Srinivas, just for completeness, you may want to compare with my panel 
settings, which are:
        Mode: Horizontal
        (YES) Lock Panel
        (YES) Automatically show and hide the panel
        (NO) Don't reserve space on borders
        Row Size (pixels): 32
        Number of rows: 1
        Length (%): 100
        (YES) Automatically increase the length
and my panel is located at the top edge of the screen.

Note that the tooltip help for the "Automatically show and hide the
panel" checkbox says "This only works when the panel is attached to a
screen edge", so try unlocking your panel then moving it to make sure
its location snaps to a screen edge (and then lock your panel again).

However, the screen edge can be a problem if you're using a television
for your display (e.g. for a Home Theatre PC), as these often overscan
(i.e. the edges of your desktop are beyond the edges of the display).

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https://bugs.launchpad.net/bugs/1049450

Title:
  Fails trying to hide the xfce4-panel panel 1

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