Penalty payable [Section 221]: 

Where an assessee is in default in payment of tax including advance tax and interest payable thereon, the Assessing Officer sh all impose a penalty which in cases of continuing default, may be increased from time to time. However, the total penalty should not exceed the tax in arrears. The Assessing Officer should give the assessee a reasonable opportunity of being heard before levying such a penalty.

No penalty shall be levied on the assessee for default in payment of tax in cases where the Assessing Officer is satisfied that default was for good and sufficient reasons . The Taxation laws (Amendment and Miscellaneous Provisions) Act, 1986 has shifted the burden of proof upon the assessee. Accordingly, penalty will not be levied under this section only when the assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons.

The Explanation to section 221(1) provides that an assessee would not cease to be liable to pay any penalty for his default or delay in payment of the tax merely by reason of the fact that before the date of levy of such penalty the tax which was in arrears had actually been paid by him. Thus wherever there is delay on the part of the assessee, he would be liable to penalty even though by the time the Assessing Officer initiates action for the levy of penalty the amount of tax in arrears is actually paid. An order imposing penalty is appealable and the assessee‘s right of appeal is subject to the condition that he must first pay the tax or penalty; the assessee should first pay the tax before filing the appeal.