S. 14A AO must establish nexus between expenditure & exempt income, give reason for disallowance & it should not exceed the exempt income

On perusal of assessment records it is observed that the assessee had made certain investments, and it had received dividend income of Rs. 60,088/- during the year under consideration which was claimed as exempt u/s 10(34) of the Act. The assessee in its computation of income had suo moto disallowed an amount of Rs. 10,23,000/- as per Rule 8D, calculations of the same has been submitted by the assessee before ld. AO. The AO worked out the disallowance at Rs. 166.18 lacs u/s 14A of the Act. The AO had made the disallowances u/s 14A as under: It is argued that out of 751.21 lacs, interest expend...