Ajitnath Suppliers Private Limited v. Principal Commissioner of Income Tax-1, Kolkata and Ors.
ITAT No. 120 of 2026 | IA No. GA 2 of 2026 | Calcutta High Court | Division Bench | Pronounced on 7 August 2026
The Calcutta High Court has held that when the Income Tax Appellate Tribunal itself finds that an assessee was denied an adequate opportunity of hearing by the Commissioner of Income Tax (Appeals), it cannot make the resulting remand conditional upon payment of a substantial monetary cost coupled with an automatic confirmation clause upon default. Such a condition impermissibly converts a remedial order into a coercive decree and undermines the statutory appellate remedy.
Background of the Case
Ajitnath Suppliers Private Limited filed its return of income for Assessment Year 2018–19 declaring total income of ₹34,96,733. Reassessment proceedings were subsequently initiated under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961 in relation to an unsecured loan of ₹1,23,50,000 received from M/s Excellent Infrabuild Private Limited. The assessing authority made an addition under Section 68 and passed an ex-parte assessment order dated 30 November 2023, resulting in an aggregate tax demand of ₹1,81,74,868.
The assessee challenged the assessment before the CIT(A), National Faceless Appeal Centre. The appeal was dismissed ex-parte on 19 December 2024. Thereafter, the assessee approached the Income Tax Appellate Tribunal, Kolkata Bench, which found that the CIT(A) had denied adequate opportunity of hearing and remanded the matter for fresh adjudication. However, the Tribunal imposed a cost of ₹1,00,000 payable to the Legal Aid Services, High Court, Calcutta within 60 days and directed that, upon default, the CIT(A)’s order would stand automatically confirmed.
Core Issue
The principal question before the High Court was whether the ITAT, after recording a violation of the principles of natural justice by the CIT(A), could make restoration of the appeal conditional upon payment of ₹1,00,000 and provide that failure to deposit such cost would automatically confirm the ex-parte appellate order without adjudication on merits.
High Court on Tribunal’s Powers Under Section 254
The Court observed that the ITAT derives its authority from Section 254 of the Income Tax Act. Although Section 254(1) empowers the Tribunal to pass such orders as it thinks fit and procedural costs may be imposed in appropriate circumstances, such power cannot be exercised so as to defeat substantive statutory rights.
The expression “as it thinks fit” confers judicial discretion which must operate within the parameters of law, reason and fairness. The Tribunal cannot transform procedural costs into a financial barrier affecting the very survival of a statutory appeal.
Automatic Confirmation Clause Held Unsustainable
The High Court found that once the Tribunal had categorically concluded that the CIT(A)’s order suffered from breach of natural justice, the legally permissible course was to ensure a proper and effective adjudication of the appeal.
By directing that failure to pay ₹1,00,000 would automatically confirm the CIT(A)’s order, the Tribunal allowed an order already found procedurally defective to attain finality without adjudication on merits. The Court held that such a self-executing penal clause amounted to an impermissible fetter on access to justice and rendered the statutory remedy of appeal illusory.
Requirement of a Speaking Order Under Section 250(6)
The Court also examined Section 250(6) of the Income Tax Act, which requires the CIT(A) to state the points for determination, the decision thereon and the reasons for such decision.
It observed that the CIT(A)’s ex-parte order was vulnerable because it did not satisfy this statutory requirement. A non-speaking summary confirmation of an assessment could not be allowed to attain automatic finality merely because the assessee failed to pay a procedural cost imposed by the Tribunal.
Section 68 Addition Requires Fresh Adjudication
The underlying addition concerned an unsecured loan of ₹1,23,50,000 under Section 68 of the Act. The High Court noted that the assessee had placed contemporaneous banking records and corporate details concerning M/s Excellent Infrabuild Private Limited on record.
The Court held that the questions relating to the identity and creditworthiness of the lender and the genuineness of the transaction required proper factual examination by the CIT(A) after granting the assessee full opportunity of hearing. It therefore did not finally adjudicate the merits of the Section 68 addition but directed fresh consideration by the First Appellate Authority.
Final Decision
The Calcutta High Court partly allowed ITAT No. 120 of 2026 and modified the Tribunal’s order dated 23 June 2025.
The cost imposed upon the assessee was reduced from ₹1,00,000 to ₹25,000, and the direction providing for automatic confirmation of the CIT(A)’s order in case of non-payment was quashed and set aside. The assessee was directed to deposit the reduced cost with the Legal Aid Services, High Court, Calcutta within four weeks.
The assessment proceedings were restored to the CIT(A), National Faceless Appeal Centre, for fresh de novo adjudication on merits. The CIT(A) was directed to consider the documentary evidence and pass a reasoned order in accordance with Section 250(6) within twelve weeks from receipt of the server copy of the judgment. Until the fresh appellate order is passed, the Court directed that no coercive recovery action arising from the addition of ₹1,23,50,000 should be pursued against the assessee.
Key Takeaway
An appellate tribunal may impose reasonable procedural costs, but such costs cannot be converted into a condition precedent that extinguishes the statutory right of appeal or automatically validates an order found to have been passed in breach of natural justice. Where the CIT(A)’s order is procedurally defective, the assessee must receive a meaningful opportunity for adjudication on merits.
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