Bombay HC Quashes Penalty as Order Giving Effect Was Not Passed Within Limitation

Global Hospitality Licensing SARL Vs Assistant/DCIT (International Taxation) (Bombay High Court)

The Bombay High Court allowed the writ petition challenging a penalty order dated 30 March 2023 passed under Section 271(1)(c) of the Income-tax Act, 1961, along with the consequential demand notice. The petitioner contended that the penalty proceedings could not survive because the Assessing Officer failed to pass an order giving effect (OGE) to the Commissioner of Income Tax (Appeals) [CIT(A)] order within the limitation period prescribed under Section 153 of the Act, resulting in abatement of the assessment proceedings.

The petitioner, a tax resident of Luxembourg, had filed its return of income for Assessment Year 2009-10 declaring nil income and claimed that receipts under the International Marketing Program Participation Agreement (IMPPA) were not taxable in India. During scrutiny assessment, the Assessing Officer treated the receipts as business profits, computed tax liability, and simultaneously initiated penalty proceedings under Section 271(1)(c). On appeal, the CIT(A), by order dated 31 December 2018, held that the IMPPA receipts were in the nature of royalty, directed the Assessing Officer to apply the beneficial tax rate, verify and allow TDS credit, and provide the petitioner an opportunity of being heard before passing the consequential order.

The petitioner submitted that, under Section 153(5) read with Section 153(3), the Assessing Officer was required to pass the order giving effect within nine months from the end of the financial year in which the CIT(A) order was received, as verification and an opportunity of hearing were required. Since no such order was passed by the statutory deadline of 31 December 2019, the petitioner contended that the assessment proceedings had abated, the return of income had attained finality, and the penalty proceedings could not survive. The petitioner also argued that the basis of taxation had changed from business income to royalty, requiring fresh satisfaction for penalty proceedings, and raised additional objections relating to limitation and defects in the penalty notice.

The Revenue argued that penalty proceedings were separate from assessment proceedings and that failure to pass an order giving effect within time did not invalidate the assessment because such an order was only administrative in nature. It also contended that any delay was compensated by the statutory interest provisions and that no prejudice was caused to the petitioner.

The High Court rejected the Revenue’s contentions. It held that Sections 153(3) and 153(5) required the Assessing Officer to pass the order giving effect within the prescribed limitation period where verification and an opportunity of hearing were necessary. Since the CIT(A) had directed re-characterisation of the receipts as royalty, application of the beneficial tax rate, verification of TDS credit, and grant of an opportunity of hearing, the nine-month limitation applied. The Court noted that it was undisputed that no order giving effect had been passed by 31 December 2019.

The Court further held that an order giving effect is not merely administrative but is a quasi-judicial assessment order determining the rights and liabilities of the assessee through verification, recomputation of tax liability, and determination of the net tax payable. It observed that assessment is an integrated process involving both determination of income and computation of tax liability, and that the final assessment is complete only after such computation. Accordingly, failure to pass the order within the statutory limitation resulted in abatement of the assessment proceedings and acceptance of the return of income.

The Court held that, once the assessment proceedings had abated, the original basis for initiation of penalty proceedings no longer survived. As the income declared in the return became the assessed income, there was no tax sought to be evaded for the purposes of Section 271(1)(c). Consequently, the penalty order and the consequential demand notice were held to be unsustainable. The Court quashed both the penalty order and the demand notice, directed that any amount recovered pursuant to the impugned assessment and penalty proceedings be refunded with applicable interest in accordance with law, and allowed the writ petition.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Rule. With the consent of the parties, Rule is made returnable forthwith and heard finally.

2. The present writ petition challenges the validity of a penalty order dated 30 March 2023 passed by Respondent No. 1, along with the consequential demand notice issued pursuant thereto. The challenge is premised on the ground that the underlying assessment proceedings have abated due to a failure on the part of Respondent No. 1 to pass the order giving effect to the order of the Commissioner of Income Tax (Appeals) [for short “CIT(A)”] within the period of limitation provided for in Section 153 of the Income-tax Act, 1961 (for short “IT Act”) for the Assessment Year 2009­10.

