Change of opinion and accrual-based taxation: reopening upheld where no formed view existed and interest income had accrued.

Reassessment is not barred by change of opinion unless the original assessment shows a formed view on the specific issue; mere acceptance of a return is insufficient. Where later information provides tangible material indicating escapement of income, reopening is supportable. On the merits, income under the mercantile system is taxable on accrual, not receipt. Accordingly, where the record showed that interest had accrued in the relevant year and no material disproved accrual, the balance interest income was taxable in that year. A later-year finding required verification to avoid double taxation, but it did not override accrual-based taxability in the year of accrual.

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Issues: (i) Whether the reassessment was invalid for want of change of opinion. (ii) Whether the addition of the balance interest income of Rs. 50,00,000 on accrual basis in the relevant assessment year was sustainable.

Issue (i): Whether the reassessment was invalid for want of change of opinion.

Analysis: The original assessment did not show that the Assessing Officer had examined the taxability of the balance accrued interest income. A mere acceptance of the return, without any formed opinion on the specific issue, does not bar reopening on the ground of change of opinion. The reopening was supported by information emerging from the later proceedings, which constituted tangible material giving rise to a belief of escapement of income.

Conclusion: The reassessment was held to be valid and the objection based on change of opinion failed.

Issue (ii): Whether the addition of the balance interest income of Rs. 50,00,000 on accrual basis in the relevant assessment year was sustainable.

Analysis: The assessee followed the mercantile system of accounting, under which income is taxable on accrual basis. The record showed that the entire interest had accrued in the relevant year, while only part of it had been offered to tax. No corroborative material was produced to show that the balance amount had not accrued in that year. The earlier appellate finding for the later year also required verification to avoid double taxation, but that did not displace the accrual-based taxability in the relevant year.

Conclusion: The addition of Rs. 50,00,000 was upheld as taxable in the relevant assessment year on accrual basis.

Final Conclusion: The appeal was dismissed because both the reopening and the addition were sustained on merits and in law.

Ratio Decidendi: Reassessment is not barred by change of opinion unless the original assessment shows a formed opinion on the specific issue, and under the mercantile system income is taxable in the year of accrual even if it is actually received later.

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