Section 14A disallowance under Rule 8D fails absent recorded dissatisfaction with the assessee's voluntary claim.

Rule 8D can be applied only after the Assessing Officer, having regard to the accounts, records cogent dissatisfaction with the assessee's voluntary disallowance under section 14A. On the facts, no such dissatisfaction was recorded, and the investments were made in subsidiaries for commercial expediency with sufficient cost-free funds available. In that setting, further recomputation under Rule 8D could not be sustained, and the disallowance was deleted.

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Issues: Whether disallowance under section 14A read with Rule 8D could be sustained when the Assessing Officer had not recorded dissatisfaction with the assessee's voluntary disallowance, and whether investments made in subsidiaries for commercial expediency could justify invocation of Rule 8D.

Analysis: The assessee had made a voluntary disallowance, and the Assessing Officer invoked section 14A read with Rule 8D without first recording any cogent dissatisfaction with the correctness of that claim. The governing principle is that Rule 8D is only a computational mechanism and can be applied only after the Assessing Officer, having regard to the accounts, records dissatisfaction with the assessee's claim. The record also showed that the investments were made in subsidiaries for commercial expediency and that the assessee had sufficient cost-free funds, which weakened the basis for further disallowance. In the absence of recorded dissatisfaction, the recomputation under Rule 8D could not be sustained.

Conclusion: The disallowance under section 14A read with Rule 8D was not justified and the addition was deleted; the Revenue's appeal failed.

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