The Sonepat Central Co-Operative Bank Ltd. vs ITO Ward-1

PER MANISH AGARWAL, A.M.:

The present appeal is filed by assessee against the order dated 18.09.2023 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2017-18/10086435 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 27.09.2021 passed u/s 143(3) r.w.s. 144B of the Act pertaining to Assessment Year 2018-19.

Brief facts of the case are that the assessee is a company, engaged in the business of banking duly recognized by Reserve Bank of India. The assessee e-filed its return of income, declaring total income of INR 3,79,71,040/-. The case was selected for scrutiny under CASS and the return was processed u/s 143(1) of the Act and duly served. Notice u/s 143(2) of the Act was issued on 22.09.2019 and served upon the assessee. Thereafter, notice u/s 142(1) of the Act on different dates were issued alongwith a detailed questionnaire and served upon the assessee for furnishing details and relevant information. Show cause notice dated 01.06.2021 was duly served upon the assessee in response to which the assessee has submitted relevant replies and information which are not accepted by the AO. Thereafter, the AO has computed the total income of the assessee by making addition of INR 5,80,219/- u/s 14A r.w.s. Rule 8D of the Income Tax Rules, 1962; disallowance of INR 2,40,15,511/- on account of various provisions debited to Profit & Loss Account for relevant Assessment Year; and disallowance of INR 81,30,347/- on account of interest subvention reversed to HB expenses.

Against the said order, assessee filed an appeal before ld. CIT(A) who vide order dated 18.09.2023, partly allowed the appeal of the assessee.

Aggrieved by the order of ld. CIT(A), assessee is in appeal before the Tribunal by taking various grounds of appeal mentioned in the appeal memo.

During the course of appellate proceedings, the assessee vide letter dated 02.12.2025 has taken an additional Ground of appeal which reads as under:-

For the admission of the additional ground of appeal, the ld. AR submits that the additional ground of appeal is purely legal in nature and requires no verification of fact and thus could be admitted at this stage. He placed reliance on the judgement of Hon’ble Supreme Court in the case of NTPC vs CIT reported in 229 ITR 383 (SC). The assessee also relied upon following judgements:-

CIT vs Pruthvi Brokers & Shareholders (P.) Ltd. reported in 349 ITR 336 (Bom.HC);

DIT(E) (Del) vs Ajay G.Piramal Foundation reported in 228 Taxman 332 (Delhi.HC);

On the other hand, Ld. Sr. DR for Revenue requested for the factual report from the AO, therefore an opportunity was given to Revenue for filing the factual report in this regard. Thereafter, AO vide letter dated 1.02.2026 has filed the factual report wherein it is stated that the case of the assessee was selected for complete scrutiny however, there are Two reasons for selection of the case which are as states above. Ld. Sr. DR further submits that in the assessment order also, the AO stated that the case was selected for complete scrutiny and therefore, the claim of the assessee that the issues which are not specified in the notice issued u/s 143(2) of the Act, could be taken up for consideration. He requested accordingly.

In rejoinder, ld. AR for the assessee submits that it is clear from the notice issued u/s 143(2) of the Act placed at page 22 of PB, as per which the case was selected under CASS for scrutiny on following Two issues:-

Dividend income

Expenses incurred for earning exempt income

Ld.AR further submits thereafter in none of the notices issued u/s 142(1), the AO has never stated any reason for examining the issues other than the issues referred in the notice issued u/s 143(2) of the Act. Ld.AR drew our attention to the notice issues on various dates and further drew our attention to the reply filed on 07.06.2021 to the draft assessment order on 28.05.2021 wherein the assessee has categorically challenged the action of the AO in extending the scope of the enquiry and verification on the issues which are in addition to the issues stated in the notice issued u/s 143(2) of the Act for which the case was selected for complete scrutiny. Ld.AR relied upon CBDT instruction No. 07/2014 dated 26.09.2014; Instruction No.20/2015 dated 29.12.2015; and instruction No.05/2016 dated 14.0.2016. Ld. AR submits that as per the Instruction No. 07/2014 dated 26.09.2014, once the case is selected under CASS for scrutiny, the scope of inquiry should be limited to the issues which are given in the notice issued u/s 143(2) of the Act. In case, the AO wanted to go beyond the reasons stated u/s 143(2), the AO has to inform the assessee the reasons for which he is proposing to going further. Ld. AR further drew our attention to the Notification dated 13.08.2020 notifying the or E-assessment Scheme, 2019, wherein as per clause (5)(1)(i), notice u/s 143(2) is to be issued specifying the issue for selection of case for assessment. Ld. AR submits that in the instant case, once the case is taken for scrutiny under CASS on Two issues which were informed to the assessee vide notice issued u/s 143(2) of the Act, AO has no power to go beyond such issues even though it is stated that the case was selected for complete scrutiny unless the procedure laid down of intimating the assessee about the reason for doing so be intimated in advance, which in the instant case is missing. He, therefore, submits that additions/disallowances made beyond the issues for which the case was selected for scrutiny deserves to be hold bad in law and the consequent order passed on such issues be quashed.

