From AY 2022-23 my spending out of a bank loan is not application, and I claim it when I repay. The officer says that is a double deduction. How do I prove it is not?
By showing that you reduced the application of income in the year you took the loan by the amount borrowed, and claimed nothing then. On that evidence the Bangalore Tribunal deleted the disallowance of Rs.1,63,86,245 of loan repayment: the trust had claimed application only on repayment and not when the borrowed funds were spent, so there was no double deduction, and the lower authorities had ignored the computations and accounts filed and proceeded on a presumption.
Decided by the ITAT (Prashant Maharishi VP and Keshav Dubey JM) on 2026-06-10, reported as ITA No. 2147/Bang/2025 (ITAT Bangalore Bench 'B'). It bears on section 11, section 11(1), section 11(1)(a), section 11(5), section 143(3), section 144B, section 250 of the Income Tax Act 1961, in Charitable Trusts & Exemption and Capital Gains Exemptions matters.
Explanation 4 to s.11(1), inserted by the Finance Act 2021 with effect from 1 April 2022, is the first real change to what counts as application in a generation, and this is the first year of it in practice. The mechanic is: spending out of a loan is not application when spent; the amount becomes application in the year the loan is repaid out of that year's income, to the extent of the repayment. The trap the Revenue is setting is the transition — a loan taken and spent before AY 2022-23 will usually have been claimed as application then, so claiming the repayment again is a genuine double deduction. What decides the case is the year-by-year computation showing that the borrowed amount was taken out of the application figure in the year of borrowing. Keep it in mind that this trust prepared that reconciliation from AY 2018-19 onwards in a 302-page paper book, and the Departmental Representative did not dispute it. Note also the Finance Act 2023 layer, which the CIT(A) applied here as if it governed AY 2022-23 — a coordinate bench has since held it does not.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is a public charitable trust engaged in printing and publishing educational books, running educational institutions and rural upliftment work. For AY 2022-23 it filed its return on 10 October 2022 declaring nil income. The case was selected for scrutiny because of substantial repayment of borrowed funds. The trust had repaid Rs.3,38,08,654 of HDFC Bank loans during the year and claimed Rs.1,63,86,245 of that as application of income. The Assessing Officer, in the order dated 23 March 2024 under s.143(3) read with s.144B, held that the trust had not established that the loan-funded expenditure had not already been claimed as application in earlier years, invoked Explanation 4 to s.11, disallowed the Rs.1,63,86,245, allowed 15 per cent accumulation of Rs.29,86,950 and actual application of Rs.5,39,809, and assessed income at Rs.1,99,13,004. Before the CIT(A) the trust filed computations, returns and statements of application for AY 2018-19 to AY 2022-23 to show that the loan amounts had been reduced from application in the years of receipt. The CIT(A) rejected the explanation, holding that Explanation 4 to s.11(1) prohibits treating application from borrowed funds as application unless the amount is reinvested in s.11(5) modes within five years, and that the trust had not conclusively proved the loan-funded application had not been claimed earlier. Before the Tribunal the assessee filed a 302-page paper book. The chart at page 290 showed loan repayments claimed as application of Rs.5,26,863 for AY 2019-20, Rs.66,22,243 for AY 2020-21, Rs.73,74,394 for AY 2021-22 and Rs.3,38,08,654 for AY 2022-23; for AY 2019-20 the trust had acquired a capital asset of Rs.4,10,66,871 but, after reducing the Rs.4 crore loan, showed application of only Rs.10,66,871.
The disallowance of Rs.1,63,86,245 was directed to be deleted and the orders of the lower authorities set aside; the assessee had claimed application of income only on repayment of the loan and not in respect of the assets or expenditure incurred out of the borrowed funds at the time the loan was obtained, so there was no double deduction (paragraph 08). The remaining grounds were dismissed as supportive or general (paragraph 09) and the appeal was recorded as partly allowed (paragraph 10).
The Tribunal set out Explanation 4 to s.11 as inserted with effect from 1 April 2022: an application financed out of a loan or borrowing is not to be treated as application of income for charitable or religious purposes, but where such an amount was not treated as application in the earlier year the assessee is entitled to claim it as application in the year in which the loan or borrowing, or part of it, is repaid out of that year's income, to the extent of the repayment (paragraph 07). Applying that provision to the facts, the statements on record showed that whenever a loan was received the application of income was reduced by the amount disbursed and whenever a loan was repaid the repayment was claimed as application — most clearly in AY 2019-20, where a capital asset of Rs.4,10,66,871 was acquired but only Rs.10,66,871 was shown as application after reducing the Rs.4 crore loan. Those facts were shown to the Departmental Representative and were not disputed. The assessee had substantiated the position by filing computations, annual accounts, returns and statements of application before both the Assessing Officer and the CIT(A), and the lower authorities had ignored them and proceeded on the presumption that the loan-funded application might already have been claimed; the record did not support that presumption (paragraph 08).