3. The Petitioner is a company incorporated in, and is a tax resident of Luxembourg. The Petitioner is engaged in the business of providing marketing activities on a central / group basis to the Marriott chain of hotels worldwide. Initially the Petitioner’s group company, i.e., International Hotel Licensing Company S.A.R.L. (for short “IHLC”) had entered into an “International Marketing Program Participation Agreement” (for short “IMPPA”) with various Indian hotels. These IMPPAs were later on assigned to the Petitioner in July 2008.

4. The Petitioner filed its Return of Income for the A.Y. 2009-10 on 30th October 2009 declaring Nil income. It claimed the receipts of Rs. 1,21,10,667/- in terms of the IMPPA as not taxable in India as per the Act and, accordingly, claimed a refund of the tax deducted at source (for short “TDS”) of Rs. 22,36,809/-. In the notes to the computation of income, the Petitioner mentioned that the aforesaid receipts were not chargeable to tax in India.

5. The Petitioner’s case was picked up for a scrutiny assessment. The assessment proceedings culminated in Respondent No. 1 passing a final Assessment Order dated 6th February 2012 under Section 143(3) read with Section 144 read with Section 144C of the IT Act, wherein he did not agree with the Petitioner’s stand that the receipts in terms of the IMPPA were not taxable. Respondent No. 1 treated the IMPPA receipts as business profits as per the provisions of the IT Act and taxed them at the rate of 40 percent, along with applicable surcharge and education cess. The Petitioner’s tax liability was computed at Rs. 51,14,338/-. Further, Respondent No. 1 did not allow any credit of the tax deducted by the Indian hotels and after levying interest under Sections 234A and 234B of the IT Act, raised a net demand of Rs.69,55,499/-. Simultaneously, Respondent No. 1 initiated penalty proceedings under Section 271(1)(c) of the IT Act for furnishing inaccurate particulars of income and concealment of particulars of income vide a notice dated 6 February 2012 issued under Section 274 of the IT Act.

6. The Petitioner preferred an appeal before the CIT(A), assailing the Assessment Order on the following grounds:

i. Respondent No. 1 erred in holding that the Appellant defaulted in complying with notices issued under the Act;

ii. the receipts under the IMPPA from Indian hotels are not chargeable to tax in India;

iii. due credit of the tax deducted be granted to the Petitioner; and

iv. the levy of interest under Sections 234A and 234B of the IT Act be deleted.

7. The Petitioner’s appeal before the CIT(A) was decided vide an order dated 31st December 2018, wherein the CIT(A) held as under:

i. the IMPPA receipts were in the nature of royalty and directed Respondent no. 1 to apply the beneficial rate for computation of tax;

ii. Respondent No. 1 should verify and allow the claim of credit, for tax deducted if found in order;

iii. charging of interest under Sections 234A and 234B of the IT Act is consequential and directed that the same be levied as per law.

The CIT(A) also directed Respondent No. 1 to give the Petitioner an opportunity of being heard before passing an order in pursuance of his order.

8. Aggrieved by the CIT(A)’s order, the Petitioner filed an appeal before the Income-tax Appellate Tribunal (for short “Tribunal”).

9. It is the case of the Petitioner that Respondent No.1 was obligated to pass an order giving effect as per the directions of the CIT(A). Section 153(5) of the IT Act inter-alia provides that where effect to an order passed by the CIT(A) is to be given other than by passing a fresh assessment, then such effect shall be given within a period of three months from the end of the month in which order of the CIT(A) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be. Further, as per the second proviso to Section 153(5) of the IT Act, where the CIT(A) order requires verification of any issue by way of submission of any document by the Assessee or any other person or where an opportunity of being heard is to be provided to the Assessee, the order giving effect shall be made within the time specified in sub-section (3) of Section 153. In the present case, having regard to the directions of the CIT(A), the time limit as per sub-section (3) would apply i.e. the order should be passed within nine months from the end of the Financial Year in which the order of the CIT(A) is received.

