Section 14A disallowance requires reasoned dissatisfaction from the Assessing Officer before Rule 8D can be applied.

Disallowance under section 14A read with Rule 8D requires the Assessing Officer to record a reasoned dissatisfaction with the assessee's claim after examining the accounts. A bare disagreement is insufficient, and the assessment basis must show why the assessee's own working is incorrect. Where the assessee maintained separate business and personal accounts and did not claim the personal expenditure as a deduction, applying Rule 8D without convincing recorded satisfaction was not justified. The disallowance was therefore directed to be deleted.

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Issues: Whether the disallowance made under section 14A read with Rule 8D, for assessment years 2011-12 and 2013-14, was sustainable in the absence of adequate recorded satisfaction by the Assessing Officer and in the facts that the assessee had maintained separate accounts and had not claimed the relevant personal expenditure as deduction.

Analysis: Section 14A permits disallowance only where the Assessing Officer, having regard to the accounts, is not satisfied with the correctness of the assessee's claim in relation to expenditure incurred for earning income not includible in total income. The prerequisite is not a bare disagreement, but a reasoned satisfaction based on the accounts. In the present matter, the assessee had separate business and personal accounts, and the expenditure incurred in the personal account was not claimed as a deduction. The disallowance was nevertheless made by applying Rule 8D without a convincing basis, and the Assessing Officer also did not satisfactorily justify rejection of the assessee's own working for the relevant year.

Conclusion: The disallowance under section 14A read with Rule 8D was not justified and was directed to be deleted. The issue was decided in favour of the assessee.

Ratio Decidendi: Disallowance under section 14A read with Rule 8D can be sustained only when the Assessing Officer records a reasoned dissatisfaction with the assessee's claim after examining the accounts; absent such satisfaction, the disallowance cannot stand.

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