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Facts
The assessee, a charitable trust, filed a Nil return for AY 2017-18. The AO allowed the assessee's claim to treat the repayment of a loan (used for acquiring assets for charitable activities) as an application of income under Sections 11 and 12. However, the CIT(E) invoked Section 263, holding that the AO's order was erroneous and prejudicial to revenue as loan repayment cannot be treated as application of income.
Held
The Tribunal found the assessee's claim that repayment of loan used for acquiring charitable assets is an application of income to be justifiable, relying on a Madras High Court judgment. Consequently, the Tribunal held that the AO's order was not erroneous or prejudicial to the revenue and the CIT(E) erred in exercising jurisdiction under Section 263. The AO's order was restored, and the CIT(E)'s order was quashed.
Key Issues
Whether the repayment of a loan, originally used for acquiring assets for charitable activities, constitutes an application of income under Sections 11 and 12 of the Income Tax Act, and if the CIT(E) was justified in invoking Section 263 to revise the AO's order.
Sections Cited
11, 12, 32, 143(3), 263
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Prakash Chand Yadav
Asst.Year 2017-2018 Podikunju Musaliar Memorial The Commissioner of Charitable and Educational v. Income-tax (Exemption) Kochi. Trust, Chandanathoppe Kollam – 691 014. PAN : AAATP8905H (Appellant) (Respondent) Appellant by : Sri.Arun Raj S, Advocate Respondent by : Sri.Sundarasan, CIT-DR Date of Pronouncement : 22.05.2025 Date of Hearing : 21.05.2025. O R D E R
Per Prakash Chand Yadav, JM :
The present appeal of the assessee is arising from the order of the learned Commissioner of Income-tax (Exemption) [“CIT(E)” for short] dated 25.03.2022 and relates to the assessment year 2017-2018.
There is a delay of 251 days in the present appeal. For the reasons mentioned in the application for condonation of delay, we hereby condone the delay and proceed to decide the appeal on merits.
Brief facts of the case as coming out from the orders of the authorities below are that the assessee is a trust filed its return of income for the impugned assessment year on 30th . Podikunju Musaliar Memorial Charitable and Educational Trust. October, 2017 declaring Nil income. The case of the assessee was selected for scrutiny. Thereafter order u/s.143(3) of the Act has been framed. It is pertinent to note here that during the course of assessment proceedings, the AO vide questionnaire dated 24th January, 2019 has specifically asked the assessee about the claim of the assessee vis-à-vis repayment of loan as application of income for the purpose of the benefits of sec.11 and 12 of the Act.
The CIT(E) was of the view that the AO has erred in treating the repayment of loan as application of income and accordingly set aside the order of the AO u/s.263 of the Act vide order dated 25th March, 2022.
Aggrieved with the order of the CIT(E) passed u/s.263 of the Act, the assessee has come up in appeal before us and argued that there is no error in the order of the AO and hence the CIT(E) was not correct in holding that the order of the AO is erroneous and prejudicial to the interest of the Revenue.
The learned DR, appearing on behalf of the Revenue, relied upon the order of the CIT(E).
We have heard the rival submissions and perused the material available on record. 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 . Podikunju Musaliar Memorial Charitable and Educational Trust. 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 the Hon’ble Madras High Court in the case of DIT(E) v. Govindu Naicker Estate 315 ITR 237 (Mad.). 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).
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 22nd day of May, 2025.