TMI Blog2015 (12) TMI 1763X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that there was no expenditure which had been incurred by the assessee for earning the income and the same did not form part of total income - Decided against the assessee - ITA No.416 of 2015 - - - Dated:- 14-12-2015 - MR. AJAY KUMAR MITTAL AND MR. RAMENDRA JAIN, JJ. For The Petitioner : Mr. M.R.Sharma, Advocate Ajay Kumar Mittal,J. 1. This order shall dispose of ITA Nos.416 and 426 of 2015 as according to the learned counsel for the petitioner, the issues involved in both the appeals are identical. However, the facts are being extracted from ITA No.416 of 2015. 2. ITA No.416 of 2015 has been filed by the appellant assessee under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 10.4.2015 passed by the Income Tax Appellate Tribunal, Chandigarh (in short, the Tribunal ) in Income Tax Appeal No.97/Chandi/2015 for the assessment year 2011-12, claiming following substantial questions of law:- i) Whether in the facts and circumstances of the case, the orders (Annexure A.1), (Annexure A.2) and (Annexure A.3) are legally sustainable? ii)Whether on the facts and in the circumstances of the case, the ITAT was correct in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me at ₹ 64,28,394/-. Assessment was completed vide order dated 26.3.2014, Annexure A.1 and net taxable income had been assessed at ₹ 5,62,25,540/-. While completing the assessment, respondent No.2 had not allowed the deduction of ₹ 7,16,47,331/- under Section 80P92)(d) of the Act as claimed and allowed ₹ 2,10,38,169/- as deduction under Section 80P(2)(d) of the Act inspite of the fact that the Assessing Officer had admitted that the income amounting to ₹ 7,16,47,331/- had been received from the member cooperative societies. During the course of assessment proceedings, the assessee was asked to file various details by respondent No.2 which were duly filed by the assessee. According to the appellant, while completing the assessment, respondent No.2 has referred to the amended provision of section 14A of the Act but has wrongly held that this provision is applicable in the case of the appellant because that provision is applicable where income is exempt under section 10 of the Act whereas in the present case, the income has not been claimed as exempt but it is a case of deduction. One of the activity of the assessee is to provide funds for working capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Sabarkantha Zilla Kharid Vechan Sangh Ltd's case (supra) [(1993) 203 ITR 1027 where the High Court while rejecting the claim of the assessee had held that the assessee who was engaged in the purchase of agricultural implements, seeds, live stocks etc. was entitled to deduction under section 81 of the Act from tax only in relation to net profit and not gross profits. It was held as under:- 7. The said provision, as seen therefrom, undoubtedly exempts an assessee - co-operative society, which carries on the business envisaged therein, from payment of income-tax on profits and gains of such business. But the controversy which relates to the said provision is, whether the incometax not payable thereunder, calls to be calculated either with reference to the full amount of profits and gains of the cooperative society's business as contended on behalf of the assessee or with reference to the net amount of profits and gains of the co-operative society's business,as otherwise computable under the provisions of the I.T. Act for the purpose of charging income-tax thereon, as contended on behalf of the Revenue. If the relevant provisions of the I.T. Act providing for chargin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of Section 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of Section 14A. In Section 14A, the first phrase is for the purposes of computing the total income under this Chapter which makes it clear that various heads of income as prescribed under Chapter IV would fall within Section 14A. The next phrase is, in relation to income which does not form part of total income under the Act . It means that if an income does not form part of tot ..... 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