and according to him, though additions sustained have been prompted by various difficulties pointed out in production register, additions so sustained have been entirely on estimates of production of different levels rather than on positive finding of suppression of production anywhere. In our opinion, this observation of Commissioner (Appeals) is not sustainable, as Tribunal in quantum appeal did not act as alleged. Tribunal did consider facts and figures in appeal did not act as alleged. Tribunal did consider facts and figures in t h e quantum appeal before coming to conclusion that even excise register cannot be relied upon for giving total picture of assessee's production, for part of input is not recorded therein (para 18 middle as well as at page 15 top) of order of Tribunal referred to earlier. It is seen, further that Tribunal considered analysis in respect of claim of assessee regarding extent of driage, shortage, etc. Apart from that, Tribunal took note of fact that assessee, as pointed out by ITO, used fillers for manufacturing of soap as result of which weight of soap should have been increased considerably. That apart, we feel obliged to refer to para 36 of order of Tribunal which was given after different submissions of parties, were considered. It was noted that estimate regarding production of soap was to be best of judgment and after due consideration of technology aspects or manufacturing of soap. It was specifically noted by it that one significant thing was absence of any denial by assessee in respect of everment made by ITO that in order to manufacture soap, soap caustic soda solution of 36 Degree BE was ideal solution. consumption of caustic soda was also dealt with by Tribunal before coming to factual conclusion that one-fifth of production of soap was not reflected in books of account of assessee. It was observed that it was open to assessee to show that certain unit of caustic soda had gone wasted, and no such attempt had been made to dislodge inference and finding of ITO in this respect. 34. Thus, in view of various facts brought out by Tribunal in order, it would be uncharitable on part of Commissioner (Appeals) in impugned order, to say that even in quantum appeal, Tribunal has resorted to estimates on basis of which, penalty cannot be imposed. close reading of order of Tribunal referred to, would not support such inference drawn by Commissioner (Appeals). In fact, it is seen that additions on various amounts have not been made as accounts of assessee had to be rejected outright. But it is seen that additions had to be made as register or books of accounts claimed to have been maintained, did not record production as found and noted by Tribunal in quantum appeal. 35. In view of provisions of Explanation, initial burden is cast on assessee to show that there was no gross, fraud or wilful neglect on part of assessee. We have gone through various submissions and other papers placed before us for oar consideration as well as various decisions relied on by both sides. We find that in view of specific and factual findings given by Tribunal, that assessee in penalty proceedings had not discharged burden of proof cast on it and, therefore, Commissioner (Appeals) went wrong in inferring and concluding that assessee had discharged burden cast by above provision and, therefore, burden of proof had shifted to revenue to show that there was fraud or gross or wilful neglect on part of assessee. In this connection, we may refer to decision in CIT v. Anantharam Veerasingaiah & Co. [1975] 99 ITR 544 (AP) in which it has been held that intangible addition was made for which explanation of assessee had to be considered before taking any adverse inference. Thus, in present case, we have to consider various aspects as discussed by us in preceding paragraphs. At this stage, it may be pointed out that assessment year involved was 1972-73 and assessee filed return on 21-2-1973 and assessment was completed on 29-3-1975. contention of assessee was that ITO who imposed penalty had no jurisdiction in view of change of law in this respect and, therefore, once reference was made to IAC, ITO did not get back jurisdiction so as to impose penalty in present case. In similar situation, in case of CIT v. Balabhai & Co. [1980] 122 ITR 301 (Guj.), it was held that IAC retained jurisdiction to deal with penalty proceedings in accordance with law which was prevalent at time when proceedings were initiated. Similar was view of various High Courts. But on this point, we have to refer other decisions of our Hon'ble Allahabad High Court. At this stage, we may refer to decision of Hon'ble Allahabad High Court in case of CIT v. Ram Lal Vohra [1981] 129 ITR 473, in which it was held that after amendment of section 274(2) with effect from 1-4-1971, it was ITO who had jurisdiction to impose penalty and not IAC. We would also refer to another decision given by Hon'ble High Court in case of CIT v. Smt. Raj Rani Devi [1979] 116 ITR 358 (All.), in which it was held that in similar situation in view of amendment of said section, IAC had no such jurisdiction on date when penalty order was passed. In case of Om Sons (as relied on by learned departmental representative), Hon'ble Allahabad High Court has held that it is committed to view that Court or Tribunal deciding matter must not only be possessed of jurisdiction initially but must also be clothed with power to decide matter when final order is made. In that decided case, ITO initiated proceedings and referred matter to IAC, who imposed penalty on 29-11-1971. But meanwhile section 274(2) was amended with effect from 1-4-1971. It was held that IAC did not have jurisdiction to impose penalty in such matter. It was held that on date when penalty order was passed, jurisdiction of IAC to do so, had been taken away. Hon'ble Karnataka High Court in case of Addl. CIT v. M.Y. Chandragi [1981] 128 ITR 256 has taken same view. 36. On facts and in circumstances of case and on materials available, we find that ITO who passed penalty order had at time of passing said penalty jurisdiction to do so, although at time when penalty proceedings were initiated, matter was referred to concerned IAC as minimum imposable penalty exceeded Rs. 25,000 as per requirement of section as it then was. ITO in penalty order has specifically mentioned that penalty order in question was passed by him with prior approval of IAC concerned dated 15-12-1980. order of penalty was passed on 22-12-1980. It is not disputed before us that as on 22-12-1980, ITO did not have jurisdiction to pass penalty order. Keeping in view decisions and directions of Hon'ble Allahabad High Court, as stated above, we are of opinion that ITO in present case had jurisdiction to pass penalty order. 