Section 14A cannot disallow deduction on co-operative society interest and dividend income under section 80P(2)(d).

Section 14A could not be used to disallow expenditure against interest and dividend income earned from investments with other co-operative societies where the assessee claimed deduction under section 80P(2)(d). The Gujarat HC held that Chapter VI-A deductions operate differently from exempt income under Chapter III, and income deductible under section 80P(2)(d) does not fall within the mischief of section 14A. Relying on its earlier decisions, the Court found no error in the Tribunal's approach and left the deduction on the impugned income undisturbed, thereby deciding the issue in favour of the assessee and against the Revenue.

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Issues: Whether disallowance under section 14A of the Income-tax Act, 1961 could be made in respect of interest and dividend income earned from investments with other co-operative societies while claiming deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The income in question was interest and dividend earned from investments made with other co-operative societies out of surplus funds. The Court noted that deductions under Chapter VI-A operate differently from exempt income under Chapter III, and that section 14A applies to expenditure incurred in relation to income not forming part of total income. Relying on its earlier decisions and the view that section 14A has no application to income deductible under section 80P(2)(d), the Court found no error in the Tribunal's order.

Conclusion: Section 14A could not be invoked to disallow the deduction claimed under section 80P(2)(d); the issue was answered against the Revenue and in favour of the assessee.

Final Conclusion: The appeal failed and the Tribunal's allowance of deduction on the impugned interest and dividend income was left undisturbed.

Ratio Decidendi: Section 14A does not apply to income deductible under section 80P(2)(d) of the Income-tax Act, 1961, because such deduction is governed by Chapter VI-A and is not treated as exempt income falling within the mischief of section 14A.

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