Section 221(1) explains that if the Assessee is in default or is deemed to be in default in the payment of tax, then he shall in addition to the amount of arrears and interest payable under section 220(2), then he shall be liable to pay penalty as directed by the Assessing officer, and further if the default is continued by the Assessee then the Assessing officer may direct the Assessee to pay the further amount or amounts of penalty otherwise that the amount of penalty does not exceed the amount of tax in arrears.
Before levying any such penalty, the Assessee shall be given the opportunity of being heard. Further, if the Assessee proves to the satisfaction of the Assessing officer that the default was for good with sufficient reasons, then no penalty shall be levied under this section.
| Section | Nature of default | Minimum penalty | Maximum penalty |
| (1) | (2) | (3) | (4) |
| 221(1) | Default in making payment of tax within prescribed time; i.e., as required by notice u/s 156 or wherever Assessee is deemed to be in default in payment of tax. | Such amount as directed by Assessing Officer | Tax in arrears |
Reference:
As per Section 221(1), of Income tax act, 1961-
Section 221: Penalty payable when tax in default
(1) When an Assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the Assessing Officer may direct, and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears.
Provided that before levying any such penalty, the Assessee shall be given a reasonable opportunity of being heard.
Provided further that where the Assessee proves to the satisfaction of the Assessing Officer that the default was for good and sufficient reasons, no penalty shall be levied under this section.
Explanation.—
For the removal of doubt, it is hereby declared that an Assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty he has paid the tax.
(2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded.