The assessee earned a share of income from a partnership firm and claimed it as exempt income under section 10(2A). The AO noted that the assessee had incurred interest expenditure and, accordingly, he disallowed under Rule 8D (2)(ii), which pertains to the disallowance of expenses related to exempt income.

The Tribunal observed that the investment was made in 2000-01, and the overdraft facility was obtained only in November 2014, which was primarily used for day-to-day business activities and not for investing in the partnership firm. Held that the AO’s disallowance under Rule 8D (2)(ii) Was not justified since the overdraft facility was used for business purposes and was not linked to the exempt share income. (AY. 2016-17)