In AY 2007‐08, the assessee received dividend of in respect of investment in shares made in earlier years. No investments were made during the year. It was claimed that the investment in the earlier years was made out of reserves & surplus and that there was no expenditure incurred during the year to earn the dividend. The AO held that as in the earlier years, the assessee had borrowed funds, Sec.14A applied. It was held that if there is no nexus between borrowed funds and investments made in purchase of shares, disallowance u/s 14A is not warranted.
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