10. In view of the fact that no order giving effect to the order of the CIT(A) was passed by Respondent No. 1 within the statutory time limit as aforesaid, and on the Petitioner’s understanding that the assessment proceedings had consequently abated, the Petitioner addressed a letter dated 30th May 2022 to the Tribunal seeking withdrawal of its appeal. The said letter expressly clarified that such withdrawal should not be construed as a concession by the Petitioner on the merits of the issues raised in the appeal. The Tribunal, taking note of the aforesaid letter, vide its order dated 12 July 2022, permitted withdrawal of the appeal.

11. Pursuant thereto, the Petitioner filed an application dated 27th March 2023 with Respondent No. 1, stating that the assessment proceedings had abated and, accordingly, any tax collected in excess of the amount payable as per the Return of Income was liable to be refunded along with applicable interest. The Petitioner also submitted several reminder letters in this regard.

Penalty Proceedings

12. Initially, penalty proceedings that were initiated vide notice dated 6th February 2012 (issued along with the assessment order), were kept in abeyance by Respondent No. 1. Subsequently, Respondent No. 1 issued another notice dated 17th November 2022 under Section 274 read with Section 271(1)(c) of the IT Act for Petitioner to show cause as to why the order imposing penalty under Section 271(1)(c) of the IT Act should not be passed.

13. The Petitioner in response to the above notice submitted that since no order giving effect to the CIT(A) order was passed within the statutory due date, assessment proceedings stood abated and, hence, no penalty could be levied. Respondent No. 1 again issued a notice dated 20th March 2023 for Petitioner to show cause as to why an order imposing penalty under Section 271(1)(c) of the IT Act should not be passed.

14. The Petitioner filed a detailed reply in response to the said notice, requesting that no penalty could be levied in the present situation for the following broad reasons:

i. Non-passing of OGE within limitation has resulted in assessment proceedings abating: The order giving effect to the CIT(A) order was not passed within the due date mandated in Section 153 of the IT Act. As the assessment proceedings during the course of which such penalty proceedings were initiated stood abated, penalty proceedings cannot survive independently.

ii. Change in basis of taxation and no fresh satisfaction is recorded : While the penalty was initiated on account of the best judgement assessment dated 6th February 2012 wherein the IMPPA receipts were taxed as business income at the rate of 40 percent, the basis of taxation had changed when CIT(A) held that said receipts were in the nature of royalty and the beneficial tax rate would apply. Hence, fresh satisfaction was required to be recorded for initiating penalty proceedings while giving effect to the directions of CIT(A), which was not done.

iii. Bar of limitation under Section 275 : Penalty proceedings are barred by the period of limitation as provided for in Section 275 of the IT Act.

iv. Defect in notice under Section 274 : Charge under which the penalty is proposed (i.e. ‘concealment of particulars of income’ or ‘furnishing of inaccurate particulars of income’) was not specified in the penalty notice passed under Section 274 dated 6th February 2012.

v. Other grounds on merits for non-levy of penalty.

15. Subsequently, Respondent No. 1 passed a penalty order dated 30th March 2023 under Section 271(1)(c) of the IT Act levying a penalty of Rs 12,11,070/- on the Petitioner, after obtaining approval of Respondent No. 2.

16. At the time of hearing, the learned Counsel argued that assessment proceedings during the course of which the penalty proceedings were initiated have abated. It was submitted that Respondent No. 1 was obligated to pass an order to give effect to the direction as contained in the order of the CIT(A) dated 31st December 2018. In general parlance, such an order is called an Order Giving Effect (for short “OGE”) which is an order passed under Section 143(3) read with Section 250 of the IT Act as per timelines provided for in Section 153 of the IT Act. He submitted that the determination of total income, the computation of the tax liability thereon and, therefore, the determination of the net demand payable, after giving credit for the taxes already paid, grant of consequential relief and implementation of appellate directions constitute an integral part of one composite assessment process.