37. We have discussed at length various contentions made by both sides. ITO initiated penalty proceedings, as according to him, there was book difference of assessed income and returned income. assessee contended that in return loss was shown and that loss was assessed at lesser figure even after giving effect to order of Tribunal. assessee, therefore, claimed that in such situation when tax payable was also nil as there was no positive income, no penalty on negative income could have been imposed. In this connection, we may refer to decision in CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.), relied on by revenue, in which i t was held that penalty would also be attracted not only to positive figure of i t was held that penalty would also be attracted not only to positive figure of income but would also apply to case where assessee had suffered loss. Similar is view of Hon'ble Supreme Court in case of CIT v. J.H. Gotla [1985] 156 ITR 323. Thus, this contention of assessee also cannot be accepted, as facts of case discussed at various paragraphs, would show. Of course, assessee is entitled to lead any evidence or place further materials for fresh consideration. Before us, assessee reiterates and emphasises similar contentions and submissions made in course of quantum proceedings as well as made in penalty matters before Commissioner (Appeals), which we have taken to our careful consideration. We find no fresh material or fact to come to conclusion that assessee has discharged onus cast on it by provisions of Explanation to section 271(1)(c). In our opinion, it was not mere rejection of assessee's explanation or it was not case of disbelieving submissions made by assessee in view of final findings of fact by Tribunal in quantum appeal, as discussed in different parts of this order. In circumstances, therefore, we find that order of Commissioner (Appeals) in respect of this point has to be reversed, which we hereby do. Reference may also be made to decision of Hon'ble Allahabad High Court in case of CIT v. M. Habibullah [1982] 136 ITR 716. At time of argument, learned departmental representative stresses point that assessee has shown and claimed higher amount of loss which was found to be false and quantum of returned income was very much more than adopted by Commissioner (Appeals) vis-a-vis assessed income for purpose of section 271(1)(c). learned counsel for assessee, however, points out that returned loss included loss brought forward from earlier years, whereas loss returned for this year as noted by Commissioner (Appeals) in impugned order. It is submitted on behalf of assessee that Commissioner (Appeals) was correct in his approach so far as this aspect is concerned. On behalf of assessee, however, it is urged that assessee has filed returned loss on proper verification and declaration and, therefore, sanctity in statement of columns and, in fact, each of columns would have to be taken cognizance of. We have given our careful consideration in this point also. It may be true that in return assessee has claimed higher amount of loss which was inclusive of brought forward loss. But for purpose of section 271(1)(c), penalty is imposable in respect of any income (or loss) which has been concealed would not be taken into account and for purpose of Explanation to above section, disallowances or trading additions relating to this year only would have to be taken into account. It has not been shown before us that assessee included amount of loss which was not allowed to be set off or added to current year's loss. In our opinion, since each year is to be considered independently for purpose of income-tax, loss brought forward and included by assessee in return would have for present purpose be excluded in order to ascertain what was returned loss of assessee relatable to year under consideration, which in present case Commissioner (Appeals) had shown at Rs. 1,62,255 [para 3 of Commissioner (Appeals)'s order]. In Kedar Nath Sanwal Dass's case it was held on facts of case that finding in assessment proceedings was that losses were falsely claimed by assessee to set off profits, which finding was sufficient to hold that there was scheme on part of assessee to defeat revenue without any further finding. Thus, in our opinion, portion of returned loss relatable only to current year's loss in instant case, would be relevant for purpose presented before us. Hence, this contention of revenue cannot be accepted. 38. As expressed by us above, in instant case, various additions n d disallowances were not made merely on basis of surmise or after rejecting assessee's explanation to be inaccurate or false. Tribunal in quantum appeal found that there were specific transactions which were not recorded in books of account. We are of opinion that onus cast on assessee in view of Explanation to above section, has not been discharged and, therefore, Commissioner (Appeals) went wrong in coming to different conclusion and in holding that burden has shifted to revenue to prove that there was any fraud, gross or wilful neglect on part of assessee. 39. Having regard to entirety of facts and circumstances of case and after we have taken into account various decisions and after we have carefully considered submissions made by both sides, we are of opinion that Commissioner (Appeals) went wrong is deleting penalty relating to additions in regard to groundnut, khali and soap account. Thus, this part of order of Commissioner (Appeals) is reversed. Since ITO had imposed on different amount based on quantum of loss as discussed above, we direct him to re-calculate penalty on basis of direction and observation given by us in this order, along with amount of penalty retained by Commissioner (Appeals) relatable to disallowances of expenses, etc., as dealt with by us in assessee's appeal. 40. In result, appeal by assessee is dismissed and appeal by revenue is allowed. *** OMRAO INDUSTRIAL CORPORATION PVT. LIMITED. v. INCOME TAX OFFICER