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2014 (11) TMI 229 - AT - Income TaxAddition u/s 14A r.w. Rule 8D - Exempt income towards dividend earned on investments made in mutual funds – Held that:- If at all there is any investment made by assessee out of borrowed funds in the mutual funds, then, it can possibly be in the month of March' 09 only - the investments made in mutual funds could have been made out of the own funds available with assessee without utilizing the borrowed funds - when assessee was having sufficient surplus funds to make investment in mutual funds no disallowance can be made towards interest expenditure unless nexus is established between the borrowed funds and the investments made – relying upon Commissioner of Income Tax-2, Mumbai Versus HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] - there was no reason to sustain the addition towards interest expenditure under rule 8D(2)(iii) - so far as disallowance @ 0.5% on the average value of investment under rule 8D(2)(III) is concerned, even where the assessee claims that he has not incurred any expenditure for earning exempt income, disallowance of expenditure deemed to have been incurred has to be worked out @ 0.5% on the average value of investments - As the AO has correctly computed disallowance in terms with rule 8D(2)(iii), it is upheld – Decided partly in favour of assessee.
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