17. The learned Counsel submitted that in the instant case, the CIT(A), by his order dated 31st December 2018 (received on 3rd January 2019 by the Petitioner), directed Respondent No. 1 to:

i. tax the IMPPA receipts as royalty,

ii. identify the applicable beneficial tax rates and compute the tax payable by applying the reduced tax rates, and

iii. grant due credit for the tax deducted subject to necessary verification.

It was explained that Respondent No. 1 had originally taxed the receipts at 40% by treating them as business profits; however, pursuant to the directions of the CIT(A), such receipts were required to be characterised as royalty and taxed at the beneficial rates provided for in Section 115A of the IT Act. Further he stated that the term ‘assessment’ bears a comprehensive meaning, it comprehends the whole procedure for ascertaining the total income and determination of tax liability. The latter is as crucial as the former. Section 143(3) provides that the Assessing Officer after taking into consideration the material furnished by the Assessee or that which he has gathered, by an order in writing, make an assessment of the total income or loss of the Assessee and determine the sum payable by him or refund the amount due to him on the basis of such assessment. The passing of an Assessment Order thus contemplates not only the determination of the total income but also the tax payable thereon which entails not only the determination of the tax on the total income either as per the rate prescribed in the Finance Act or provided for in Chapter XII or as per the provision of a Double Taxation Avoidance Agreement. Thereafter, the interest that is payable under the various sections has to be computed and after giving credit for the prepaid taxes, the net demand or refund, as the case may be, is to be quantified and the demand notice has to be issued under Section 156 of the IT Act. The judgment of the Supreme Court in Kalyan Kumar Ray vs. CIT (1991) 191 ITR 634 supports the aforesaid contention, was the submission of the Counsel.

18. The learned Counsel submitted that since the order of the CIT(A) was undisputedly received by Respondent No. 3 on or before 31st March 2019, the time limit for passing the OGE as per Section 153(5) read with Section 153(3) of the IT Act was nine months from the end of the Financial Year in which the order of the CIT(A) was received. Accordingly, the due date for passing the OGE in the present case was 31st December 2019. As no such order was passed till date, the assessment proceedings, consequently, stand abated.

19. The learned Counsel explained that in consonance with the order passed by CIT(A), Respondent No. 1 had to pass an OGE and re-compute the Petitioner’s income and tax payable under the Act which computation will supersede the original Assessment Order. However, since no such OGE is passed within the statutory due date, there is no enforceable Assessment Order available as of date, and Respondent No. 1 has lost his right to recover the demand for the year under consideration. In the absence of a valid and subsisting Assessment Order, the assessment proceedings stand abated and the Return of Income is liable to be treated as accepted. It follows that all proceedings arising out of and consequent to such assessment become infructuous. Hence, in the present context, when the assessment proceedings don’t survive, the penalty proceedings automatically don’t survive, was the argument.

20. The learned Counsel relied on the judgment of the Supreme Court in the case of CIT vs Shelly Products [2003] 261 ITR 367 (SC) and a judgment of this Court dated 23rd March 2026 in the case of Laqshya Media Limited v. Asst/Dy. CIT [WP no. 468 of 2026] to support his contention that the order giving effect has to be passed within the limitation period provided for in Section 153 of the IT Act and that was not being done, the income declared in the return filed by the Petitioner must be accepted.

