THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD.,SONEPAT vs. ITO WARD-1, SONEPAT

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ITA 3185/DEL/2023Status: DisposedITAT Delhi16 October 2026AY 2018-198 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal admitted the additional ground of appeal as it was purely legal. Regarding the jurisdiction of the AO, the Tribunal observed that while the Section 143(2) notice initially specified two issues (dividend income and expenses for earning exempt income), the case was selected for complete scrutiny. The Tribunal held that once a case is selected for complete scrutiny, it is open for the AO to enlarge the scope of assessment by examining issues other than those initially informed in the Section 143(2) notice. The Tribunal found no infirmity in the AO's order in making disallowances out of various expenses claimed by the assessee, dismissing the additional ground of appeal. For grounds 2 to 9, concerning disallowances of gratuity, 7th Pay Commission provision, CBS expenses, staff salary, leave encashment, consultancy fee, and interest subvention, the Tribunal noted that the assessee failed to file proper explanations and documentary evidence before the lower authorities. Therefore, the Tribunal set aside the orders of the lower authorities and remanded the matter to the AO for fresh examination, directing the assessee to appear and provide all necessary details and evidence. These grounds were allowed for statistical purposes.

What were the facts?

The assessee, The Sonepat Central Co-operative Bank Ltd., filed its return of income for Assessment Year 2018-19 declaring a total income of INR 3,79,71,040/-. The case was selected for scrutiny. The Assessing Officer (AO) made additions of INR 5,80,219/- under Section 14A read with Rule 8D, disallowed INR 2,40,15,511/- on account of various provisions debited to the Profit & Loss Account, and disallowed INR 81,30,347/- on account of interest subvention reversed to HB expenses. The assessee appealed to the Ld. CIT(A), who partly allowed the appeal. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT). The assessee also raised an additional ground of appeal concerning the jurisdiction of the AO to make additions beyond the issues initially specified in the notice under Section 143(2).

What were the issues?

1. Whether the additional ground of appeal, relating to the jurisdiction of the AO to make additions beyond the issues specified in the Section 143(2) notice, is admissible? (Question of law) 2. Whether the additions/disallowances made by the AO beyond the issues specified in the Section 143(2) notice are without jurisdiction? (Question of law) 3. Whether the disallowances made by the AO on account of provisions debited to the Profit & Loss Account and interest subvention reversed to HB expenses are justified? (Question of mixed law and fact) Assessee's Contentions: - The additional ground of appeal is purely legal and requires no factual verification, relying on *NTPC vs CIT* (SC) and *CIT vs Pruthvi Brokers & Shareholders (P.) Ltd.* (Bom. HC). - The AO exceeded his jurisdiction by making additions/disallowances on issues not mentioned in the Section 143(2) notice, which limited the scope of inquiry as per CBDT Instructions No. 7/2014, 20/2015, and 5/2016. The E-assessment Scheme, 2019 also mandates specifying issues in the Section 143(2) notice. - For grounds 2 to 9, the assessee sought one more opportunity to file details and explanations before the AO, as these were not adequately filed before the lower authorities. Revenue's Contentions: - The case was selected for complete scrutiny, and the AO stated this in the assessment order. Therefore, it was open for the AO to examine issues beyond those initially specified in the Section 143(2) notice. - The AO's factual report indicated the case was selected for complete scrutiny with two initial reasons, but the assessment order mentioned complete scrutiny. - The Revenue supported the orders of the lower authorities for grounds 2 to 9.

Which sections of the Income-tax Act were involved?

Section 14A,Section 40A(7),Section 143(2),Section 143(3),Section 144B,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI “A” BENCHES, NEW DELHI

Before: SHRI ANUBHAV SHARMA & SHRI SHRI MANISH AGARWAL

For Respondent: Shri Balkrishan Gopal, Sr. DR

आयकर अपीलीय अिधकरण, िद�ी पीठ�, नई िद�ी INCOME TAX APPELLATE TRIBUNAL DELHI “A” BENCHES, NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA 3185/DEL/2023 (िनधा�रण वष�/Assessment Year: 2018-19) THE SONEPAT CENTRAL CO- ITO WARD-1 OPERATIVE BANK LTD. SONIPAT-, HARYANA Vs. TIKA RAM ROAD, MISSION ROAD, SONIPAT-131001, HARYANA अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of Assessee: AAAAT4236C

अपीलाथ� �ारा/Appellant represented by: Sh. Lalit Mohan, CA ��थ� �ारा/Respondent represented by: Shri Balkrishan Gopal, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 28-Jul-2026 घोषणा की तारीख / Date of pronouncement: 16-Oct-2026

ORDER 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.

2.

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

ITA 3185/DEL/2023 THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD. 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.

3.

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.

4.

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.

5.

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:-

1.

“That following addition/disallowances made in the order of assessment dated 27.9.2021 u/s 143(3)/144B of the Act are without jurisdiction in view of the CBDT instructions no. 7/2014 dated 26.09.2014, Instruction No. 20/2015 dated 29.12.2015, instruction no. 5/2016 dated 14.07.2016 and instruction for unauthorized expansion of scope of limited scrutiny dated 30.11.2017.”

ITA 3185/DEL/2023 THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD. 6. 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:- (i) CIT vs Pruthvi Brokers & Shareholders (P.) Ltd. reported in 349 ITR 336 (Bom.HC); (ii) DIT(E) (Del) vs Ajay G.Piramal Foundation reported in 228 Taxman 332 (Delhi.HC); 7. 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.

8.

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:- (i) Dividend income (ii) Expenses incurred for earning exempt income 9. 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

ITA 3185/DEL/2023 THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD. 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.

10.

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:- (i) Dividend income (ii) Expenses incurred for earning exempt income

ITA 3185/DEL/2023 THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD. 11. 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:-

ITA 3185/DEL/2023 THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD. 12. 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.

13.

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 7th 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

ITA 3185/DEL/2023 THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD. 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.

14.

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.

15.

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

16.

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.

ITA 3185/DEL/2023 THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD.

17.

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

Order pronounced in the open court on 16.10.2026. Sd/- Sd/-

(ANUBHAV SHARMA) (MANISH AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Date-16.10.2026 *Amit Kumar, Sr. P.S*

Copy to: THE SONEPAT CENTRAL CO-OPERATIVE BANK LTD., TIKA RAM ROAD, MISSION 1 ROAD, SONIPAT-131001, HARYANA 2 ITO WARD-1, SONIPAT-, HARYANA 3 THE PCIT / CIT, 4 THE D.R., ITAT, DELHI BENCH 5 GUARD FILE

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