The assessee had made self disallowance of certain expenditure in order to earn said income. AO without  examining and referring to the disallowance or recording his dissatisfaction on disallowance made, invoked rule 8D of 1962 Rules as if it was mandatory. CIT (A)  and Tribunal deleted the addition.  On appeal by the  revenue  the  dismissing the appeal of the revenue the Court held that, unless Assessing Officer record his dissatisfaction regarding correctness of claim made by assessee in relation to expenditure incurred to earn exempt income. This is the mandate and pre condition imposed by sub-section (2) to section 14A of the Act. Rule 8D is in the nature of best judgment determining, i.e., determination in default and on rejection of the explanation of the assessee in relation to expenditure incurred to earn exempt income. Rule 8D is not applicable by default but only if and when the Assessing Officer records his satisfaction and rejects the explanation of the assessee regarding the disallowance of expenditure. In the present case the assessment order proceeds on a wrong assumption that rule 8D would apply to all cases and is mandatory. Finding of the Tribunal affirming the order of the Commissioner (Appeals) is in accordance with the law. (AY. 2010-11)