Section 14A disallowance must match actual administrative expenditure relatable to exempt income; excessive Rule 8D computation was deleted.

Disallowance under section 14A must have a direct or proximate nexus with exempt income and cannot be applied to produce an amount exceeding the administrative expenditure actually relatable to that income. Where the assessee had already made a reasonable suo motu disallowance and no specific higher expenditure with the required nexus was shown, Rule 8D(2)(iii) could not justify a further addition. The Assessing Officer's disallowance was deleted.

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Issues: Whether the disallowance of administrative expenses made under section 14A read with Rule 8D(2)(iii) could be sustained where the assessee had already made a suo motu disallowance and the computed amount exceeded the actual administrative expenditure attributable to exempt income.

Analysis: The Tribunal followed its coordinate bench decisions holding that disallowance under section 14A must bear a direct or proximate nexus with the earning of exempt income and cannot be applied in a manner that produces absurd or unworkable results. It accepted that Rule 8D(2)(iii) cannot be invoked to make a disallowance beyond the allocable administrative expenditure relatable to exempt income, particularly where the assessee had already offered a reasonable disallowance on its own computation and no specific higher expenditure with such nexus was shown.

Conclusion: The disallowance made by the Assessing Officer was deleted and the issue was decided in favour of the assessee.

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