If no expenditure has been incurred to exempt income no disallowance under section 14A can be made

In CIT vs. Hero Cycles 323 ITR 518 (P&H) it was held that dis allowance u/s 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance u/s 14A could not stand. On the other hand, in Godrej Boyce Mfg. Co 328 ITR 81 (Bom) it was held that the AO could adopt a reasonable basis to identify the expenses in relation to the earning of exempt income; Rule 8D does not apply to AY 2006-07. The assessee has urged that no expenditure has been identified to have been incurred to exempt income. Neither the AO no...