2025 (6) TMI 1912 - AT - Income Tax

Trust wins appeal on loan repayment as charitable income application under sections 11 and 12

ITAT Cochin allowed the assessee trust's appeal against CIT(E)'s order under section 263 for AY 2017-18. The dispute involved whether loan repayment ... Revision u/s 263 - CIT(E) was of the view that the AO has erred in treating the repayment of loan as application of income - 'application of income' under sections 11 and 12 - HELD THAT:- It is an admitted position of fact that the assessee has borrowed some loan in assessment year 2013-2014, which was used by the assessee for acquiring the assets for carrying out the charitable activities. On this asset, the assessee has claimed depreciation u/s.32. Thereafter the assessee has repaid the loan in the impugned year, i.e., assessment year 2017-2018 and claimed that repayment of loan is application of income. The claim of the assessee is fully justifiable in view of the judgment of Govindu Naicker Estate [2009 (1) TMI 114 - MADRAS HIGH COURT] Therefore, we are of the view that the order of the AO is neither erroneous nor prejudicial to the interest of revenue and the CIT(E) has erred in assuming the jurisdiction u/s.263 of the Act. Hence, we restore the order of the AO and quash the order of the CIT(E). Appeal filed by the assessee is allowed. The Appellate Tribunal (ITAT Cochin) addressed an appeal against the Commissioner of Income-tax (Exemption) [CIT(E)] order dated 25.03.2022 for AY 2017-18. The issue concerned whether repayment of a loan qualifies as 'application of income' under sections 11 and 12 of the Income Tax Act. The assessee, a trust, had borrowed a loan in AY 2013-14 to acquire assets for charitable activities and claimed depreciation under section 32. In AY 2017-18, the assessee repaid the loan and claimed this repayment as application of income.The CIT(E) set aside the Assessing Officer's (AO) order under section 263, holding the AO erred in treating loan repayment as application of income. The ITAT, however, relying on the Madras High Court decision in DIT(E) v. Govindu Naicker Estate 315 ITR 237 (Mad.), held that the assessee's claim was 'fully justifiable.' The Tribunal found no error or prejudice to revenue in the AO's order and held that the CIT(E) had wrongly exercised jurisdiction under section 263.The ITAT accordingly 'restored the order of the AO and quashed the order of the CIT(E),' allowing the appeal of the assessee.