Section14A is really a boon for the Assessing Officer. You have to only see a connection between expenses claimed by the assessee and investment, income from which does not or shall not form part of total income. Even though there is only a remote connection, the AO has every reason to be satisfied that the assessee has claimed expenses which pertain to exempt income. In that case, Rule 8D will easily apply and disallowance will be automatic.
Now, it is nobody’s case that expenses should be restricted to income. As held by ITAT Mumbai Special Bench in Daga Capitals (P.) Ltd, there is no requirement for actual exempt income. So, even though there is actually no income, still if you have invested in instruments, income from which does not or shall not form part of total income, then expenses thereon will have to be disallowed under rule 8D.