NADIA DISTRICT CENTRAL CO-OPERATIVE BANK LTD.,NADIA vs. PCIT-1, KOLKATA

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 21.12.2023 for the AY 2018-19. 02. The assessee has challenged the exercise of revisionary juri iction by ld. PCIT u/s 263 of the Act as invalid without satisfying twin conditions as envisaged u/s 263 of the Act. Besides the assessee has raised an additional ground of appeal, which is extracted below:-
“That the ld. AO erred in issuing notice u/s 143(2) of the Act dated 22.09.2019
without complying to the CBDT Instruction F.No.225/157/2017/ITA-II dated
23.06.2017 and so the notice issued u/s 143(2) is not valid as per law and hence the entire assessment proceedings u/s 143(3) of the Act and consequent
Nadia District Central Co-operative Bank Ltd; A 2018-19

revision proceedings u/s 263 of the Act are without juri iction and liable to be quashed.”
03. We find that the issue raised in the additional ground is with respect to invalid issuance of notice u/s 143(2) of the Act dated 22.09.2019, without confirming to the CBDT Instruction F.no. 225/157/2017/ITA-II dated 23.06.2017 and thereafter the same is claimed to be invalid thereby rendering them the entire proceeding u/s 143(3) of the Act and also the consequent revisionary proceedings u/s 263 of the Act to be without juri iction and invalid. We note that the issue raised is purely legal issue which goes to the root of the matter and also that no further verification of facts is required to be done from any quarter whatsoever. Therefore, we are inclined to admit the same for adjudication as also the case of the assessee squarely covered by the decision of Jute Corporation of India Ltd. Vs CIT in 187 ITR 688(SC) and National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 (SC).
04. The ld. AR vehemently submitted before us that the CBDT vide instruction no.
F.No.225/157/2017/ITA-II dated
23.06.2017, prescribed that the notices u/s 143(2) of the Act to be issued in a specific format. The ld. AR submitted that the said CBDT instruction is mandatory in nature and the authorities below are under application to comply with the said instruction. The ld. AR stated that the said instruction has prescribed three formats for issuing notices namely (i) limited scrutiny (computer aided scrutiny selection), (ii) complete scrutiny (computer aided scrutiny selection) and (iii) Compulsory manual selection.
05. The ld. Counsel for the assessee also filed before us the copies of these notices u/s 143(2) of the Act in three formats, from page no. 2
to 4 of the paper book. Thereafter, the ld. Counsel for the assessee also filed a physical copy of the notice actually issued u/s 143(2) of Nadia District Central Co-operative Bank Ltd; A 2018-19

the Act dated 22.02.2019 and submitted that the said notice is not conforming to any of the three formats of notices to be issued u/s 143(2) of the Act as mandated by the CBDT. The ld. AR therefore, prayed that the assessment framed on the basis of that notice is invalid and nullity in the eyes of the law and therefore, all consequential proceedings emanating therefrom including the revisionary proceedings are invalid and not sustainable in the eyes of law. The ld. AR therefore prayed that the same are liable to be quashed. In defense of his argument, the ld. AR relied on the decisions of the co-ordinate Benches in case of Srimanta Kumar Shit
Vs. ACIT in ITA No. 1911/KOL/2024 vide order dated 19.11.2024 for A.Y. 2017-18 and in the case of Shib Nath Gosh Vs ITO in ITA No.
1812/KOL/2024 vide order dated 29.11.2024 for A.Y. 2018-19, wherein the issue has been decided in favour of the assessee by holding that the notice issued in any format which is not as per the CBDT Instruction is invalid and assessment framed based there upon is also invalid and nullity in the eyes of the law.
06. The ld. DR on the other hand strongly opposed the arguments the ld.
AR by submitting that the CBDT vide the said above instruction has directed to issue the notice u/s 143(3) of the Act after the date of said instruction in the revised formats only which was specified in the instruction itself. However, the system director is effecting necessary changes in the ITBA module in that regard. The ld. AR argued that since the notice has been generated on line and not issued by the AO manually ,therefore, the observations of the ld. AR deserved to be dismissed at the very first stage because, the system director could not make the necessary changes in the ITBA Module and hence the notice was issued in a different format.
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Complete Scrutiny (Computer Aided Scrutiny Selection)
Compulsory Manual Scrutiny
The revised format of 143(2) notice(s) with a note on benefits & Procedures of 'EProceeding' facility are enclosed for information of the field authorities.
3. I am further directed to state that all scrutiny notices under section 143 (2) of the Act, shall henceforth, be issued in these revised formats only. The Systems Directorate is effecting necessary changes in the IT BA module in this regard.
4. The above may be brought to the notice of all for necessary compliance.
Enclosures(s): as above (Rohit Garg)
Director-ITA.II,”
08. After hearing the rival contentions and perusing the materials available on record including the above instruction, we find that the post 23.06.2017, the notice u/s 143(2) of the Act was required to be issued in any of the three formats mentioned in the said instructions above. We further note that in para 3 of the said instruction it is stated that all notice u/s 143(2) of the Act shall henceforth be issued in this revised format only. Therefore, we find merit in the contentions of the ld. AR that the notice dated 22.02.2019, issued u/s 143(2) of the Act is not conforming to the formats of notices as prescribed in the above said instruction. For the sake of ready reference the said notice is also extracted below:-

