Dropping Issue During Income Tax Scrutiny for Lack of Material is Not ‘Change Of Opinion’: Calcutta HC validates Reopening based on New Material [Read Order]

In a recent ruling, the Calcutta High Court held that dropping an issue during income tax scrutiny due to lack of material does not amount to a “change of opinion” and does not bar reopening of assessment when new and tangible material later comes to light, while permitting the reassessment proceedings to continue subject to safeguards.

Mark Steels Limited, the petitioner, is a company engaged in manufacturing steel products. For the assessment year 2021–22, the petitioner’s return was selected for scrutiny, and a notice under Section 142(1) of the Income Tax Act, 1961 was issued.

During the scrutiny proceedings, the Assessing Officer examined information relating to alleged cash purchases of coal from the Majee Group, based on data available on the Income Tax Department’s Insight Portal and the Taxpayer Annual Summary.

The petitioner responded to the notice by denying any cash transactions with the Majee Group and stated that it had no business relationship with that group. After examining the reply, records, and available material, the Assessing Officer passed an assessment order under Section 143(3) on 22 December 2022. In the assessment order, the issue relating to the Majee Group was dropped on the ground that no verifiable data could be gathered to establish any business relationship.

Subsequently, on 11 March 2025, the Assessing Officer issued a show cause notice under Section 148A(1) proposing to reopen the assessment for the same year on the basis of additional information. This was followed by an order under Section 148A(3) dated 26 June 2025 and a notice under Section 148. Aggrieved, the petitioner approached the Calcutta High Court, arguing that the reopening was based on a mere change of opinion.

The petitioner’s counsel argued that the alleged transactions with the Majee Group had already been examined during the original scrutiny proceedings and were consciously dropped while passing the assessment order under Section 143(3). They argued that reopening the assessment on the same issue amounted to a change of opinion, which is not permitted under law. The petitioner relied on several judicial precedents to support the submission that once an issue is examined and dropped, reassessment is barred.

The revenue counsel argued that the issue was earlier dropped only because sufficient data was not available at that time. They argued that the Assessing Officer had not formed any final opinion on the issue during the original assessment. The revenue further argued that the reopening was based on new and tangible material which was not available earlier and hence it was not a case of change of opinion.

Justice Raja Basu Chowdhury observed that for the doctrine of change of opinion to apply, the Assessing Officer must have formed an opinion on the issue during the original assessment, either expressly or by necessary implication. The court observed that in the present case, although the issue relating to the Majee Group was examined earlier, it was dropped due to lack of verifiable data and inability to confirm any business relationship.

The court explained that dropping an issue because verification was not possible does not amount to formation of an opinion.

The court further observed that the reassessment proceedings were based on new and tangible material which was not available during the original scrutiny. The Court pointed out that in such circumstances, reopening the assessment cannot be treated as a mere change of opinion.

In view of these findings, the court declined to quash the order passed under Section 148A(3) and the notice issued under Section 148 of the Income Tax Act. The court permitted the reassessment proceedings to continue, while directing that any final decision taken by the Assessing Officer shall not be implemented without the express leave of the High Court. The writ petition was disposed of with these directions.

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