Rule 8D disallowance under section 14A requires recorded dissatisfaction with the assessee's suo motu computation before enhancement.

Section 14A read with rule 8D could not be used to enhance a disallowance where the assessee had already made a suo motu disallowance and the Assessing Officer had not recorded cogent dissatisfaction with that figure. The Assessing Officer made no specific identification of further expenditure and gave no reasoned basis for rejecting the assessee's computation, even though the exempt income arose from investments in a subsidiary. On that basis, the additional disallowance was deleted in favour of the assessee.

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Issues: Whether the disallowance under section 14A read with rule 8D was sustainable when the assessee had made a suo motu disallowance and the Assessing Officer had not recorded satisfaction for rejecting it.

Analysis: The assessee had itself disallowed a sum towards expenditure relatable to exempt income. The Assessing Officer invoked rule 8D and enhanced the disallowance without pointing out any specific item of expenditure or recording any satisfaction as to why the suo motu disallowance was not acceptable. The exempt income arose from investments in a subsidiary, and no basis was shown for attributing further direct or indirect expenditure.

Conclusion: The suo motu disallowance was held to be sufficient and the further addition under section 14A read with rule 8D was deleted in favour of the assessee.

Ratio Decidendi: Rule 8D cannot be applied to enhance a disallowance under section 14A unless the Assessing Officer records dissatisfaction with the assessee's suo motu disallowance on the basis of cogent reasons.

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