Leave Blank intentionally
Nadia District Central Co-operative Bank Ltd; A 2018-19

“this return was selected for scrutiny in “CASH” on the issue of cash deposits during demonetization period”. It would indicate that the case was selected for scrutiny but for the issue of cash deposit during demonetization, this mention of the issue would indicate that it was for a limited purpose of scrutinizing the cash deposit uring demonetization. Its scope for making other additions would only be enlarged by following due procedure laid down by the CBDT vide its Instruction No. 5 (reproduced supra).
13. The Hon’ble Juri ictional High Court had an occasion to consider an identical situation in the case of Weilburger Coatings (India) (P.) Limited
(supra), wherein Tribunal has followed the CBDT’s Instruction bearing No. 5 of 2016. The questions before the Hon’ble High Court were –
(a) whether in the facts and circumstances of the case and in law, the ld.
Tribunal has committed substantial error in law in deleting the disallowance of carry forward of losses of earlier years?
(b) whether the Learned Tribunal has substantially erred in law in holding that the Assessing Officer exceeded his juri iction in enquiring into those issues which were beyond the scope of limited scrutiny, without taking into consideration the fact that the claim of the assessee pertaining to carried forward losses was inadmissible since the beginning itself and therefore the Assessing Officer was justified in disallowing the same without converting the case into complete scrutiny?
These questions have been decided in favour of the assessee and against the revenue. The Hon’ble High Court concurred with the ITAT that due procedure was not followed while converting limited scrutiny case to a full scrutiny.
14. Similarly, the order of the ITAT, Visakhapatnam Bench in the case of Vudatha Vani Rao -vs.- Income Tax Officer reported in [2024] 159
taxmann.com 1394 (Visakhapatnam) was relied upon by the ld. Counsel for the assessee. This ‘SMC’ order of the ITAT is also in the line of Hon’ble High Court’s decision. The ld. Assessing
Officer has not made any addition of cash deposit during demonetization period.
The assessee has deposited small amounts, which have been accepted by the ld. Assessing Officer. Therefore, the assessment order itself is not sustainable because it has been passed by the ld. Assessing Officer by exceeding his limited powers. The ld. Assessing Officer ought to have followed the procedure contemplated in CBDT Instruction bearing No. 5 of 2016 for converting a limited scrutiny assessment into a full scrutiny. Accordingly, we quash the assessment order. Since we have quashed the assessment order, therefore, we do not deem it necessary to adjudicate the other issues on merit because they become academic in nature. Accordingly, we allow the appeal of the assessee.”
010. Similarly in the case of Shib Nath Ghosh Vs. ITO (supra), the co- ordinate Bench has decided the issue in favour of the assessee by observing and holding as under:-
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After hearing both the sides and the materials available on record, we find that the notice issued u/s 143(2) dated 9th August, 2017 was not in any of the formats as provided in the CBDT instruction F.No.225/157/2017/ITA-II dated
23.06.2017. We have examined the notice, copy of which is available at page no.1 of the Paper Book and find that the same is not as per the format of CBDT
Instruction F.No. 225/157/2017/ITA-II dated 23.06.2017 as stated above. In our opinion, the instruction issued by the CBDT are mandatory and binding on the Income tax authorities failing which the proceedings would be rendered as invalid. Hon'ble Apex Court in case of UCO Bank (supra) held that the circular issued by CBDT in exercise of its statutory powers u/s 119 of the Act, are binding on the authorities. The Hon'ble Apex court held as under:-
“The Central Board of Direct Taxes under section 119 of the Income-tax
Act, 1961, has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Act which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases
Which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by Issuing circulars binding on the taxing authorities.
In order to aid proper determination of the income of money lenders and banks, the Central Board of Direct Taxes issued a circular dated October
6, 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, It need not be included in the assessee's taxable income, provided the Income-tax Officer is satisfied that recovery is practically improbable. Twenty-six years later, on June 20,
1978, in view of the judgment of the Kerala High Court In STATE BANK
OF TRAVANCORE v. CIT [1977] 110 ITR 336, the Board by another circular, withdrew with immediate effect the earlier circular. However, by circular dated October 9, 1984, the Board decided that Interest in respect of doubtful debts credited to suspense account by banking companies would be subjected to tax but Interest charged in an account where there has been no recovery for three consecutive accounting years would not be subjected to tax in the fourth year and onwards. The circular also stated that if there is any recovery in the fourth year or later, the actual amount recovered only would be subjected to tax in the respective years. This procedure would apply to assessment year 1979-
80 and onwards.”
Similarly, Hon'ble Calcutta High Court in case of Amal Kumar Ghosh (supra), held as under:-
“Held, allowing the appeal, (1) that even assuming that the intention of the Central Board of Direct Taxes was to restrict the time for selection of Nadia District Central Co-operative Bank Ltd; A 2018-19

