Opportunity to be heard required; penalty set aside where no show cause notice or hearing was given.

Penalty under section 36(2) was invalidated for failure to comply with the proviso requiring a show cause notice and an opportunity to be heard; the imposition of penalty is a discretionary power that must be exercised only after giving the assessee a reasonable opportunity, objectively considering relevant factors and recording reasons, and ordinary demand letters cannot substitute for the statutory hearing. The tax and interest demands were left intact; only the penalty imposed without compliance with the proviso was set aside.

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Issues: Whether the penalty imposed under section 36(2) of the Assam Agricultural Income-tax Act, 1939, on the petitioner for alleged default in payment of agricultural income-tax could be sustained when no notice to show cause or opportunity of hearing was given as required by the proviso to section 36(2).

Analysis: Section 36 makes an assessee a defaulter if dues are not paid by the date specified and empowers the assessing authority to recover an additional penalty not exceeding the amount in default; however, the proviso to section 36(2) mandates that no order imposing penalty shall be made unless the assessee has been heard or given a reasonable opportunity of being heard. The power to impose penalty is discretionary and cannot be exercised arbitrarily; the authority must give the assessee an opportunity to show cause, consider relevant factors objectively, and record reasons before imposing penalty. In the present case, the respondents did not produce any notice or material showing that the requisite show-cause notice or hearing was afforded prior to imposing the penalty, and the letters demanding payment which included penalty amounts could not legally substitute for the statutory opportunity to be heard under the proviso to section 36(2).

Conclusion: The penalty imposed under section 36(2) of the Assam Agricultural Income-tax Act, 1939, is set aside for want of compliance with the proviso to section 36(2); the demands for tax and interest are not disturbed.

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