Tribunal decision: Assessee's appeals partly allowed, revenue's dismissed. AO to re-examine specific issues.

The Tribunal partly allowed the assessee's appeals and dismissed the revenue's appeals. The Assessing Officer was directed to re-examine specific issues and give the assessee a chance to provide details on the usage of loan funds. The decision was pronounced on January 23, 2020.

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Issues Involved:
1. Disallowance of amount utilized for acquisition of assets as application of income u/s 11 of the Act.
2. Disallowance of claim of repayment of loan as application of income u/s 11 of the Act.
3. Rejection of claim of carry forward of current year’s deficit to subsequent years and claim of depreciation on assets.
4. Rejection of claim for exemption u/s 10(23C)(vi) of the Act.
5. Manner of computation of income u/s 11 of the Act and carry forward of excess amount of application.

Detailed Analysis:

1. Disallowance of Amount Utilized for Acquisition of Assets as Application of Income u/s 11 of the Act:
The assessee, a charitable trust registered u/s 12AA, claimed the cost of purchase/construction of assets as application of income. The Assessing Officer (AO) rejected this claim to the extent of usage of loan funds, a decision upheld by the CIT(A) based on the precedent set in DCIT vs. M/s Peoples Education Society. The Tribunal reaffirmed that assets acquired with borrowed funds cannot be considered as application of income, emphasizing that allowing this would result in double deduction, which is not the intention of the statute.

2. Disallowance of Claim of Repayment of Loan as Application of Income u/s 11 of the Act:
The assessee claimed repayment of loans as application of income, relying on CIT vs. Janmabhumi Press Trust. However, the AO argued that this would result in double deduction since the original cost of assets purchased with loan funds was already claimed as application of income. The Tribunal, referencing the case of ITO vs. M/s Medical Relief Society of South Kanara, concluded that repayment of loans can only be considered as application of income if the assets purchased with loan funds were not previously claimed as application of income. The matter was remanded to the AO to verify the nexus between loan funds and asset acquisition.

3. Rejection of Claim of Carry Forward of Current Year’s Deficit to Subsequent Years and Claim of Depreciation on Assets:
The issue of carry forward of deficit is consequential to the earlier issues. The AO disallowed the claim due to the positive income assessed after disallowing application of income for assets purchased with loan funds and repayment of loans. The Tribunal restored this issue to the AO for re-examination based on the outcome of the earlier issues. The AO was also directed to allow depreciation claims up to AY 2014-15, governed by CIT vs. Rajasthan & Gujarati Charitable Foundation and CIT vs. Institute of Banking Personnel.

4. Rejection of Claim for Exemption u/s 10(23C)(vi) of the Act:
The assessee did not press this ground during the hearing, leading to its dismissal as not pressed.

5. Manner of Computation of Income u/s 11 of the Act and Carry Forward of Excess Amount of Application:
The revenue contested the computation method and carry forward of excess application. However, both parties acknowledged that the issues are covered against the revenue by the Supreme Court decision in CIT vs. Rajasthan & Gujarati Charitable Foundation. Consequently, the Tribunal dismissed the revenue's grounds.

Conclusion:
The appeals of the assessee were partly allowed, and the appeals of the revenue were dismissed. The Tribunal directed the AO to re-examine specific issues and provide the assessee with adequate opportunity to present information regarding the utilization of loan funds. The order was pronounced on January 23, 2020.

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