21. Per contra, Mr. Subir Kumar, the learned Counsel appearing on behalf of the Revenue opposed the Petition by submitting that proceedings under Section 271(1)(c) are separate proceedings distinct from assessment proceedings. Mr. Kumar further submitted that in the present case there was never any dispute regarding the existence of taxable income and only the characterisation of such receipts and the applicable rate of tax came to be modified by the CIT(A). Mr. Kumar explained that there is a distinction between an order passed under Section 153(3) of the IT Act and that passed under Section 153(5) of the IT Act. Sub-section (3) envisages a fresh order of assessment, while sub-section (5) requires passing of an order that is limited to the directions given by the appellate authority. Hence, Mr. Kumar contended that no adverse consequence could follow merely because an order giving effect has not been passed within the stipulated timelines, and the same is not fatal to the assessment, since it is only an Administrative Order. Mr. Kumar further pointed out that in case of a delay in passing the order giving effect, the Assessee is granted interest under Section 244A(1A) of the IT Act, and, hence, no prejudice is caused to the Assessee. Thus, he submitted the assessment proceedings would not abate.

22. The learned Counsel for the Petitioner in relation to the argument of the Revenue that an order giving effect is merely an Administrative Order and no adverse consequence would follow for failure to adhere to the timelines, argued that what remains as a final order after giving effect to the orders of the appellate authorities is an order of assessment that is capable of enforcement, and it cannot be termed as an Administrative Order. Reliance was placed on the judgment of this Court in the case of Caltex Oil Refining (India) Ltd. v. CIT [1994] 73 Taxman 231 (Bombay) in this regard.

23. Having considered the rival submissions, and without addressing the other issues raised, the present petition can be disposed of on a limited issue – namely, whether the assessment proceedings stand abated, thereby rendering the penalty proceedings unsustainable. The core issue for determination is whether, in the absence of an order passed by Respondent No.1 pursuant to the order of the CIT(A) within the period of limitation specified in Section 153 of the IT Act, the return of income filed by the Petitioner attains finality. If so, it must follow that the assessment proceedings stand abated and, consequently, all proceedings arising therefrom become infructuous. In such circumstances, the penalty order cannot be sustained in law.

24. The Petitioner has drawn our attention to the provisions of Sections 153(3) and 153(5) of the IT Act, the relevant portion of which is reproduced hereunder:

“(3) Notwithstanding anything contained in sub-sections (1) , (1A) and (2), an order of fresh assessment or fresh order under section 92CA, as the case may be, in pursuance of an order under section 250 or section 254 or section 263 or section 264, setting aside or cancelling an assessment, or an order under section 92CA, as the case may be, may be made at any time before the expiry of nine months from the end of the financial year in which the order under section 250 or section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be .• Provided that where the order under section 250 or section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, on or after the 1st day of April, 2019, the provisions of this sub-section shall have effect, as if for the words “nine months”, the words “twelve months” had been substituted.

….

(5) Where effect to an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 is to be given by the Assessing Officer or the Transfer Pricing Officer, as the case may be, wholly or partly, otherwise than by making a fresh assessment or reassessment or fresh order under section 92CA, as the case may be, such effect shall be given within a period of three months from the end of the month in which order under section 250 or section 254 or section 260 or section 262 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be .•

Provided that where it is not possible for the Assessing Officer or the Transfer Pricing Officer, as the case may be, to give effect to such order within the aforesaid period, for reasons beyond his control, the Principal Commissioner or Commissioner on receipt of such request in writing from the Assessing Officer or the Transfer Pricing Officer, as the case may be, if satisfied, may allow an additional period of six months to give effect to the order:

Provided further that where an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 requires verification of any issue by way of submission of any document by the assessee or any other person or where an opportunity of being heard is to be provided to the assessee, the order giving effect to the said order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 shall be made within the time specified in sub-section (3).”

25. Section 153(3) of the IT Act inter alia provides that where the CIT(A) has set aside the assessment made by the AO, then, the AO is required to pass a fresh Assessment Order under Section 143(3) of the IT Act, within nine months from the end of the Financial Year in which the order of CIT(A) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

Further, Section 153(5) of the IT Act inter alia provides that where effect to an order passed by the CIT(A) is to be given otherwise than by passing a fresh assessment, such effect shall be given within a period of three months from the end of the month in which order of the CIT(A) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be.

