Silent assessment order is no opinion: Supreme Court upholds reopening of Rs 255 crore Sabharwal share sale
Justice J.B. Pardiwala and Justice K. Vinod Chandran hold that a post-assessment investigation report on overvalued shares is tangible material for reopening, and that a bare acceptance of a return forms no opinion to change.
An assessing officer who asked questions about a share sale, received the answers and then accepted the return in a one-line order did not, in law, form any opinion on that sale. On that footing the Supreme Court on 28 October 2026 dismissed four appeals by Chetan Sabharwal and his brother Nitin Sabharwal and upheld the reopening of their income-tax assessments for Assessment Years 2008-09 and 2009-10. The brothers had sold their shares in two private companies to a Fortis group entity for a combined Rs 255 crore. An investigation report that reached the department only after the original assessments concluded that the shares were overvalued, by Rs 109.8 crore and Rs 40.4 crore, when measured against the cost of the companies’ land and buildings, and that the proceeds had funded a Sikandara Road property in Delhi on which Section 54F relief was claimed.
A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran held that the report was tangible material with a live link to the officer’s belief that income had escaped assessment, and that the notice of 31 March 2015 under Section 148 of the Income Tax Act, 1961 was valid. The judgment, written by Justice Pardiwala and marked reportable, affirms a Delhi High Court decision of 6 August 2019 and sets out, in two numbered lists, the principles governing reason to believe and change of opinion.
Two share purchase agreements, Rs 255 crore and a quarter share each
The transaction began on 19 October 2007. Chetan Sabharwal, Nitin Sabharwal and two other shareholders signed two share purchase agreements with GYS Real Estate Pvt. Ltd., the buyer. One agreement covered 7.5 lakh equity shares of Pawan Impex (P) Ltd., which the judgment calls company no. 1, for Rs 195 crore. The other covered 2.5 lakh shares of SVIIT Software (P) Ltd., company no. 2, for Rs 60 crore. Each seller was entitled to a quarter of the consideration.
Money moved in stages. During Financial Year 2007-08 the buyer paid advances of Rs 110 crore on the Pawan Impex deal and Rs 22.5 crore on the SVIIT deal, plus an additional Rs 18 crore on the SVIIT shares. Chetan Sabharwal’s quarter of all this came to Rs 37.64 crore. His return for AY 2008-09, filed on 25 September 2008, declared a loss of Rs 90.37 lakh; the tax audit report with it showed Rs 37.64 crore under sundry credit, of which Rs 37.62 crore was a liability in the name of the buyer.
Closing under Articles 1 and 4 of the agreements came later and at a lower figure. The Rs 195 crore price for Pawan Impex was reduced by Rs 63.79 crore of unsecured loans in the company’s books and Rs 3 crore of estimated construction cost, leaving a net Rs 128,20,66,501, of which Chetan Sabharwal’s share was Rs 32,05,16,625. The SVIIT price came down by Rs 18.99 crore and Rs 60 lakh on the same heads to Rs 40,40,84,770, his share being Rs 10,10,21,192. The Pawan Impex shares were dematerialised in November 2008 and transferred to Religare Securities Ltd.
On 25 September 2009, Chetan Sabharwal deposited Rs 28 crore and Rs 3.915 crore in a Capital Gain Savings Bank Account with the Union Bank of India under Section 54F(4). On 21 April 2010 the brothers together bought an undivided half share in a residential property in Delhi for Rs 61 crore out of those gains and claimed the Section 54F exemption.
The scrutiny that asked about the buyer and then accepted the loss
The AY 2008-09 return was picked for scrutiny. On 6 August 2010 the assessing officer issued a notice under Section 142(1) asking Chetan Sabharwal to explain the nature of the Rs 37.62 crore transaction with the buyer and to produce the buyer’s return documents for the previous five years. He replied with supporting documents on 5 October 2010. On 13 December 2010 the officer sent notices under Section 133(6) to Pawan Impex, SVIIT Software and GYS Real Estate, all of which replied on 16 December 2010. The assessment under Section 143(3) was then framed, accepting the returned income. The order said only that, after examining the assessee’s submissions and discussing the matter with his authorised representative, the loss of Rs 90,37,369 was assessed as returned.
