The Income Tax Appellate Tribunal, Mumbai, has reaffirmed that interim orders issued by High Courts in pending writ petitions bind assessing officers and first appellate authorities. In a significant ruling, the Tribunal set aside an assessment order that disregarded explicit judicial directions to treat an exemption application as approved, emphasizing that administrative action cannot override judicial stays.
Background & Facts
The Dispute
The appellant, Breach Candy Hospital Trust, is a charitable trust registered under Section 12A of the Income Tax Act, 1961, and operates a hospital providing medical services. It sought exemption under Section 10(23C)(via) of the Act, which grants tax exemption to charitable institutions engaged in medical care. The Trust’s applications for approval under this provision were rejected twice - first on 15.04.2010 and again on 28.09.2012 - leading to two separate writ petitions before the Bombay High Court.
Key Facts
- The Trust was granted approval under Section 10(23C) for A.Y. 1999-2000 to 2001-02 via CBDT order dated 10.04.2003.
- Application for renewal for A.Y. 2010-11 was rejected on 15.04.2010.
- Writ Petition No. 2462 of 2010 was filed challenging the rejection; interim relief was granted on 17.01.2011 and made absolute on 13.06.2011.
- The interim order directed the Assessing Officer to complete assessments on the basis that the Trust’s application under Section 10(23C)(via) was deemed approved.
- A second application for renewal for subsequent years was rejected on 28.09.2012.
- Writ Petition No. 1051 of 2013 was filed with identical prayers; interim relief was granted on 25.04.2014.
- For A.Y. 2013-14, the Trust claimed exemption under Section 10(23C)(via) and alternatively under Section 11.
- The Assessing Officer disallowed depreciation, gratuity, and leave encashment claims, computed total income at Rs. 40,73,35,146, and granted exemption under Section 10(23C)(via) only after computing under Section 11.
- The exemption granted under Section 10(23C)(via) was restricted to Rs. 34,62,34,874, despite the interim orders.
Procedural History
- 15.04.2010: First rejection of Section 10(23C)(via) application.
- 17.01.2011: Bombay High Court grants interim relief in W.P. No. 2462 of 2010.
- 13.06.2011: Interim relief made absolute in W.P. No. 2462 of 2010.
- 28.09.2012: Second rejection of Section 10(23C)(via) application.
- 25.04.2014: Bombay High Court grants interim relief in W.P. No. 1051 of 2013.
- 20.11.2025: Assessment order passed by Assessing Officer for A.Y. 2013-14.
- 22.12.2025: Appeal filed before First Appellate Authority (CIT(A)).
- Throughout 2025: Appellant repeatedly requested CIT(A) to keep appeal pending pending final disposal of writ petitions.
- 29.04.2026: ITAT Mumbai delivers judgment.
The Parties' Positions
For the Appellant
The Trust argued that the Assessing Officer and First Appellate Authority violated the binding interim orders of the Bombay High Court by proceeding to assess income under Section 11 and then granting partial exemption under Section 10(23C)(via). It emphasized that the High Court had explicitly directed that assessments be completed as if the application were approved. The Trust also highlighted that the remand report relied upon by CIT(A) was never disclosed to it, violating principles of natural justice.
For the Respondent
The Departmental Representative relied on the Assessing Officer’s computation and argued that the exemption under Section 10(23C)(via) was correctly applied after evaluating eligibility under Section 11. No substantive rebuttal was made regarding the binding nature of the interim orders.
Relief Sought
The appellant sought setting aside of the CIT(A) order dated 20.11.2025, direction to keep the appeal in abeyance until final disposal of the writ petitions, and compliance with the High Court’s interim directions.
The Legal Issue
The central question was whether an Assessing Officer and First Appellate Authority are bound by interim orders issued by the High Court directing that an application for exemption under Section 10(23C)(via) be treated as approved, pending final adjudication of a writ petition.
Arguments Presented
For the Appellant
The appellant relied on the express language of the interim orders dated 17.01.2011 and 25.04.2014, which directed the revenue authorities to complete assessments on the basis that the Trust’s application under Section 10(23C)(via) was approved. It cited State of U.P. v. Krishna Kumar to argue that judicial orders, even interim ones, are binding on administrative authorities. The Trust further contended that the First Appellate Authority’s reliance on a remand report not disclosed to it violated the principles of audi alteram partem.
For the Respondent
The Department did not dispute the existence or content of the interim orders. It merely reiterated the Assessing Officer’s computation under Section 11 and argued that the exemption under Section 10(23C)(via) was granted as a fallback. No legal authority was cited to justify disregarding the High Court’s directions.
The Court's Analysis
The Tribunal meticulously reviewed the interim orders of the Bombay High Court and found them unambiguous. The Court observed that the High Court’s direction was not a mere suggestion but a mandatory injunction: "the Respondents be... complete assessments and all other proceedings under the Act on the basis that the Petitioners’ applications under section 10(23C)(via) are approved."
"The Assessing Officer, instead of carrying out the directions of Hon'ble High Court in letter and spirit, has proceeded to examine assessee's claim of exemption u/s. 11 of the Act and after computing the income... has granted exemption u/s. 10(23C) of the Act at a much reduced amount."
The Tribunal held that the Assessing Officer’s conduct amounted to a direct defiance of judicial authority. The First Appellate Authority, despite being aware of the pendency of writ petitions and the interim orders, chose to dispose of the appeal based on a remand report that was never placed before the appellant. This violated the fundamental principle of natural justice.
The Tribunal further noted that the Trust had made repeated, documented requests to stay the appeal proceedings, which were acknowledged in paragraph 3 of the CIT(A) order. The successor authority’s decision to proceed without considering these submissions was arbitrary and legally unsustainable.
The Tribunal emphasized that tax administration cannot operate in a vacuum insulated from judicial oversight. Where a High Court has issued a binding interim direction, revenue authorities must comply, regardless of their internal views on the merits of the exemption claim.
The Verdict
The appeal is allowed for statistical purposes. The order of the First Appellate Authority dated 20.11.2025 is set aside. The appeal is directed to remain in abeyance until the final disposal of the pending writ petitions before the Bombay High Court. Upon receipt of the final High Court order, the appellant must communicate it to the First Appellate Authority, which shall then decide the appeal strictly in accordance with the High Court’s final ruling.
What This Means For Similar Cases
Judicial Interim Orders Are Binding on Tax Authorities
- Practitioners must immediately notify the Assessing Officer and CIT(A) of any interim High Court order in writ petitions affecting tax liability.
- Failure to comply with such orders constitutes a jurisdictional error and is grounds for setting aside assessments.
Procedural Fairness in Appeals Cannot Be Ignored
- Remand reports or additional evidence obtained during appeal proceedings must be disclosed to the assessee before reliance.
- Non-disclosure invalidates the appellate order, irrespective of the outcome.
Stay Requests Must Be Documented and Reiterated
- Repeated written requests to keep appeals pending during pending litigation should be formally recorded and preserved.
- Tribunals will consider such documentation as evidence of procedural diligence and prejudice.
