THE INCOME TAX OFFICER, EXEMPTIONS WARD, TRICHY, TRICHY vs. ARULMIGU SWAMINATHA SWAMI THIRUKKOVIL, KUMBAKONAM

The revenue has raised the following common grounds in ITA Nos.370 & 368/Chny/2025: 1. Whether in the facts and circumstances of the case, the National Faceless Appeal Centre (NFAC) is correct in directing the Assessing Officer to allow exemption u/s 11 to the assessee, given the fact that the assessee has failed to file its Audit Report within the due date prescribed u/s 139(1) of the Income Tax Act, 1961?

Whether in the facts and circumstances of the case, the National Faceless Appeal Centre (NFAC) is correct in directing the Assessing Officer to allow exemption u/s 11 to the assessee, given the fact that the assessee has failed to file its Return of Income within the due date prescribed u/s 139 of the Income Tax Act, 1961?

The assessee has raised the following common grounds of cross objection in CO Nos.32 & 33/Chny/2025: 1. The order of the National Faceless Appeal Centre, Delhi dated 20.12.2024 vide DIN & Order No.ITBA/NFAC/S/250/2024-25/1071403529(1) in so far as the issues raised in the present Cross Objection for the above mentioned assessment year is contrary to law, facts, and in the circumstances of the case.

The NFAC, Delhi erred in directing the verification of the audit report in Form No. 10B/10BB dated 16.02.2022 (which was not filed factually) and hence ought to have appreciated that the assessment of the gross income in such circumstances in contra distinction to the assessment of the net surplus was erroneously confirmed.

The NFAC, Delhi failed to appreciate that mandate prescribed in Section 12A(1)(b)(ii) of the Act / proviso to Section 10(23C) of the Act for filing audit report within the time stipulated under Section 139(1) of the Act ought to have been reckoned as directory and not mandatory and further ought to have appreciated that the dispensing with the filing of audit report electronically in Form No. 10B/10BB in the present proceedings (pleaded separately for admission of manual audit report in terms Rule 27/29 of the Income Tax Appellate Tribunal Rules, 1963) being reckoned as continuation of assessment proceedings could validate the claim of tax exemption computation benefit under Section 11 of the Act.

The NFAC, Delhi failed to appreciate that in any event, the action of the Assessing Officer in adding back the entire receipts earned / received during the assessment without taking into consideration the related expenditure Incurred in relation to earning of such receipt, i.e. surplus/deficit as per the receipts and payments account, the consequential re-computation of taxable - total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.

The NFAC, Delhi erred in impliedly confirming the assumption of juri iction under Section 147 of the Act and the consequently erred in impliedly confirming the passing of the re-assessment order dated 28.03.2022 without assigning proper reasons and justification and further ought to have appreciated that the order of re-assessment under consideration was passed out of time, invalid, passed without juri iction and not sustainable both on facts and in law.

The NFAC, Delhi failed to appreciate that having not followed the prescription of law/procedure for framing the re-assessment, the consequential re- assessment order passed by the Assessing Officer should be reckoned as nullity in law for want of juri iction and further ought to have appreciated that having served upon the appellant the notice under Section 148 of the Act on 05.04.2021, the non-adherence to the procedure laid down in Section 148A of the Act, with effect from 01.04.2021 (new regime) would vitiate the impugned order of re-assessment in its entirety.

The NFAC, Delhi failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law and further ought to have appreciated that having not adhered to the prescription of faceless regime, the consequential re-assessment order and appellate order passed should be reckoned as bad in law.

The Respondent craves leave to file additional grounds/arguments at the time of hearing.

The brief facts of the case are that the assessee trust is a temple functioning and monitored by the Hindu Religious and Charitable Endowments Department. The Ministry of Finance had notified the assessee temple in terms of Section 10(23C)(v) of the Act from assessment year 1977-78 vide Notification No.2625 (F.No.197/187/78-IT(AI) dated 30.12.1978. The assessee temple did not file the return of income in terms of Section 139(4A) of the Income Tax Act, 1961 (in short ‘the Act’) for Assessment years under consideration, i.e. 2013-14 & 2014-15. 5. The Assessing Officer (AO) upon receipt of information available under Annual Information Report / CIB relatable to the cash deposits made by the assessee temple to the tune of Rs.3,40,17,571/-, had issued notice u/s.148 of the Act dated 30.03.2021. The assessee had filed its return of income in response to the notice u/s.148 of the Act on 16.03 2022 in declaring NIL income.