For AY 2009-10, Chetan Sabharwal declared net income of Rs 1,17,21,750, including the long-term capital gains on the share sales, with the gains deposited under the Capital Gains Account Scheme. The assessment order of 19 December 2011 discussed various issues but said nothing about the capital gains. Nitin Sabharwal’s returns for both years were never scrutinised at all; they were accepted by intimation under Section 143(1).
After the assessments were complete, the Investigation Unit at Noida, under the DGIT (Investigation), Lucknow, enquired into the value of the two companies’ shares. Its report concluded, prima facie, that the shares were overvalued when compared with the cost of the companies’ land and buildings, which was much lower than the Rs 195 crore and Rs 60 crore transaction amounts, and that the brothers had bought a half share of Property No. 7, Sikandara Road, New Delhi, in April 2010 through a court auction, with the sale proceeds as the major source. After what the judgment describes as a gap of four years, the officer issued the Section 148 notice on 31 March 2015. The reasons were communicated on 24 April 2015, Chetan Sabharwal’s objections of 20 May 2015 were rejected on 24 September 2015, and his writ petition, W.P.(C) No. 10898 of 2015, was dismissed by the Delhi High Court on 6 August 2019.
Rohatgi: a seller cannot have income escape by overpricing what he sold
Senior advocate Mukul Rohatgi, for the Sabharwals, attacked the reasons recorded on five fronts. The sole basis for reopening was the alleged overvaluation of the shares, which cannot produce escaped income in the hands of the seller and casts no doubt on the genuineness of the sale. For AY 2008-09 there could be no escapement at all, because the transfer was complete only in AY 2009-10, when the Article 4 conditions were met and the shares changed hands. For AY 2009-10, the capital gains had been disclosed and offered to tax. The transaction had been confirmed by the two companies and the buyer during scrutiny, and the buyer’s own reassessment on the same transaction had ended in acceptance of its return. And the allegation of a colourable deferment of capital gains to claim Section 54F, which surfaced only in the order rejecting the objections, was nowhere in the recorded reasons.
Rohatgi also invoked the first proviso to Section 147. After a Section 143(3) assessment, a notice beyond four years from the end of the assessment year is permissible only if income escaped because the assessee failed to disclose fully and truly all material facts. No such failure had ever been alleged, he said; the sale was fully disclosed and thoroughly examined. The reopening was a mere change of opinion, and the fact that the officer’s favourable view was not spelt out in the assessment order did not mean it was never formed.
Revenue: a non-speaking order holds no opinion
Senior advocate Nisha Bagchi, with Additional Solicitor General K.M. Nataraj, defended the notice. The investigation report, which reached the officer only after the assessments, was specific, reliable and tangible information. It put the overvaluation at Rs 109,80,00,000 for Pawan Impex and Rs 40,40,28,000 for SVIIT Software, going by the cost of land and building. Whether those conclusions were true was not the question at the notice stage, she argued; the only question was whether a reasonable person could form the requisite belief on that material.
On change of opinion, the department’s answer was that the Section 143(3) orders were non-speaking, that the valuation issue was never considered during scrutiny, and that no opinion could be attributed to an officer on an issue he never addressed. The order disposing of the objections had recorded that the mechanism by which the shares’ net worth was calculated, and the due diligence report on them, were never provided despite repeated requests. For Nitin Sabharwal, whose returns had only been processed under Section 143(1), change of opinion and non-disclosure were irrelevant; the notice was within the time allowed by Section 149(1)(b).