Heard the contentions of both parties at length and perused the material available on record. At the outset, it is seen that the case of the assessee was selected under CASS for complete scrutiny and as per the notice issued u/s 143(2) following Two issues were stated:-

Dividend income

Expenses incurred for earning exempt income

From the assessment order, it is observed that AO has discussed these issues in para 4 of its order wherein AO observed that the assessee has received dividend income of INR 58,02,080/- and by invoking the provision of section 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 has computed the amount

of disallowance at INR 5,80,219/-. Thereafter, the AO made the disallowance out of various provisions debited in Profit & Loss Account and further disallowed the interest subvention expenses claimed though these issues are not part of the issues stated in the notice issued u/s 143(2) for selection of the case under scrutiny as per CASS. Before going further, notice issued u/s 143(2) of the Act dated 22.09.2019 is reproduced as under:-

From the above it is crystal clear that in the notice issued under section 143(2) of the Act, the AO itself has specifically stated that initially Two issues were taken for consideration however, it is undisputed fact the case of the assessee was selected for complete scrutiny. Once the case was taken for complete scrutiny, it is open for the assessing officer to enlarge the scope of assessment by examining the issues other than the initial issues informed to the assessee in the notice u/s 143(2) of the Act. Further the argument of the AO that the in the meeting with PCCIT and PCIT, New Delhi on 03.12.2020, it has been specifically directed vide “Minutes of Meeting dated 03.12.2020” that only CASS reason has to be examined in all complete scrutiny cases. In our considered opinion such direction can be the administrative but are not having binding nature as they were not issued by the CBDT in terms of the powers conferred under the Act and therefore based on such directions, assessee could be succeeded. Under these circumstances of the case, we find no infirmity in the order of the AO in making disallowance out of various expenses claimed by the assessee in Profit & Loss Account. Accordingly ground of appeal No. 1 of the assessee is hereby, dismissed.

Ground of appeal Nos. 2 to 9 raised by the assessee are with respect to the disallowance of gratuity u/s 40A(7) of INR 50.00 Lakhs; disallowance of deduction claimed representing business of INR 1.00 crores for 7^th Pay Commission provision; disallowance of deduction of CBC expenses of INR 16,65,511/-; disallowance of expenditure incurred on staff salary of INR 22.00 Lakhs by outsourcing employees; disallowance of leave encashment of INR 50.00 Lakhs; disallowance of CA consultancy fee of INR 1.50 Lakhs; and disallowance of interest subvention reversed to HB expenses of INR 81,30,347/-. It is observed that while making the aforesaid disallowance, the AO observed that assessee has filed to tender any proper explanation and therefore, the same were added back/ disallowed. These disallowances have been bifurcated by the AO in Two segments -First segment was of provision debited in the Profit & Loss Account of INR 2,40,15,511/- which includes disallowance of leave encashment, provision for gratuity, provision of 7th Pay Commission, deduction of CBS, staff salary out sourced and CA consultancy fee. Likewise other segment was of interest subvention expenses.

Before us, ld.AR for the assessee submits that neither before the AO nor before the ld. CIT(A), the relevant details with respect to these expenses could be filed by the assessee and therefore, requested that one more opportunity be provided and the matter may be sent to the AO so that the assessee could file all the plausible explanations and evidences against these additions/disallowances.

On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities.

Heard the contentions of both the parties and perused the material available on record. It is observed that before both the lower authorities, assessee has failed to file the documentary evidences and explanation with respect to the expenditures disallowed by the AO. Thus, after considering the request of the assessee, we set aside both the orders of the lower authorities and remand to the file of AO with the directions to examine the submissions made by the assessee and the evidences produced in support to the claim of expenses and decide as per law. At the same time, assessee is also directed to appear before the AO and filed all the necessary details to prove the genuineness viz a viz business expediency of the expenses claimed. With these directions, Ground of appeal Nos. 2 to 9 raised by the assessee are allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed for statistical purposes.