No disallowance of interest for investment earning exempt income if investment are made out of interest free funds

Issue:  Investment made through borrowed fund, interest on borrowed funds, whether claim in disallowed within the provisions of section 14A r.w. 37 (1) Sections Involved: Section 14A r.w. 37 (1) of Income Tax act, 1961 Appeal by Assessee before ITAT: (Relevant Extract) 4. That on the facts and in the circumstances of the case, the learned CIT (A) erred in upholding an ad-hoc disallowance u/s 14A of the Act amounting to Rs.2,92,000/- i.e. 5% of the gross dividend income: on account of management/administrative expenses and other costs alleged to be incurred in earning dividend income. 4.1 Th...