Rule 8D disallowance requires objective dissatisfaction with the assessee's claim that no exempt-income expenditure was incurred.

Section 14A disallowance under Rule 8D depends on the Assessing Officer, having regard to the accounts, recording objective dissatisfaction with the assessee's claim that no expenditure was incurred in relation to exempt income. The text notes that absence of exempt income alone does not automatically bar a disallowance, but Rule 8D cannot be invoked without the required satisfaction and supporting material. On the facts described, no material was brought to disprove the assessee's claim, so the precondition for computation under Rule 8D was not met and the impugned disallowance was deleted.

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Issues: Whether disallowance of expenditure under section 14A read with Rule 8D could be sustained in the absence of exempt income actually earned during the year and without the Assessing Officer recording objective satisfaction regarding the assessee's claim that no expenditure was incurred in relation to such income.

Analysis: The assessment year involved was governed by section 14A and Rule 8D. The Tribunal noted that the absence of exempt income by itself did not bar disallowance under section 14A. However, it held that invocation of Rule 8D required the Assessing Officer, having regard to the accounts, to reject the assessee's claim with objective satisfaction before making a computation under sub-rule (2). As no material had been brought on record to disprove the assessee's claim that no expenditure was incurred in relation to the investments, the precondition for applying Rule 8D was not met.

Conclusion: The disallowance of Rs. 37,87,800 under section 14A read with Rule 8D was unsustainable and was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessee obtained full relief on the impugned disallowance.

Ratio Decidendi: Rule 8D can be applied only after the Assessing Officer, on an objective appraisal of the accounts, records dissatisfaction with the assessee's claim that no expenditure was incurred in relation to exempt income.

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