Section 14A disallowance must be computed reasonably; Rule 8D is prospective and cannot apply retrospectively.

Disallowance under section 14A was held to be warranted in appropriate cases, but the quantum must be determined on a reasonable basis. Rule 8D was held to be prospective and therefore not applicable to the assessment year in question. The disallowance was not deleted; instead, the matter was remanded to the Assessing Officer to recompute the section 14A disallowance afresh without applying Rule 8D.

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Issues: Whether disallowance of expenditure under section 14A was justified, and whether Rule 8D could be applied to the assessment year in question.

Analysis: The issue was treated as covered by the jurisdictional High Court precedent, which held that disallowance under section 14A is warranted in appropriate cases, but the computation must be made on a reasonable basis. It was also noted that Rule 8D is prospective and therefore not applicable to the year under appeal.

Conclusion: The disallowance was not deleted, but the matter was set aside to the Assessing Officer to compute the disallowance under section 14A afresh on a reasonable basis without applying Rule 8D.

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