Rule 8D cannot be invoked and applied unless the AO records his dissatisfaction regarding correctness of the claim made by the assessee in relation to expenditure incurred to earn exempt income. This is mandatory and precondition imposed by sub-s. (2) to s. 14A of the Act. Rule 8D is in the nature of best judgment determination 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 AO records his satisfaction and rejects the explanation of the assessee regarding the disallowance of expenditure. In the present case the assessment order precedes on a wrong assumption that r. 8D would apply to all cases and is mandatory. Even though the AO excluded the expenditure/ disallowance made by the assessee while determining the disallowance, the AO has not recorded his satisfaction and since the learned CIT(A) has not adjudicated the specific ground, we remit the matter back to the file of the learned CIT(A) to decide the issue afresh in accordance with law after affording an opportunity of being heard to both parties. Thus, the ground raised by the assessee is allowed for statistical purposes.