The Ahmedabad Bench of the ITAT has refused the penalty proceedings initiated against Axis Bank Limited under Section 271(1)(c). The Tribunal determined that a disallowed claim based on a suitable accounting method should not be classified as the furnishing of incorrect details of income.
The bench of Suchitra Kamble (Judicial Member) and Narendra Prasad Sinha (Accountant Member) has authorised the appeals of the bank for Assessment Years 2011-12 to 2015-16 and set aside penalties charged for the disallowance of lease operating expenses calculated on a straight-line basis.
The issue has emerged from the revision in the accounting policy of the bank for the lease rental expenses. The bank has chosen the straight-line method (SLM) as per the Accounting Standard-19 (AS-19), spreading lease expenses evenly over the lease period rather than acknowledging them on an actual payment basis.
The same amendment has resulted in an additional lease expense claim of nearly Rs 93.04 crore for the AY 2011-12. The claim has been disallowed by the assessing officer based on the fact that the obligation for surged lease rent shall take place merely in the upcoming years and hence cannot be considered as an accrued obligation.
After disallowance, penalty proceedings were begun under section 271(1)(c) for allegedly furnishing incorrect particulars of income, leading to a penalty of nearly 30.90 crore.
According to the bank, the revision in accounting policy was incurred as per AS-19. The same method was applied in the forthcoming years. In the financial statements, complete disclosure of the accounting changes was made.
The claim was as per the judicial precedents, permitting the lease rent recognition on a straight-line basis. It claimed that the disallowance shows a difference of opinion on accounting treatment and did not amount to furnishing inaccurate particulars.
The Tribunal mentioned that the bank had revealed the amendment in accounting policy in its audited financial statements, along with the impact of the changed lease term estimation.
The Tribunal acknowledged that although the quantum addition had been upheld previously, it recognised that the adjustment for lease expenses was revenue-neutral over the entire lease term.
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The Tribunal discovered that there were differing judicial opinions regarding the allowability of lease rent calculated on a straight-line basis. As the bank had chosen one of the feasible and legally acceptable interpretations, the claim could not be considered as providing inaccurate details about income.
The Tribunal specified that penalty proceedings vary from assessment proceedings and that mere confirmation of an addition does not automatically explain the charge of a penalty. The approach of the claim was bona fide. All material facts were revealed. No wrong data was provided. The issue is the interpretation of accounting principles.
Therefore, the penalty charged u/s 271(1)(c) was quashed for all the pertinent assessment years.
The ITAT penalty permitted the appeals and asked for the removal of penalties for AY 2011-12 to 2015-16, reaffirming that a bona fide claim established on a recognised accounting method cannot draw a penalty only because it is disallowed during assessment.
| Case Title | Axis Bank Limited vs. Assistant Commissioner of Income Tax |
| Case No | ITA No. 1121/Ahd/2025 to ITA No. 1125/Ahd/2025 |
| Assessee by | Tushar Hemani, Kushal Fofaria |
| Revenue by | Sher Singh |
| Ahmedabad ITAT | Read Order |