Thereafter, the AO had issued notice(s) in terms of Section 142(1) of the Act on various occasions and the same was duly responded by the assessee temple by placing on record the Statement of Bank Accounts establishing the source for the Cash deposits emanated from the contributions by way of Donations and Hundial Collections at the temple and in support of its explanation. The assessee temple pleaded for granting the tax exemption computation benefit u/s.10(23C)(v) of the Act. 7. The AO after accepting the explanation offered by the Assessee on the source for the cash deposits had proceeded to deny the claim of tax exemption computation benefit u/s.10(23C)(v) of the Act and determined the total taxable income of the assessee at Rs.4,01,45,320/- being the gross receipts. The AO in the process had observed that the assessee temple had not filed the tax audit report as per the mandate in terms of Section 10(23(v) of the Act on 16.02.2022 within the due date specified u/s.139(1) of the Act. 8. Under similar lines, the re-assessment order was passed for A.Y.2014-15 also in bringing to tax a sum of Rs.4,34,18,585/- being the gross receipts as part of taxable total income of the assessee by rejecting the claim of tax exemption computation benefit in terms of Section 10(23C)(v) of the Act. 9. Aggrieved by the orders of re-assessment passed by the AO for the A.Y.2013-14 and 2014-15, had challenged the same before the ld.CIT(A), NFAC, Delhi challenging the action of the AO in bringing to tax the disputed sums as income of the assessee and furthermore on the ground of rejection of tax exemption computation benefit available for the assessee in terms of Section 10(23C)(v) of the Act. 10. The Ld.CIT(A) after taking into consideration of the submissions of the assessee has allowed the appeals filed against the order of re-assessment passed for A.Y.2013-14 & 2014-15 in his order dated 20.12.2024 by holding that assessee had substantially complied with the statutory conditions envisaged under the Act for validly claiming the tax exemption computation u/s.10(23C)(v) of the Act and such exemption could not have been denied by the AO for mere want of filing of audit report within the due dates prescribed u/s.10(23C)(v) of the Act.

The Ld.CIT(A) had further concluded in his order that non-filing of audit report should be reckoned as procedural lapse and in fact dispensed such statutory requirement by relying on the law declared by the Hon'ble Gujarat High Court in the case of Sarvodaya charitable Trust vs. ITO (Exemption), reported in (2021) 125 Taxmann.com 75 (Gujarat) & in the case of Association of Indian Panelboard Manufacturer v Deputy Commissioner of Income Tax, reported in [2023] 157 taxmann.com 550 (Gujarat). While doing so, the Ld.CIT(Appeals) had directed the AO to consider the assessee’s claim of tax exemption computation on merits by accepting the ITR and audit report filed. 12. Aggrieved by the decision of the Ld.CIT(A) that the non-filing of audit report within the stipulated time as procedural lapse, the revenue preferred an appeal before us. Similarly, the assessee had filed cross objections against the impugned order passed by the Ld.CIT(A) both by raising legal grounds and by challenging the directions given by the Ld.CIT(A). 13. The Ld.DR for the revenue argued that the decision of the Ld.CIT(A) in dispensing the filing of audit report within the stipulated time u/s.139(1) of the Act was contrary to the provisions of the Act and submitted that the time limit prescribed in relation thereto should be reckoned as mandatory. He further supported the order of the AO in denying the tax exemption computation u/s.10(23C)(v) of the Act. 14. Per Contra, the Ld.AR for the Assessee, argued that the non-filing of the audit report within the due dates prescribed under the Act was due to the reasons beyond the control of the assessee. The assessee, being a temple governed under the provisions of The Tamil Nadu Hindu Religious and Charitable Endowments Act, 1959, more specifically Section 86 & 87 of the said Act, wherein the books of accounts of the Temple (assessee) are required to be audited by the authority prescribed under the said Act. The Ld.AR further argued that the delay in finalising the audit by the authorities prescribed under the Act had resulted in the non-filing of return of income and audit report for the A.Y.2013-14 & 2014-15 within the time prescribed u/s.139(1) of the Act. It was further submitted that the filing of audit report within the time prescribed u/s.139(1) of the Act should be reckoned as directory in view of the ratio laid down by the Gujarat High Court and supported the order of the Ld.CIT(A) to said extent.

