All routing protocols are considered to work at Layer 3 (Network Layer) of the OSI reference model. RIP does use UDP (Transport Layer) for message transfers but functionality wise it is still a Layer 3 protocol. From where did you get the information that RIP works at the application layer?
I agree with Atif. The only possible reason I can think of for saying that RIP is application layer is that it uses UDP as a transport. Apart from that, it shows all the characteristics of layer-3. It serves layer-3 (routing). The scope of the RIP packet is a single network - it passes from router-to-router, and not through routers.
It is one of those cases where the OSI model does not look quite so orthogonal. There are a few such cases where the nesting of the protocols seems to break the OSI model - tunnelling is another.
I think this is a case of "give them the answer they want to hear, even if it is not really correct".
Rip or any other routing protocls will work on network layer only as the serve the purpose of exchanging the routing information.
Rip is not application so it can not work on application layer. Example is fTP it works on application layer and serves the pusrpose of transfering the files.