The Income Tax Appellate Tribunal (ITAT), Bangalore bench, while allowing an appeal filed by Dr. Chandrashekar Foundation, held that if the cost of assets acquired out of loan funds have already been allowed as application of income, then the repayment of the loan should not be allowed as application.
The assessee is a trust and it filed a return of income for the year under consideration on 27.9.2010 declaring Nil income after claiming exemption u/s 11 of the Act. The return was rejected by the department by holding that the assessee has claimed a depreciation amount of Rs.1,36,89,422/- in its income and expenditure account. The CIT(A) took the view that the same is not allowable as deduction since the entire cost of fixed assets has been allowed as “application of income”. With regard to the claim of repayment of a loan of Rs.55,71,420/- as an application of income, the CIT(A) held that, since the fixed assets which were purchased out of the loan had already been allowed as a deduction, repayment of the loan cannot be allowed as deduction.
While quashing the order of the first appellate authority, ITAT Vice President N V Vasudevan and Accountant Member Mr. B R Bhaskaran modified the direction of the CIT (Exemptions) and directed the A.O. to examine the claim afresh.
“i.e. if the cost of assets acquired out of loan funds have already been allowed as application of income, then the repayment of the loan should not be allowed as application. On the contrary, if the cost of assets purchased out of loan was not allowed as application of income, then the repayment of the loan should be allowed as application of income. We modify the directions given by Ld. CIT(Exemptions) accordingly,” the Tribunal said.
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