1. By this order, I shall dispose of this appeal of assessee filed against order of CIT(A), New Delhi (Camp office: Jalandhar) for assessment year 2002-03. 2. only effective issue raised in this appeal is that learned CIT(A) was not justified in sustaining penalty of Rs. 28,935 improved by Assessing Officer under section 271(1)(c) of Income-tax Act, 1961. facts of case are that during course of assessment proceedings, Assessing Officer noticed that assessee failed to add back items of disallowance under section 43B of Income-tax Act, 1961 i.e., interest of Rs. 49,577 due to Rajasthan Financial Corpn. on term loan, Rs. 2,626 Sales tax payable and bonus of Rs. 26,525, aggregating to Rs. 78,728. When this fact was pointed out to assessee it promptly replied that amount may be added subject to no penalty. Accordingly, Assessing Officer disallowed amount of Rs. 78,728 and initiated penalty proceedings under section 271(1)(c). In reply to show- cause notice, assessee submitted that it was bona fide mistake as amount remained to be disallowed while filing return. However, Assessing Officer did not accept such submission and accordingly imposed penalty under section 271(1)(c) of Act. 3. Being aggrieved, assessee filed appeal before CIT(A). It was submitted before CIT(A) that all material facts relating to such disallowance were clearly mentioned in statutory audit report filed along with return. Thus, there was no mala fide intention on part of assessee to understate income or to evade tax. It was also argued that net result was loss. In fact, assessee had huge brought forward loss of Rs. 7,44,172. Even after making disallowance of Rs. 78,728 and after allowing set off of brought forward loss net result was loss of Rs. 7,00,103. Reliance was also placed on judgment of Honble Supreme Court in case of CIT v. Prithipal Singh & Co. [2001] 249 ITR 670 and several other judicial decisions noted in para 8 of impugned order in support of contention penalty under section 271(1)(c) could not be imposed in case of loss. But these submissions did not find favour with CIT(A) who observed that assessee had not voluntarily surrendered amount. It was only when same was noticed by Assessing Officer that assessee offered same to tax. Accordingly, he upheld penalty imposed by Assessing Officer. assessee is aggrieved with order of CIT(A). Hence, this appeal before this Bench. 4. ld. counsel for assessee reiterated submissions, which were made before authorities below. He submitted that assessee was manufacturing spices in Rajasthan. It filed return of income on 31-10-2002 declaring therein loss of Rs. 34,659. In addition, assessee had also brought forward loss of Rs. 7,44,172. He submitted that return was accompanied by Form 3CA duly signed by Chartered Accountant. He also drew my attention to page 13 of paper book which is part of audited accounts where fact that assessee had not made payments of aforesaid amounts were duly indicated by auditors. He submitted that all material facts necessary for disallowance were duly disclosed in return of income. He submitted that once attention of assessee was drawn to this omission, assessee immediately replied vide its letter dated 6-6-2003 (copy placed at page 4 of paper book) to disallow amount and reduce total loss. ld. counsel further submitted that this being genuine, bona fide and innocent mistake, authorities below were not justified in levying and sustaining penalty under section 271(1)(c) of Act. He also relied on judgment of Honble Supreme Court in case of Hindustan Steels Ltd. v.State of Orissa [1972] 83 ITR 26, judgment of Supreme Court in case of Prithipal Singh & Co. (supra), judgment of Punjab & Haryana High Court in case of CIT v.Rock Steel (P.) Ltd. [2004] 271 ITR 463 and some other judgments in support of contention that mere disallowance made by Assessing Officer is not conclusive for purpose of levying penalty. 5. ld. DR, on other hand, heavily relied on orders of authorities below. He also drew my attention to Explanation 4 (a) to section 271(1)( c) inserted by substituted Finance Act, 2002 with effect from 1-4- 2003 as per which penalty under section 271(1)(c) can be levied in case where loss has been reduced as result of addition for which penalty under section 271(1)(c) of Act. 6. I have heard both parties and carefully considered rival submissions with reference to facts, evidence and material placed on record. It is settled law that both assessment proceedings and penalty proceedings are separate and distinct proceedings. mere fact that addition has been made and sustained in appeal does not by itself justify imposition of penalty under section 271(1)(c) of Income-tax Act. In other words, findings recorded in assessment order though relevant yet not conclusive for purpose of levy of penalty under section 271(1)(c). Now in this case, there is no dispute about fact that amount of Rs. 78,722 required to be disallowed under section 43B. But at same time, it is also fact that this was clearly shown in audit report filed in Form 3CA along with return. assessee had not concealed or suppressed material facts necessary for disallowance. It is also fact that Assessing Officer also found out such omission on basis of audit report filed alongwith return. It is also fact that assessee had filed return declaring therein loss of Rs. 34,659 and in addition there was brought forward loss of Rs. 7,44,172. Even after making disallowance of Rs. 78,728 net result was loss of Rs. 7,00,103. There was no Revenue loss on account of making such claim. Further, assessee could have claimed same amount in subsequent assessment year on payment of same. Again same was allowable under provisions of Act. Therefore, these facts do support contention of assessee that mistake, was bona fide and without any mala fide intention of evading tax or to reduce loss. Penalty under section 271(1)(c) cannot be imposed for bona fide mistake. Reliance in this regard is placed on judgment of Supreme Court in case of Hindustan Steel Ltd. v. State of Orissa [1979] 83 ITR 26. Reliance is also placed on decision of ITAT, Amritsar Bench, Amritsar, in case of Jt. CIT v. VXL India Ltd. [IT Appeal No. 54 (Asr.) of 1999] for assessment year 1983-84. Thus, order of CIT(A) is liable to be set aside on this account itself. Even otherwise, I find that after making disallowance of aforesaid amount, net result still remained loss. case is covered by judgment of jurisdictional Punjab & Haryana High Court in case of CIT v.Prithipal Singh & Co. [1990] , affirmed by Supreme Court in case of CIT v. Prithipal Singh & Co. [2001] 249 ITR 670, where it was held that if net result after making addition or disallowance remains loss, penalty under section 271(1)(c) cannot be imposed. As regards Explanation 4(a) substituted by Finance Act, 2002 and relied upon by ld. DR, same has been made applicable with effect from 1-4-2003 i.e., assessment year 2003-04. same is not applicable for assessment year 2002-03. present case is for assessment year 2002-03. Therefore, ratio of Supreme Court judgment in aforesaid case would be applicable to facts of present case. 7. In light of these facts and circumstances of case, order of CIT(A) is set aside and penalty levied is cancelled. grounds of appeal are accordingly allowed. 8. In result appeal of assessee is allowed. *** Akshay Enterprises (P.) Ltd. v. Assistant Commissioner of Income-tax, Range-1, Jalandhar