Penalty for tax default: AO may impose penalty up to arrears, subject to hearing, reasonable cause and refund rules. Where an assessee defaults in tax payment the Assessing Officer may direct a penalty, including further penalties for continuing default, subject to the total penalty not exceeding the tax arrears. No penalty shall be levied without a reasonable opportunity of being heard and where the assessee satisfies the AO of good and sufficient reasons for the default. Prior payment of tax does not remove penalty liability, and if a final order wholly reduces the tax in respect of which a penalty was levied, the penalty is cancelled and refunded.