Eleven principles on reason to believe
The Court set out Sections 147 and 148 as they stood on 31 March 2015. The officer must have reason to believe that income chargeable to tax has escaped assessment, which is the jurisdictional foundation; after a Section 143(3) assessment, the proviso adds that a notice beyond four years survives only if the escapement is attributable to the assessee’s failure to disclose fully and truly all material facts; and Section 148 requires reasons to be recorded before the notice issues. The power is not confined to concealment; it extends to cases where tangible material gives the officer reason to believe income has escaped.
Justice Pardiwala then walked through six decades of case law. Calcutta Discount Co. Ltd. v. ITO, a Constitution Bench ruling from 1961, fixed the assessee’s duty at disclosing all primary facts fully and truly, and held that prima facie grounds for thinking there was non-disclosure are enough for jurisdiction. Chhugamal Rajpal v. S.P. Chaliha (1971) struck down a notice issued on a report that showed only a vague feeling that transactions were bogus. Sheo Nath Singh (1972) required the belief of an honest and reasonable person, not suspicion, gossip or rumour. Lakhmani Mewal Das (1976) demanded a direct nexus or live link between the material and the belief, while leaving sufficiency non-justiciable. Ganga Saran and Sons (1981) read has reason to believe as stronger than is satisfied. Phool Chand Bajrang Lal (1993) allowed reopening on fresh facts or on information exposing the untruthfulness of facts previously disclosed. Rajesh Jhaveri Stock Brokers (2008) defined reason as cause or justification. Techspan India (2018), relying on Kelvinator of India (2010), insisted on a schematic reading so that Section 147 does not become a power of review. And Sanand Properties (P) Ltd. v. CIT, reported at (2026) 488 ITR 337 and written by Justice Pardiwala himself, held that validity must be tested solely on the reasons recorded.
From these the Court distilled eleven principles at paragraph 41. The word reason means cause or justification. Fresh facts, or information exposing the untruth of facts already disclosed, justify reopening and are not a change of opinion, whether or not the officer could have found the truth by further enquiry at the time. At the notice stage the only question is whether a reasonable person could form the belief on relevant material. The belief must be reasonable, held in good faith and not a pretence; suspicion, gossip, rumour and a case for investigating do not suffice. There must be a live link between material and belief. Courts cannot examine sufficiency, but the assessee may show that no belief existed or that it rested on vague, irrelevant and non-specific information. Only material before the officer when he initiated proceedings counts. And change of opinion is an in-built check on abuse of the power.
Change of opinion needs an opinion first
On the second limb, the Court relied on three decisions. Kelvinator held that although the power to reopen widened from 1 April 1989, it cannot be exercised on a mere change of opinion, because the officer has “the power to reassess and not the power to review”, and without that check a review would take place in the garb of reopening. Techspan India added that a change of opinion implies the formulation of an opinion and then a change in it, so a court must first verify whether the earlier assessment expressed an opinion, expressly or by necessary implication, on the matter said to have escaped tax. If the assessment order is non-speaking, cryptic or perfunctory, it may be difficult to attribute any opinion to the officer. Sanand Properties held that where there was a perceptible lack of enquiry into the specific agreement in question, the plea was legally untenable, since a change of opinion presupposes a previously formed opinion.
The five principles at paragraph 46 follow from this. A change of opinion presupposes a conscious application of mind and the formation of an opinion in the original proceedings, which the court must verify. Where the order is non-speaking or there is a perceptible lack of enquiry on the specific aspect, the plea fails. Where no opinion was formed, the revenue may reopen on discovering facts suggesting escapement; where the point was well considered, a different view on the same facts is a change of opinion.
Why the Noida report was enough
Applying all this, the Court first looked at what the recorded reasons actually said. They referred to a letter from the office of the DGIT (Investigation), Lucknow, and recorded that the Noida enquiries had revealed the brothers’ joint purchase of a half share in the Sikandara Road property for Rs 64,69,25,000 through an auction held at the direction of the Delhi High Court, funded mainly by the share sale proceeds. They put Chetan Sabharwal’s long-term capital gain at Rs 40,38,40,170, of which Rs 31,91,50,000 went into the capital gains account before 30 September 2009 with a Section 54F deduction claimed, and Nitin Sabharwal’s at Rs 40,40,84,770 with Rs 35,80,97,629 deposited. They quoted the report’s overvaluation figures. And they recorded the officer’s implication: the agreements were signed in FY 2007-08, the consideration was received mainly in FY 2008-09, and the Section 54F deduction was claimed on it, so that a substantial amount had escaped assessment in both years.
