The Calcutta High Court (HC) has set aside an order of the income-tax appellate tribunal (ITAT) that had imposed a cost of Rs50,000 on a small trader while remanding his case for fresh assessment. The HC held that such a heavy penalty on an individual assessee was harsh and unjustified, especially when the tribunal itself found it necessary to restore the matter for reconsideration.
The division bench comprising chief justice TS Sivagnanam and justice Chaitali Chatterjee (Das) delivered the judgement last month, setting aside the ITAT Kolkata ‘SMC’ bench order dated 15 July 2025 for assessment year (AY)17–18. "In any event, the tribunal opined that the matter has to be redone and remanded the matter back to the assessing officer (AO). However, we find that imposition of cost of Rs50,000 would be harsh on the appellant, more particularly, when he is a small time trader and an individual assessee. That apart, the issue pertains to the assessment year (AY)17-18. The assessee has undertaken before this Court that he will cooperate in the de novo assessment proceedings in terms of the directions issued by the learned tribunal and one more opportunity may be granted."
Abdul Mannan, an individual trader dealing in glass articles, had filed an appeal before the HC under Section 260A of the Income Tax (I-T) Act, 1961, challenging the ITAT’s decision. The tribunal had remanded his case to the AO for fresh assessment but directed him to pay Rs50,000 to the legal aid services at Calcutta HC, citing repeated non-compliance with earlier notices.
Mr Mannan explained that he could not attend the assessment and appellate proceedings due to ill health, limited knowledge of online procedures and complete reliance on a consultant who failed to appear before the authorities. The assessment had been completed ex parte under Section 143(3) of the Act on 23 October 2019, after which his appeal before the commissioner of income tax-appellate (CIT(A)) was also dismissed without addressing his grounds.
After examining the records, the HC found that the CIT (A) had disposed the case in violation of Section 250(6) of the I-T Act, which requires the appellate authority to give reasons for its decision and address all grounds raised by the assessee.
“The appellate authority has not dealt with the grounds canvassed by the appellant in the appeal petition, but merely stated that no interference was called for with the order of the AO,” the bench observed.
The Court noted that the ITAT itself had accepted the need for a fresh assessment, effectively acknowledging procedural irregularities in the earlier proceedings. In such a situation, imposing an additional financial burden on the appellant was deemed excessive.
“When the tribunal itself found that the matter required to be redone, imposing a cost of Rs50,000 on the assessee would be harsh, particularly when he is a small-time trader and an individual assessee,” the bench held.
The Court further observed that there was no material produced by the tax authorities to disprove the assessee’s explanation for his non-appearance before the lower authorities.
Setting aside the portion of the tribunal’s order that levied the cost, the Court remanded the matter to the AO with directions to issue fresh notice and complete the assessment after granting full opportunity of hearing to the assessee.
The bench recorded the assessee’s undertaking that he would cooperate with the proceedings and refrain from seeking unnecessary adjournments. The assessing officer has been instructed to pass a fresh order on merits and in accordance with law after considering all materials and submissions.
The Court also clarified that the substantial questions of law raised in the appeal were left open for future consideration.
In its July 2025 order, ITAT had condoned a delay of 464 days in filing the appeal and allowed the matter to be remanded to the AO 'in the interest of justice'. However, it had simultaneously imposed a cost of Rs50,000, directing that it be paid to the legal aid services within 60 days, warning that failure to do so would automatically confirm the order of the CIT(A).
The HC found this approach inconsistent with the spirit of fair adjudication. “Imposing such a cost on a small trader for restoration of appeal proceedings is neither warranted nor proportionate,” the judges said, while allowing the appeal.
Allowing the appeal, the HC disposed the stay application and directed the AO to undertake a de novo assessment after issuing due notice to Abdul Mannan.
The judgement reinforces judicial restraint in imposing costs and underscores the principle that procedural fairness must not be sacrificed even where there is delay or non-appearance, especially when dealing with small or individual taxpayers.
(ITAT/170/2025, GA/1/2025, Date: 9 September 2025)
