Income tax reassessment over alleged cash purchases in TAS entries upheld; s.147/s.148 notice not barred as "change of opinion".

Reopening under s.147 on alleged cash purchases reflected in TAS was challenged as a barred "change of opinion" after the AO had earlier dropped the query for lack of evidence. The HC held that mere availability of transaction entries, without contemporaneous material linking the assessee to the third-party group and where the assessee denied any relationship, did not amount to a formed opinion in scrutiny. Since the s.148 notice was founded on subsequent, new and tangible material establishing a relationship that was absent during s.142(1) proceedings, no jurisdictional error was shown and the challenge on change-of-opinion failed. The question of AO competence post s.151A scheme was noted as jurisdictional but left for detailed consideration.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether initiation of reassessment for the relevant assessment year, after scrutiny assessment had examined the alleged cash payments/transactions with a particular group and then "dropped" the issue due to lack of verification, was barred as a mere change of opinion.

(ii) Whether, on the facts found, the impugned reassessment steps were founded on new and tangible material (as opposed to a reappraisal of the same material already considered), thereby negating the plea of change of opinion.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Reopening after earlier scrutiny-change of opinion vs. reopening based on new tangible material

Legal framework (as discussed by the Court): The Court noted that reassessment cannot be initiated on a "change of opinion". For establishing "change of opinion", there must first be a prior formation of opinion by the assessing authority on the relevant issue; only thereafter can a later contrary view amount to a change. The Court further proceeded on the basis that reopening is permissible where the authority forms "reason to believe" based on material having a live link to escapement and not on conjecture, and that conditions governing reopening must be satisfied before issuing notice.

Interpretation and reasoning: The Court examined the earlier scrutiny record and found that the transactions now relied upon had indeed been put to the assessee during scrutiny. The assessee had denied the allegations entirely, and the assessment order recorded that verification attempts did not yield relevant data concerning the alleged counterparty; hence the assessing authority stated it could not verify whether any business relationship existed. The Court treated this as a case where the issue was "dropped" because the assessing authority was unable to form an opinion due to lack of usable material for verification. In the Court's view, absence of verifiable data meant no concluded opinion was formed on "no escapement"; therefore, a later reopening could not automatically be characterised as a prohibited review on change of opinion.

The Court further held that the impugned reassessment action was not based merely on the assessee's financial statements or the same static material earlier scrutinised. It found that the impugned order proceeded on the basis of additional material identifying the relationship/transactions, which was stated to have been non-existent at the time of the earlier scrutiny. On that factual premise, the Court concluded the reopening was founded on new tangible material rather than a reappraisal of an already-formed view.

Conclusions: The Court rejected the challenge founded on "change of opinion" and held that no jurisdictional error was established on that ground. It concluded that, because the earlier scrutiny did not result in a formed opinion on the merits (the issue having been dropped due to inability to verify), and because the impugned action was based on new tangible material, the reassessment steps were not vitiated as a change of opinion.

Limited protective direction: While permitting the reassessment proceedings to continue, the Court directed that any decision taken in such proceedings shall not be implemented without express leave of the Court, noting that a separate jurisdictional question (relating to competence to issue notice in view of a statutory scheme) may require detailed consideration, though it had not been argued.

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