Section 14A disallowance must rest on recorded dissatisfaction; voluntary allocation of exempt-income accepted as reasonable.

Under section 14A read with rule 8D, a voluntary disallowance made by the assessee was accepted as reasonable where it identified expenditure relatable to exempt income and the remaining administrative expense adjustment was not supported by recorded dissatisfaction. The Tribunal noted that some expense heads and branch-level costs were not linked to investment activity, that the suo motu disallowance was substantial, and that the Assessing Officer had not shown the assessee's working to be incorrect or unreasonable. Following its earlier order on similar facts, the further disallowance was deleted.

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Issues: Whether the assessee's voluntary disallowance under section 14A read with rule 8D was reasonable and whether any further disallowance of administrative expenditure was warranted.

Analysis: The assessee had identified expenditure attributable to the earning of exempt income and made a suo motu disallowance on that basis. The disputed adjustment related only to administrative expenditure under rule 8D(2)(iii). The Tribunal noted that certain expenditure heads and branch-level expenses were not connected with investment activity, that the voluntary disallowance was substantial compared with total expenditure, and that the Assessing Officer had not recorded satisfaction that the assessee's working was incorrect or unreasonable. The Tribunal also followed its earlier decision in the assessee's own case on similar facts.

Conclusion: The assessee's disallowance was accepted as reasonable and the further addition under section 14A read with rule 8D was deleted.

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