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.
Read aloud by your device. Press again to stop.
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.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
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.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later decision citing this order has been found. A search on the assessee's name across all courts, including the High Courts and the Supreme Court, from the date of the order onwards, turns up no judicial treatment either. No appeal under s.260A, and so no High Court reversal, has been traced, and no later Bench has been found taking the opposite view. This is a June 2026 order, so the silence reflects its age rather than any settled acceptance of it: a practitioner may cite it as the only direct authority known here on Explanation 4 to s.11(1), but should not present it as settled. Three things about its reach. The order turns on evidence rather than on construction — the trust proved, year by year, that it had reduced application in the year of borrowing — so it helps only an assessee who can do the same, and it is no answer at all where the loan-funded expenditure was in fact claimed when incurred. Assessment year 2022-23 is the first year of Explanation 4, which was inserted by the Finance Act 2021 with effect from 1 April 2022, and the transition is where the disputes are: a loan taken and spent before that year will usually have been claimed as application then, and claiming the repayment again would be a genuine double deduction. And the Commissioner (Appeals) here applied the Finance Act 2023 layer as though it governed assessment year 2022-23; a coordinate Bench has since held that it does not, so a reader should establish which version of the Explanation governs his own year before arguing from this order. 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, printed with a leading zero (01 to 10), so a citation to 'paragraph 8' and one to 'paragraph 08' are the same paragraph. 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. Neither set is preferred here, and anyone reconstructing the year-by-year position from this order should work from the trust's own computations rather than from these dates. A POINT ABOUT THE ORDER BELOW. The Commissioner (Appeals) 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. Explanation 4 was inserted with effect from 1 April 2022 and so operates from assessment year 2022-23; and the five-year condition and the s.11(5) reinvestment requirement belong to the corpus limb, Explanation 4(i), and not to the loan limb. That mis-statement is worth knowing because it is the shape the Revenue's argument takes in practice, and it is answered by reading the Explanation itself. WHAT DECIDED THE CASE. The Tribunal did not construe Explanation 4 expansively; it found on the record that the trust had reduced its application of income in each year of borrowing by the amount disbursed and had claimed application only on repayment. The clearest instance is assessment year 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, and the lower authorities had ignored the computations, annual accounts, returns and statements of application filed before them and proceeded on a presumption. So the order is authority on the evidentiary point — that the presumption of a double deduction must be tested against the year-by-year figures — rather than on any question of construction. A trust in the same position needs the same reconciliation; this one ran from assessment year 2018-19 and was filed in a 302-page paper book. Two things the order does not decide. It does not deal with the position where the loan is repaid otherwise than out of the year's income, which is what the Explanation requires; and it does not decide what happens to the unclaimed balance where repayment is spread over more years than the trust has income to cover. 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).
TaxSphere, “Rashtrotthana Sahitya and Mudrana Trust v ITO (Exemptions) Ward 2, Bangalore”, https://taxnotice.vittsphere.com/caselaw/case/rashtrotthana-sahitya-explanation-4-loan-repayment-as-application/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
My trust filed Form 10 only after the scrutiny notice came — 338 days after the due date. The Commissioner refused to condone under s.119(2)(b). Is that the end of the accumulation claim?
Our Form 10B is years late. Who can condone the delay, and how long do I have to apply?
The CIT(E) refused my Form 10AB because the memorandum says the objects may be carried out in India 'and elsewhere'. Is a possible application of funds outside India a ground to refuse registration?
One deposit of ours breaks the s.11(5) modes. Will the department tax the trust's entire income?
