Non- payment of cost imposed can’t trigger automatic confirmation of an invalid exparte assessment.

ITAT power to pass such orders “as it thinks fit” implies a judicial discretion to be exercised within the parameters of law, equity, and reason, and not an unbridled power to erect coercive financial barriers – High Court

In a recent judgment, Hon’ble High Court has held that the direction of ITAT imposing a heavy monetary cost as a precondition for the adjudication of a statutory appeal is arbitrary, unreasonable, and violative of the vested right of appeal.

ABCAUS Case Law Citation:
5222 (2026) (08) abacus.in HC

Important Case Laws relied upon by Parties:
CIT, Bombay v. Walchand & Co. Private Ltd.

The appellant was a company carrying on commercial service activities. For the relevant assessment year, the company filed its return of income which was initially processed under Section 143(1) of the Income Tax Act, 1961 (the Act).

Subsequently, National Faceless Assessment Centre initiated reassessment proceedings under Section 147 read with Sections 144 and 144B of the Act, acting upon generalized intelligence reports alleging that certain Kolkata-based entities managed by a chartered accountant were acting as paper conduits for accommodation entries.

The Assessing Officer (AO) by invoking Section 68 of the Act, passed an ex-parte assessment order creating a huge tax demand. The first appellate authority dismissed the appeal ex-parte through a cryptic order.

The ITAT though diagnosed the breach of natural justice committed by the CIT(A) and decided to set aside the order and remit the matter for de novo adjudication. However, the Tribunal shackled the remand with a cost of ₹1,00,000/- to be paid within sixty days. The Tribunal also incorporated a self-executing penal default clause stipulating that upon failure or default in depositing the said cost within the mandated window, the exparte order of the CIT(A) would stand automatically confirmed.

The Hon’ble High Court observed that by the said impugned order, while the Tribunal recorded a categorical finding of fact that the Commissioner of Income Tax (Appeals) had passed an ex-parte order denying the assessee an adequate opportunity of being heard in violation of the principles of natural justice, it nevertheless made the order of remand subject to a heavy monetary pre-condition with a self-executing penal default clause of automatic confirmation of the order of CIT(A) on default to deposit the penalty amount.

The Hon’ble High Court opined that when the remedial restoration was shackled by an arbitrary monetary precondition, coupled with a penal guillotine of “automatic confirmation” upon default, the judicial process was subverted into an instrument of oppression.

The Hon’ble High Court observed that the Tribunal effectively provided that non-payment of a procedural cost would automatically validate an otherwise illegal and unreasoned ex-parte assessment order without any adjudication on merits.

The Hon’ble High Court opined that such a direction amounts to a clear abdication of the core appellate jurisdiction vested in the Tribunal under Section 254(1) of the Act and renders the statutory remedy of appeal under Section 253 illusory and nugatory.

The Hon’ble High Court further observed that it is well established that the Income Tax Appellate Tribunal is a statutory tribunal deriving its authority strictly from Section 254 of the Act. While Section 254(1) empowers the Tribunal to pass such orders thereon “as it thinks fit,” and Rule 32 of the Income-tax (Appellate Tribunal) Rules, 1963 confers procedural powers to regulate its proceedings and grant adjournments on terms including costs, such powers cannot be stretched to defeat substantive statutory rights. The expression “as it thinks fit” implies a judicial discretion to be exercised within the parameters of law, equity, and reason, and not an unbridled power to erect coercive financial barriers.

The Hon’ble High Court held that a right of appeal is a valuable statutory right. As held by the Hon’ble Supreme Court procedural provisions are meant to advance the cause of justice and cannot be converted into a trap to defeat substantive rights. While ordinary procedural costs may be imposed to compensate for inconvenience or delay, costs can never be transformed into a pre-condition for the very survival of an appeal, nor can non- payment be made a trigger for automatic confirmation of an invalid exparte assessment.

The Hon’ble High Court held that while the Tribunal possesses inherent power to impose costs for procedural delays, such costs cannot be made a condition precedent resulting in automatic dismissal or confirmation.

Consequently, the Hon’ble High Court reduced the cost to ₹25,000/-, and the automatic default confirmation clause was quashed.

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