Section 14A disallowance is confined to exempt income, and Rule 8D cannot push it beyond the dividend earned.

Disallowance under section 14A, including one computed under Rule 8D, is discussed as being confined to expenditure relatable to exempt income and not capable of exceeding the exempt dividend earned during the year. Where the assessee has made a suo motu disallowance supported by the record, a larger enhancement on the facts is not warranted. The note records that the Tribunal upheld deletion of the further disallowance and left the appellate relief undisturbed.

---

---

Issues: Whether the deletion of the disallowance computed under section 14A, after the assessee had offered a suo motu disallowance against exempt dividend income, called for interference, and whether the disallowance could exceed the exempt dividend earned during the year.

Analysis: The assessee had earned exempt dividend income and had itself offered a disallowance towards expenditure relatable to such income. The Assessing Officer applied Rule 8D to enhance the disallowance substantially, but the appellate authority found no warrant for the larger figure on the facts. The Tribunal accepted that the assessee's own disallowance was supported by the material on record and noted the settled principle that disallowance under section 14A cannot, in any event, exceed the exempt dividend income earned during the year.

Conclusion: The Revenue's challenge to the deletion of the disallowance failed, and the relief granted to the assessee was upheld.

Final Conclusion: The assessment was not altered, and the Revenue's appeal stood rejected, leaving the appellate deletion of the section 14A addition undisturbed.

Ratio Decidendi: Disallowance under section 14A, including one computed under Rule 8D, cannot exceed the amount of exempt income to which it relates.

---