Under Explanation 4 to section 11, inserted with effect from 1 April 2022, any application financed out of a loan or borrowing is not to be treated as application of income for charitable or religious purposes.
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Handle my notice → Ask a CA on WhatsAppBy showing that you reduced the application of income in the year you took the loan by the amount borrowed, and claimed nothing then. On that evidence the Bangalore Tribunal deleted the disallowance of Rs.1,63,86,245 of loan repayment: the trust had claimed application only on repayment and not when the borrowed funds were spent, so there was no double deduction, and the lower authorities had ignored the computations and accounts filed and proceeded on a presumption. This was decided by the ITAT (Prashant Maharishi VP and Keshav Dubey JM) and bears on section 11, section 11(1), section 11(1)(a), section 11(5), section 143(3), section 144B, section 250 of the Income Tax Act 1961. It is reported as ITA No. 2147/Bang/2025 (ITAT Bangalore Bench 'B'). Explanation 4 to s.11(1), inserted by the Finance Act 2021 with effect from 1 April 2022, is the first real change to what counts as application in a generation, and this is the first year of it in practice. The mechanic is: spending out of a loan is not application when spent; the amount becomes application in the year the loan is repaid out of that year's income, to the extent of the repayment. The trap the Revenue is setting is the transition — a loan taken and spent before AY 2022-23 will usually have been claimed as application then, so claiming the repayment again is a genuine double deduction. What decides the case is the year-by-year computation showing that the borrowed amount was taken out of the application figure in the year of borrowing. Keep it in mind that this trust prepared that reconciliation from AY 2018-19 onwards in a 302-page paper book, and the Departmental Representative did not dispute it. Note also the Finance Act 2023 layer, which the CIT(A) applied here as if it governed AY 2022-23 — a coordinate bench has since held it does not. If it applies to you, the first step is this: Build the reconciliation before the assessment, not after: for every year from the year of borrowing, show total expenditure, the borrowed amount deducted from it, and the net application claimed.
The assessee is a public charitable trust engaged in printing and publishing educational books, running educational institutions and rural upliftment work. For AY 2022-23 it filed its return on 10 October 2022 declaring nil income. The case was selected for scrutiny because of substantial repayment of borrowed funds. The trust had repaid Rs.3,38,08,654 of HDFC Bank loans during the year and claimed Rs.1,63,86,245 of that as application of income. The Assessing Officer, in the order dated 23 March 2024 under s.143(3) read with s.144B, held that the trust had not established that the loan-funded expenditure had not already been claimed as application in earlier years, invoked Explanation 4 to s.11, disallowed the Rs.1,63,86,245, allowed 15 per cent accumulation of Rs.29,86,950 and actual application of Rs.5,39,809, and assessed income at Rs.1,99,13,004. Before the CIT(A) the trust filed computations, returns and statements of application for AY 2018-19 to AY 2022-23 to show that the loan amounts had been reduced from application in the years of receipt. The CIT(A) rejected the explanation, holding that Explanation 4 to s.11(1) prohibits treating application from borrowed funds as application unless the amount is reinvested in s.11(5) modes within five years, and that the trust had not conclusively proved the loan-funded application had not been claimed earlier. Before the Tribunal the assessee filed a 302-page paper book. The chart at page 290 showed loan repayments claimed as application of Rs.5,26,863 for AY 2019-20, Rs.66,22,243 for AY 2020-21, Rs.73,74,394 for AY 2021-22 and Rs.3,38,08,654 for AY 2022-23; for AY 2019-20 the trust had acquired a capital asset of Rs.4,10,66,871 but, after reducing the Rs.4 crore loan, showed application of only Rs.10,66,871. The matter was decided on 2026-06-10 by the ITAT (Prashant Maharishi VP and Keshav Dubey JM). On those facts the ITAT held as follows. The disallowance of Rs.1,63,86,245 was directed to be deleted and the orders of the lower authorities set aside; the assessee had claimed application of income only on repayment of the loan and not in respect of the assets or expenditure incurred out of the borrowed funds at the time the loan was obtained, so there was no double deduction (paragraph 08). The remaining grounds were dismissed as supportive or general (paragraph 09) and the appeal was recorded as partly allowed (paragraph 10).
