No disallowance under rule 8D(2)(ii) r.w. sec. 14A in absence of diversion of interest bearing funds

DCIT Vs SIL Investment Ltd. (ITAT Delhi)

In the present case As assessee had established nexus of interest expenses with its main activity of financing and there was not a single amount of interest bearing borrowings which could be related with investment which yielded tax-free dividend income, no disallowance under rule 8D(2)(ii) was called for. AO was directed to compute disallowance under rule 8D(2)(iii) at the rate of 0.5% of investments which actually have resulted in the exempt dividend income.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

The present appeal by Revenue and Cross Objection filed by assessee has been filed against order dated 24/07/14 passed  by Ld. CIT (A)-11, New Delhi for assessment year 2011-12 on the following grounds of appeal:

“That the Ld.CIT(A) has erred in deleting disallowance made by AO amounting to Rs.4,87,35,014/- under Rule 8D(2)(ii) of I.j, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”

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