Further, as per the second proviso to Section 153(5) of the IT Act, where as a consequence of the order of the CIT(A), verification of any issue by way of submission of any document by the Assessee or any other person is necessary or where an opportunity of being heard is to be provided to the Assessee, the order giving effect shall be made within the time specified in sub-section (3). Thus, the larger time limit of nine months as provided for in sub-section (3) is made applicable to cases governed by sub-section (5) which require verification or the grant of an opportunity of being heard, as is the fact in the present case.

26. In the present case, the CIT(A) has passed his order directing Respondent No. 1 to tax the receipts from the IMPPA as royalty and compute the tax payable by applying the reduced tax rate. Further, the CIT(A) also directed to grant due credit of the tax deducted at source subject to necessary verification and after providing an opportunity of being heard. Thus, as per Section 153(5) read with Section 153(3) of the IT Act, Respondent No. 1 had nine months from the end of the Financial Year in which the order of the CIT(A) was received by the relevant authority to pass his order.

Accordingly, the limitation period in accordance with Section 153(5) read with Section 153(3) of the IT Act for completing an assessment pursuant to the order of the CIT(A), is as under:

27. Mr. Kumar has not disputed the fact that no order giving effect to the CIT(A) order is passed till date. However, he contends that there is no change in the taxable income, only the characterisation of such receipts and the applicable rate of tax came to be modified by the CIT(A). Further, the direction to verify and allow the credit for the tax is only an administrative exercise. Thus, non-passing of the order giving effect would not have any adverse consequences.

28. We are unable to accept the contentions urged on behalf of the Revenue. The CIT(A) has altered the very basis of taxation and directed application of the beneficial rate of taxation applicable to royalty. Consequently, even though the assessed income remained the same, nevertheless, the original computation of tax liability was set at naught and required fresh determination through a valid order giving effect. So far as the submission of the Revenue as to the nature of an order passed in consequence of orders of the appellate authorities with a view to giving effect to the directions contained therein, it is difficult to hold that such an order is an Administrative Order. An order contemplated by Section 153(5) is not ministerial in nature but quasi-judicial, as it determines the rights and liabilities of the Assessee in accordance with the appellate directions. It may involve verification, quantification of income, re-computation of tax liability and net sum payable by the Assessee – all of which, collectively or independently have substantive civil consequences. Therefore, such an order cannot be trivialised as administrative so as to escape the rigor of limitation. The power coupled with an obligation on the Assessing Officer is to make an assessment under Section 143 or 144 of the IT Act. The final order after giving effect to the orders of the appellate authorities is an order of assessment and the same is complete only upon computation of the total income and the net tax payable by an Assessee. It is well settled that such an order is an appealable order in terms of Section 246A of the IT Act. This Court in Caltex Oil Refining (India) Ltd. v. CIT [1994] 73 Taxmann 231 (Bombay), has held as under:

“10. We have carefully considered the rival submissions. There is no dispute about the proposition that there is no inherent right of appeal. It is to be specifically conferred by the statute providing for an appeal. But as stated by the Supreme Court in CIT v. Ashoka Engg. Co. [1992] 194 ITR 645, it is an equally well-settled proposition or law that, if there is a provision conferring a right of appeal, it should be read in a reasonable, practical and liberal manner. We are, therefore, to construe the provisions of section 246 in the light of this well-settled legal position. So far as the first submission is concerned which relates to the nature of an order passed by the ITO in consequence of orders of the appellate authorities with a view to giving effect to the directions contained therein, it is difficult to hold that such an order is an administrative order. The power of the ITO is to make assessment under section 143 or 144. It is that assessment which is the subject-matter of appeal. The appellate authority, on an appeal against an order of assessment, has power to confirm, reduce, enhance or annul the assessment or to set aside the assessment and refer the case back to the ITO for making a fresh assessment in accordance with the directions given by such authority (section 251). Evidently the effect of an appellate order is that the assessment either stands confirmed, reduced or enhanced or it stands annulled or set aside. In case of confirmation, reduction or enhancement the original order of assessment stands modified to the extent of the directions given by the appellate authority. In the case of annulment, the order becomes non est. In case an order is set aside, the authority has to start the entire process afresh and make a fresh order of assessment complying with the directions given by the appellate authority. It is, thus, clear that what remains as a final order after giving effect to the orders of the appellate authorities is an order of assessment under section 143 or 144. It cannot be anything else.”