The Tribunal set out Explanation 4 to s.11 as inserted with effect from 1 April 2022: an application financed out of a loan or borrowing is not to be treated as application of income for charitable or religious purposes, but where such an amount was not treated as application in the earlier year the assessee is entitled to claim it as application in the year in which the loan or borrowing, or part of it, is repaid out of that year's income, to the extent of the repayment (paragraph 07). Applying that provision to the facts, the statements on record showed that whenever a loan was received the application of income was reduced by the amount disbursed and whenever a loan was repaid the repayment was claimed as application — most clearly in AY 2019-20, where a capital asset of Rs.4,10,66,871 was acquired but only Rs.10,66,871 was shown as application after reducing the Rs.4 crore loan. Those facts were shown to the Departmental Representative and were not disputed. The assessee had substantiated the position by filing computations, annual accounts, returns and statements of application before both the Assessing Officer and the CIT(A), and the lower authorities had ignored them and proceeded on the presumption that the loan-funded application might already have been claimed; the record did not support that presumption (paragraph 08). In the words reproduced by the source cited on this page: "Under Explanation 4 to section 11, inserted with effect from 1 April 2022, any application financed out of a loan or borrowing is not to be treated as application of income for charitable or religious purposes."
It was decided by the ITAT on 2026-06-10 and is reported as ITA No. 2147/Bang/2025 (ITAT Bangalore Bench 'B'). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 11, section 11(1), section 11(1)(a), section 11(5), section 143(3), section 144B, section 250, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The disallowance of Rs.1,63,86,245 was directed to be deleted and the orders of the lower authorities set aside; the assessee had claimed application of income only on repayment of the loan and not in respect of the assets or expenditure incurred out of the borrowed funds at the time the loan was obtained, so there was no double deduction (paragraph 08). The remaining grounds were dismissed as supportive or general (paragraph 09) and the appeal was recorded as partly allowed (paragraph 10). It arises in Charitable Trusts & Exemption and Capital Gains Exemptions matters, on section 11, section 11(1), section 11(1)(a), section 11(5), section 143(3), section 144B, section 250 of the Income Tax Act 1961, and was decided by Prashant Maharishi VP and Keshav Dubey JM. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Produce the loan sanction letters and dates, the bank certificate of end use, the annual accounts and the returns for every intervening year — that is the package that succeeded here. Claim the repayment only to the extent it is made out of the income of that year; the proviso to Explanation 4(ii) is worded that way and the Tribunal restated it that way. Where the officer alleges double deduction, ask him to identify the year and the amount he says was claimed before; the Tribunal held the presumption was unsupported by the record. Check whether the application out of the borrowing was made on or before 31 March 2021 — the Finance Act 2023 provisos exclude the benefit in that case for years from AY 2023-24.
Validity check could not be completed. Validity check could not be completed; no later treatment was searched for. The Tribunal's description of Explanation 4 was checked against the text of section 7 of the Finance Act 2021 as printed on indiankanoon's page for that enactment, which inserts Explanation 4 to s.11(1) with effect from 1 April 2022 in the terms the Tribunal states, together with Explanation 5 barring set-off of excess application of earlier years. The Finance Act 2023 added further provisos to Explanation 4(ii); this order concerns AY 2022-23 and says nothing about them. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to ten numbered paragraphs and was transcribed in full from the plain /doc/ URL; the statement of the provision at paragraph 07 was re-checked through /docfragment/ and came back word for word. The loan dates conflict inside the report: paragraph 04 records loans of Rs.4 crores and Rs.83,32,200 obtained from HDFC Bank on 10 December 2018 and 8 June 2020, while paragraph 08 records Rs.4 crores on 2 February 2019 and Rs.83,32,150 on 20 June 2020. The paragraph numbers are printed with a leading zero (01 to 10). The CIT(A) is recorded at paragraph 04 as holding that Explanation 4 was 'inserted with retrospective effect' and as requiring reinvestment in s.11(5) modes within five years for a borrowing — neither statement matches the Tribunal's own description of the provision at paragraph 07, and the five-year condition and the s.11(5) reinvestment requirement belong to the corpus limb, Explanation 4(i), rather than to the loan limb. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The disallowance of Rs.1,63,86,245 was directed to be deleted and the orders of the lower authorities set aside; the assessee had claimed application of income only on repayment of the loan and not in respect of the assets or expenditure incurred out of the borrowed funds at the time the loan was obtained, so there was no double deduction (paragraph 08). The remaining grounds were dismissed as supportive or general (paragraph 09) and the appeal was recorded as partly allowed (paragraph 10).
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