Those facts, the Court said, came to the officer through the Investigation Unit after the assessment was completed on 22 December 2010. On that material he had prima facie reasons to believe that all material facts relating to the transaction had not been fully and truly disclosed, which is all the proviso requires at the notice stage. The overvaluation conclusion and the tracing of the proceeds into the Sikandara Road property were neither available to the officer during the original assessment nor disclosed by the assessee.
The Court then dealt with Rohatgi’s central argument, that overvaluation cannot create escaped income for a seller. Accepting it, Justice Pardiwala wrote, would mean overlooking that the reasons did not end with the valuation finding but went on to record the adjustment of the gains to future years and the Section 54F claim. Escapement in the hands of a seller whose proceeds were later used to acquire capital assets and claim deduction “could as well be a diversion of income” under the guise of sale proceeds, a possibility that assumed relevance precisely because the price was far above the actual value of the shares. The tangible material was the Noida report. “The reasons recorded indicate this link at each step,” the Court said, and adequacy was not for it to weigh.
The bench also distinguished Chhugamal Rajpal. There, the officer had recorded only that proper investigation was necessary, so the notice was a means of carrying it out. Here, the Noida unit had already investigated before the reasons were recorded, and its conclusion on the value of the shares was set out in the reasons along with the belief formed on it.
One brother assessed by intimation, the other in a single line
On change of opinion the Court split the brothers. Nitin Sabharwal’s returns had been accepted by intimation under Section 143(1). Rajesh Jhaveri held that such an intimation is not an order of assessment: the acknowledgement is mostly done by ministerial staff, not the assessing officer, and no assessment can be said to be done by them. Since no assessment was framed, there was no occasion for the officer to form any opinion, and no question of changing one.
Chetan Sabharwal’s case was harder, because his AY 2008-09 return had gone through scrutiny with a Section 143(2) notice, a Section 142(1) questionnaire and Section 133(6) enquiries to the two companies and the buyer. The Court nonetheless held that the resulting order, which simply assessed the loss at Rs 90,37,369 after examining the submissions, was a bare acceptance of the returned income, and that the AY 2009-10 order discussed various issues but not the capital gains. Neither order expressed any opinion, expressly or by necessary implication, on the matters the reopening rested on: the value of the shares against the cost of land and building, the investment of the proceeds in the Sikandara Road property, the adjustment of the gains to future years and the Section 54F claim. The fact of the valuation, the Court added, had been suppressed in the officer’s enquiry and came to light only through the investigation. Following Sanand Properties, in the absence of any enquiry or adjudication on the specific aspect, the plea was legally untenable.
Order
The Court answered its single question in two parts. First, reason to believe means cause or justification; the officer needs tangible material with a rational connection or live link to the belief, not a finally ascertained fact, and sufficiency is not justiciable; a mere change of opinion cannot ground reopening, and it presupposes a conscious application of mind and the formation of an opinion in the original assessment. The non-exhaustive principles are at paragraphs 41 and 46. Second, the notice of 31 March 2015 was issued on reasons duly recorded, based on the tangible material of the Noida report prepared after the assessment, and is valid; no case of change of opinion is made out for either brother.
Civil Appeal No. 13953 of 2026, arising from SLP(C) No. 20045 of 2019, and the three connected appeals, Civil Appeal Nos. 13954 to 13956 of 2026, are dismissed. The Delhi High Court’s judgment of 6 August 2019 in W.P.(C) No. 10898 of 2015 stands, and the reassessment proceedings for AY 2008-09 and AY 2009-10 may continue. Pending applications, if any, stand disposed of.