Recorded satisfaction is required before enhancing a section 14A disallowance under Rule 8D beyond the assessee's own computation.

A disallowance under section 14A read with Rule 8D cannot be enhanced unless the Assessing Officer records satisfaction that the assessee's own computation is incorrect. Here, the assessee had earned exempt dividend income and made a suo motu disallowance, but no recorded satisfaction showed why the higher Rule 8D computation was warranted. In the absence of that statutory precondition, the additional disallowance was deleted, and the assessee's own disallowance was retained.

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Issues: Whether disallowance under section 14A could be sustained in the absence of recorded satisfaction by the Assessing Officer, and whether the assessee's suo motu disallowance was to be retained.

Analysis: The assessee had earned exempt dividend income and offered a suo motu disallowance. The Assessing Officer enhanced the disallowance by applying Rule 8D, but no satisfaction was recorded to show why the assessee's computation was incorrect or why section 14A read with Rule 8D had to be invoked. In the absence of such satisfaction, the statutory precondition for making the higher disallowance was not met.

Conclusion: The addition made under section 14A read with Rule 8D was deleted, while the assessee's own disallowance of Rs. 1,96,311 was sustained.

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