Rule 8D requires prior recorded dissatisfaction under section 14A(2) before disallowance for exempt income is made.

Rule 8D can be invoked only after the Assessing Officer, having regard to the accounts, objectively records dissatisfaction with the assessee's claim or suo motu disallowance under section 14A(2). A bare conclusion that the assessee's method is inconsistent with Rule 8D is insufficient unless the assessment order first shows account-based dissatisfaction with the disallowance offered. On the facts, the recorded reasons did not meet that statutory threshold, and the Tribunal's view was a possible view. The challenge based on reliance on an earlier year's order did not change that result, so the disallowance under Rule 8D was not justified.

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Issues: Whether the Assessing Officer had recorded the requisite dissatisfaction under section 14A(2) before invoking Rule 8D to compute the disallowance attributable to exempt income.

Analysis: The assessment order had to show an objective, account-based dissatisfaction with the assessee's suo motu disallowance. A conclusion that the assessee's method was inconsistent with Rule 8D was not enough by itself, because the statutory sequence requires dissatisfaction under section 14A(2) first and only then resort to Rule 8D. The recorded reasons did not satisfy that requirement, and the Tribunal's view was a possible view on the facts. The challenge to the reliance on the earlier year's order did not alter this conclusion.

Conclusion: The Assessing Officer had not recorded the satisfaction required under section 14A(2), so invocation of Rule 8D was not justified and the appeal failed.

Ratio Decidendi: Rule 8D can be applied only after the Assessing Officer, having regard to the accounts, objectively records dissatisfaction with the assessee's claim or suo motu disallowance under section 14A(2).

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