With respect to the cross objections filed by the Assessee, the Ld.AR had raised various grounds challenging the validity of re-assessment proceedings initiated and completed for the assessment years 2013-14 and 2014-15. On merits, it was argued that the non-filing of audit report before the AO should be reckoned as procedural lapse and the Assessee having fulfilled/complied with other substantial conditions, the technical breach of not electronically filing the audit report should be reckoned as directory and he pleaded for giving directions to the AO to grant exemption u/s.10(23C)(v) of the Act by accepting the computation forming part of the returns of income filed u/s.148 of the Act.

The Ld. AR further submitted that the action of the AO in bringing to tax the entire receipts as income even in the context of denying tax exemption u/s.10(23C)(v) of the Act was erroneous and opposed to the ratio laid down by the Juri ictional High Court in the case of Sree Venkateswara Educational Trust v. The Income Tax Officer, Exemptions Ward, Salem, in TCA Nos.168 and 169 of 2020 dated 02.09.2004. 17. The Ld.AR also brought to our notice the effect giving order passed on 06.03.2025 by the AO had denied the claim of tax exemption u/s.10(23C)(v) of the Act on the ground that the audit reports stated in the income tax return were not electronically filed in the income tax web portal. The Ld.AR fairly submitted that the audit report was not electronically uploaded in the income tax web portal and pleaded for alternatively giving an opportunity before the AO to file a fresh audit report in the income tax web portal which may be considered on its merits. 18. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities below along with case laws relied on. The core issue in the present appeals revolves around the technical breach of not electronically uploading the Audit Report in support of the tax exemption claimed u/s.10(23C)(v) of the Act. It is an admitted fact that the assessee had not filed its return of income and audit report within the time stipulated u/s.139(1) of the Act.

We note that the assessee is a world-famous temple in the Kumbakonam region and as per the historical data, the temple was constructed long time back as stated by the assessee. On perusal of the records, we find that the assessee reported to the income tax department the date of incorporation as 01.01.1000. This temple is dedicated to Lord Muruga and is fourth abode of Murugan among six (Arupadaiveedugal). 20. We also note that the assessee is managed by the Department of Hindu Religious and Charitable Endowments working under the Government of Tamilnadu and the accounts of the assessee is prepared for submission to the said department while the same would be duly placed before the State Legislature. The books of the assessee are subjected to HR&CE Statutory Audit and hence the audit for the purpose of the Income Tax Act was not considered as a legal necessity. In this regard, we have ascertained the past history of the assessee temple and upon examination of the records, there is a delay in completion of the HR&CE Statutory Audit leading to the delay in compliance of the provisions of Income Tax Act, 1961. 21. It was also brought to our notice that Assessing Officer had denied the tax exemption u/s 10(23C)(v) of the Act in the effect giving proceedings on the ground that there is no audit report electronically uploaded in the income tax web portal which was mandated from the assessment year 2013-14. 22. On the facts of the case, the source for cash deposits was undisputedly from the hundial collections/offerings from the devotees / public at large and the anonymous donations received by the religious entity under the Act would be outside the scope of the charging provisions of the Act especially considering the exceptions carved out in the provisions in Section 115BBC of the Act for the institution created wholly for religious purposes. 23. The preliminary issue raised by the Revenue is on the validity of tax exemption claimed u/s.10(23C)(v) of the Act in the absence of filing the return of income within the time stipulated u/s.139(1) of the Act. The provisions governing public charitable entities/religious entities in terms of Section 11 to 13 of the Act namely those entities enjoying tax exemption in terms of Section 12A of the Act envisages specific/explicit prohibition for grant of such exemption by insertion of sub-section (9) to Section 13 with effect from 01.04.2016 and the said sub-section reads as under:

Whereas, in the present case, the tax exemption u/s.10(23C)(v) of the Act is claimed and it was argued that there was no such specific prohibition for denying the exemption in the context of non-filing of return of income within the time stipulated u/s.139(1)/139(4A) of the Act. Moreover, it was also rightly pointed out by the ld.AR that even in the context of Section 11, the computation benefit for the said prohibition had come into the statute from the A.Y.2016-17. However, the proceedings in the present facts of the case are related to the A.Y.2013-14 & 2014-15. The extrapolation of the provisions envisaged in Section 13(9) to the factual matrix of the present case is not legally tenable on two counts namely (i) such extrapolation is not intended by the legislature and (ii) even such prohibition is not applicable to the assessment years under consideration. Therefore, there is absolutely no substance in the stand of the Revenue and accordingly related grounds raised are dismissed. 25. So far as the filing of the audit report as held by the First Appellate Authority in this case by following the consistent judicial trend as not mandatory and the audit report has mandated for filing under the Act within the time limit stipulated u/s.139(1) of the Act is consistently held to be directory inasmuch as the purpose of filing of the audit report is only to assist the AO to validate the computation of assessable income in terms of Section 10(23C)(v) of the Act. 26. In the present case, the audit report mentioned in the income tax return is admittedly not electronically uploaded due to technical reasons and the First Appellate Authority has apparently carried away by the information incorporated in the income tax return filed in response to the notice issued u/s.148 of the Act for the respective years under consideration.

In the above factual matrix, we hold that the filing of the audit report electronically within the stipulated time cannot be considered as mandatory in nature going by the purposive legislation and however non availability of the audit report for the AO to validate the computation of assessable income in terms of Section 10(23C)(v) of the Act has to be examined to decide the allowability of tax exemption u/s 10(23C)(v). In this regard, the contributions in the form of offerings to an eligible tax exempted entity would not fall within the ambit of charging provisions of the Act and in the event of the receipts being not to be reckoned as taxable receipts, the attempt to tax such sum on technicalities would automatically fall to the ground.

The Revenue's appeals on the legal issue of whether the audit report has to be filed within the time stipulated u/s.139(1) is mandatory or not needs to be answered in favour of the taxpayer and considering the facts of the present case the computation benefit u/s.10(23C)(v) of the Act needs to be granted to the assessee especially in view of the nature of receipts under consideration inasmuch as the receipts in the form of offering/Hundial collections predominantly to an institution wholly for religious purpose cannot partake the character of taxable receipts thereby, justifying our decision for dispensing such technical breach. The ground of the Revenue on the second facet of electronic filing of audit report is rejected. Accordingly, we order so.

We further find that the Assessee has been notified as an exempted entity in terms of Section 10(23C)(v) of the Act by virtue of a notification dated 30.12.1978 issued by the Union Secretary to the Government of India and the copy of the same is extracted below:

In view of the above peculiar facts and having held that the nature of receipts cannot be brought within the ambit of taxation, namely the offerings from the general public to an institution recognised and notified as wholly existing for religious purposes, the denial of exemption on technical breach would defy the principles of fairness in taxation.

We find that the definition of income in Section 2(24)(iia) of the Act, the voluntary contribution does not generally have the character of income but deemed income in case of non-corpus donations to enforce the requirement of the application of prescribed part of income for approved objects.

The Assessee being a government-controlled entity and the accounts are periodically placed and approved by the State Assembly, the presumption of application of the receipts being deemed as income for the purpose of this Act should automatically flow therefrom. Therefore, the benefit of tax exemption u/s.10(23C)(v) of the Act should be extended to the Assessee by dispensing with the technical breaches as discussed hereinbefore. 33. Accordingly, we order for deleting the computation of assessable income made as part of the two re-assessment orders as a consequence to the decision of grant of tax exemption u/s.10(23C)(v) of the Act for which we direct the JAO to grant such exemption in its entirety. We allow the grounds raised in the cross objections filed by the assessee. The other issues raised in the cross objections are left open unanswered / academic. 34. In the result, the appeals filed by the revenue in ITA Nos.370 & 368/Chny/2025 are dismissed and the cross objections filed by the assessee in CO.Nos.32 & 33/Chny/2025 are partly allowed.