Rashtrotthana Sahitya And Mudrana Trust Vs ITO (ITAT Bangalore)
No Double Deduction If Loan-Funded Application Was Excluded Earlier: Bangalore ITAT Allows Trust’s Loan Repayment Claim
The Bangalore ITAT deleted a disallowance of ₹1.64 crore made in the hands of a charitable trust and held that repayment of a loan qualifies as application of income where the trust had not claimed the expenditure funded by that loan as application in the year of borrowing.
The assessee-trust, engaged in publishing educational books, running educational institutions and carrying out charitable activities, had repaid HDFC Bank loans during AY 2022-23 and claimed ₹1.64 crore as application of income. The Assessing Officer disallowed the claim on the ground that allowing the repayment would result in a double deduction, relying upon Explanation 4 to section 11. The CIT(A) upheld the disallowance.
Before the Tribunal, the trust produced income-tax returns, computations, annual accounts and statements of application of income for earlier years to demonstrate that whenever loans were utilised, the corresponding loan-funded expenditure had been reduced from the application of income. Therefore, no deduction had been claimed at the time of borrowing, and the claim was made only when the loans were actually repaid.
The Tribunal analysed Explanation 4 to section 11 and observed that while application out of borrowed funds cannot be treated as application of income, the law specifically permits the claim in the year of repayment if such expenditure was not treated as application in earlier years. On examining the records, the Tribunal found that the trust had consistently reduced the loan amounts from its application of income in the years of borrowing and had claimed application only upon repayment of the loans.
Holding that there was no double deduction and that the lower authorities had ignored the documentary evidence produced by the assessee, the Tribunal directed deletion of the disallowance of ₹1,63,86,245 and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal is filed by RASHTROTTHANA SAHITYA AND MUDRANA TRUST [the Assessee/Appellant] against the order of against the appellate order passed by National Faceless Appeal Centre, Delhi [ld. CIT(A)] dated 16 July 2025 for the Assessment Year 2022-23 wherein the appeal filed by the assesseeagainst the assessment order passed on 23rd of March 2024 under section 143 (3) read with section 144B of the Income Tax Act, 1961 [the Act] by the National Faceless Assessment Centre [ld. AO] was dismissed.