(emphasis supplied)

29. Further, Respondent No.1 in the present case also had to verify and allow the credit of the tax deducted at source to arrive at the tax payable by the Petitioner. The term ‘assessment’ bears a comprehensive meaning. It comprehends the whole procedure for ascertaining the total income and the determination of tax liability. The latter is as crucial as the former. The Assessing Officer in terms of Section 143(3) has to determine, by an order in writing, not only the total income but also the net sum which will be payable by the Assessee, in consequence of such an order. The Supreme Court in Kalyankumar Ray vs CIT [1991] 191 ITR 634 (SC) has held as under:

“Sri S. Padmanabhan, learned counsel for the petitioner, invited attention to the language of section 143(3) of the Act which mandates that the Income-tax Officer “shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment”. The Department, pointing to the placement of a comma after the word “assessee”, suggested before the Tribunal that an order in writing is required only for the assessment of the income or loss and that the determination of the sum payable can be an independent process, not necessarily in writing. The suggestion seems plausible but is not really tenable. As pointed out for the petitioner, judicial decisions under the 1922 Act as well as the present Act have read both clauses together. “Assessment” is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial for the assessee as the former. Section 144, which also describes the same process, makes no distinction as suggested. It will not, therefore, be correct to read the provision as leaving undefined the process of determination of the net sum payable by the assessee. In our opinion, therefore, learned counsel for the petitioner is right in his submission that the Income-tax Officer has to determine, by an order in writing, not only the total income but also the net sum which will be payable by the assessee for the assessment year in question and that the demand notice under section 156 has to be issued in consequence of such an order.

The statute does not, however, require that both the computations (i.e., of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed “assessment order”. It does not prescribe any form for the purpose. It will be appreciated that once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the Income tax Officer first draws up an order assessing the total income and indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it, either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialled by the Income-tax Officer that the process described in section 143(3) will be complete.”

(emphasis supplied)

30. As far as the consequence of not passing the order giving effect within the time limit as provided for in Section 153 of the IT Act is concerned, an identical controversy arose before this Court in the case of Laqshya Media Limited v. Asst/Dy. CIT [WP no. 468 of 2026], wherein it was held as under:

“17. It is thus an undisputed fact that Respondent No. 1 has not passed any assessment order pursuant to the order of the Tribunal by 31st March 2023, being the limitation prescribed in Sections 153(3) r.w.s. 153(4) of the Act.

18. We do not agree with the submissions made by Mr. Mishra that the return of income cannot be accepted as such, even in the absence of an order giving effect to the order of the Tribunal by the AO. We are of the view that the non-passing of an order giving effect to the order of the Tribunal / assessment order by Respondent No. 1 by 31st March 2023 has barred any demand to be raised upon the Petitioner and therefore, the return of income filed by the Petitioner needs to be accepted as such. Where Respondent No. 1 was obliged to comply with the directions of the Tribunal and complete the assessment upon remand, the inaction on his part to pass any assessment order within the limitation cannot disturb the income returned by the Petitioner.

