Tangible material with a live link to the belief that income has escaped assessment is what Section 147 demands, the Supreme Court has held while upholding the reopening of tax assessments against Chetan Sabharwal and Nitin Sabharwal, sons of the late former Chief Justice of India YK Sabharwal. An investigation report flagging alleged overvaluation of shares sold for Rs 255 crore was fresh material, the Court said, and not a mere change of opinion.
New Delhi: Four appeals by businessmen Chetan Sabharwal and Nitin Sabharwal have failed in the Supreme Court, which upheld the reopening of tax assessments through the Income Tax Department’s notices of March 31, 2015, for assessment years 2008-09 and 2009-10. The notices concern the sale of shares to a Fortis Group company, and the appeals challenged a 2019 Delhi High Court judgment [Chetan Sabharwal v. Assistant Commissioner of Income Tax, Circle 28(1), New Delhi].
Justice JB Pardiwala authored the judgment, reported as 2026 INSC 1163 and delivered on October 28, 2026, for a Bench that also included Justice K Vinod Chandran. The appeals arose from the Delhi High Court’s judgment of August 6, 2019 in Writ Petition (C) No. 10898 of 2015, which had upheld the reassessment proceedings under Sections 147 and 148 of the Income Tax Act, 1961.
The challenge: a mere change of opinion
Senior Advocate Mukul Rohatgi, for the brothers, argued that the Department had acted on a mere change of opinion, without showing any failure to disclose material facts, that alleged overvaluation of shares could not by itself lead to escapement of income in the hands of the sellers, and that the transactions had already been examined during the original scrutiny.
What the Court held on “reason to believe”
The Bench answered the question before it in these terms:
“The expression “reason to believe” in Section 147 of the Act means cause or justification. The AO must have tangible material having a rational connection or a live link with the formation of the belief that income has escaped assessment, and need not have finally ascertained the fact by legal evidence or conclusion. At the stage of the notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief, and the sufficiency of the reasons is not a justiciable issue.”
A mere change of opinion, it added, cannot be a reason to reopen, as the Assessing Officer has the power to reassess and not the power to review. A change of opinion presupposes a conscious application of mind and an opinion formed in the original assessment.
The share deals and the Sikandara Road property
On October 19, 2007, the brothers and two other shareholders executed two Share Purchase Agreements with GYS Real Estate Pvt. Ltd. for the sale of shares of Pawan Impex (P.) Ltd. and SVIIT Software (P.) Ltd., for a total consideration of Rs 195 crore and Rs 60 crore respectively. Each seller was entitled to a one-fourth share.
The brothers claimed deductions under Section 54F of the Act, after investing the proceeds in a Capital Gains Savings Bank Account and buying a residential property on Sikandara Road in New Delhi at a court auction in April 2010. