Lease accounting change for operating leases and penalty challenge; disclosure of method and plausible view led to penalty quashed

Change in accounting treatment for operating lease rentals was disclosed in audited accounts and reflected a permissible alternative interpretation under the accounting standard for leases; because two plausible views existed, the revised lease rental deduction was a bona fide accounting choice and not furnishing of inaccurate particulars. The tribunal distinguished criteria for making assessment additions from the standard for imposing penalty for concealment or inaccurate particulars, finding the assessees explanation credible and figures disclosed, and consequently the penalty for furnishing inaccurate particulars was quashed.

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Issues: (i) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 can be levied for claiming lease operating expenses on straight-line basis (AS-19) when the claim represents a plausible view and was fully disclosed in audited accounts.

Issue (i): Levy of penalty under section 271(1)(c) for claiming lease operating expenses on straight-line method in accordance with AS-19 despite assessment addition.

Analysis: The Tribunal examined whether the assessee's change in accounting policy to recognise lease rentals on straight-line basis was a bona fide, plausible view and whether full disclosure of that change in the audited accounts negated the applicability of penalty under section 271(1)(c). The Tribunal noted that (a) the assessee disclosed the change in accounting policy in the audited financial statements, (b) divergent decisions of coordinate benches existed on the allowability of straight-lining under AS-19, and (c) the Tribunal in the related quantum proceedings observed that the method is tax neutral over the lease term. The Tribunal applied the principle that mere rejection of a claim by the revenue does not, by itself, establish furnishing of inaccurate particulars where the assessee has advanced a plausible, legally tenable view and has made full disclosure.

Conclusion: The penalty under section 271(1)(c) is quashed; the levy of penalty is not sustainable where the claim was based on a plausible view, was disclosed in the audited accounts, and there was no evidence of falsehood or mala fide concealment.

Final Conclusion: The appeal is partly allowed by quashing the penalty orders under section 271(1)(c) for the assessment years in question; grounds not substantively argued were dismissed. The decision leaves open the differing judicial views on the tax treatment but removes penal consequences where disclosure and plausibility exist.

Ratio Decidendi: Where a taxpayer adopts a plausible, disclosed accounting view (here AS-19 straight-lining) and there is no evidence of falsehood or mala fide concealment, mere disallowance of the claim on assessment does not justify imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.

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