19. We find support from the decision relied upon the Petitioner, in the case of CIT v. Shelly Products [2003] 261 ITR 367 (SC). Therein, the Hon’ble Supreme Court observed as under:

“30. What then is the effect of the failure to make an order of assessment after the earlier assessment made is set aside or nullified in appropriate proceedings? If the assessing authority cannot make a fresh assessment in accordance with the provisions of the Act it amounts to deemed acceptance of the return of income furnished by the assessee. In such a case  the assessing authority is denuded of its authority to verify the  correctness and completeness of the return, which authority it  has while framing a regular assessment. It must accept the  return as furnished and shall not in any event raise a demand for payment of further taxes. Accepting the income as disclosed in the return of income furnished by the assessee, it must refund to the assessee any tax paid in excess of the liability incurred by him on the basis of income disclosed. Even if the tax paid is found to be less than that payable, no further demand can be made for recovery of the balance amount since a fresh assessment is barred. In other words, the  tax paid by the assessee must be accepted as it is, and in the  event of the tax paid being in excess of the tax liability duly  computed on the basis of return furnished and the rates  applicable, the excess shall be refunded to the assessee, since its retention may offend Article 265 of the Constitution.”

….

22. We are therefore of the view that the return of income filed by the Petitioner for the year under consideration (AY 2014-15) has to be accepted as such.”

31. Further, we disagree with the contention advanced by Mr. Kumar that the assessment proceedings do not abate merely because the Assessee is entitled to interest under Section 244A(1A) of the IT Act for any delay in passing the OGE. Section 244A(1A) operates solely for the benefit of an Assessee by providing compensatory interest, where there is a delay on the part of the Department in granting a refund. It is probably meant to cover a case where an order is passed in time, but the refund is not granted.

However, the grant of such interest cannot validate or cure a belated Assessment Order. Further, in a situation where demand is sought to be raised, the Department cannot impose a tax liability if the OGE is not passed within the period of limitation provided for. It is a settled principle that the Department cannot take advantage of its own default. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. Consequently, any excess tax collected must be refunded, and Section 244A(1A) of the IT Act merely compensates an Assessee for delays in grant of such refunds; it does not legitimise proceedings or orders that are otherwise time-barred.

32. Admittedly, in the present case no order giving effect has been passed pursuant to the appellate order within the time limit provided for in Section 153 of the IT Act as stated above. This has resulted in the assessment abating, and the return of income of the Petitioner is to be regarded as accepted. The penalty proceedings were initiated in the course of the original assessment proceeding where Respondent No.1 had assessed the Petitioner’s receipt from the IMPPA as its business income. That basis no longer survives. A penalty under Section 271(1)(c) is levied on the amount of tax sought to be evaded. As in the present case there is no tax that is evaded as it is the income that is declared in the return that now represents the income that is assessed, the levy of penalty is unsustainable. When the very foundation of the penalty proceedings does not survive, the penalty order dated 30 March 2023, therefore, is unsustainable in law.

33. In view of the aforesaid conclusion, it is unnecessary to adjudicate the remaining contentions.

34. In view of the above discussion, the Petition succeeds. The penalty order dated 30 March 2023 passed under Section 271(1)(c) of the Income-tax Act, 1961 and the consequential demand notice are quashed and set aside. If any amount has been recovered pursuant to the impugned assessment and penalty proceedings, the same shall be refunded together with applicable interest in accordance with law.

35. In view thereof, we allow the present Writ Petition in terms of prayer clause (a), which is reproduced hereunder:”

“a. that this Hon’ble Court be pleased to issue a Writ of Certiorari or any other appropriate writ, order or direction in the nature of certiorari under Article 226 of the Constitution of India calling for all papers and proceedings of the Petitioner’s case pertaining to Assessment Year 2009-10, and after examining the validity, legality and propriety thereof, quash and set aside the impugned order dated 30 March 2023 along with the consequential notice of demand dated 30 March 2023 raised by the Respondent No. 1;”

36. Rule is made absolute in the aforesaid terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.

37. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.