Option (2) is the answer because both (A) and (R) are true but (R) is not the correct explanation of (R). Dilution of filtrate takes place as a result of passage of electrolytes actively or passively to the medullary interstitium when the concentrated filtrate passes through ascending limb of loop of Henle. This is due to the fact that ascending limb of loop of Henle is impermeable to water and allows transport of electrolytes.