the cases for scrutiny to a period of three months, It could not be said that the selection in the case of the assessee was made within the period. The return was filed on October 29, 2004, and the case was selected for scrutiny on July 6, 2005. By any process of reasoning, it was not open to the Tribunal to come to a finding that the Department acted within the four corners of Circulars Nos. 9 and 10 Issued by the Central
Board of Direct Taxes The circulars were evidently violated. The circulars were binding upon the Department under section 119.”
Therefore, case of the assessee is therefore squarely covered by the ratio laid down in the above decisions and respectfully following the same , we are inclined to hold the assessment as invalid being based on the invalid issue of notice u/s 143(2) of the Act. The first additional ground raised by the assessee is allowed.
Since we have held the notice issued u/s 143(2) as invalid and so the consequential assessment framed, we are not adjudicating second legal issue raised in the additional ground no.2 as well the grounds in the memorandum of appeal and are left open to be adjudicated in future if the need arises for the same.
In the result, the appeal of the assessee is allowed.
011. Therefore, in view of the above decisions and considering the facts of the assessee’s case, we are inclined to hold that the assessment framed u/s 143(3) is invalid and so is the consequent revisionary proceedings u/s 263 of the Act. The appeal of the assessee is allowed by quashing the order passed u/s 263 of the Act as invalid and without juri iction.
012. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 15.01.2025. (PRADIP KUMAR CHOUBEY)
(RAJESH KUMAR)
(JUDICIAL MEMBER)
(ACCOUNTANT MEMBER)

Kolkata, Dated: 15.01.2025
Sudip Sarkar, Sr.PS
Nadia District Central Co-operative Bank Ltd; A 2018-19

Copy of the Order forwarded to :

Sr. Private Secretary/ Asst.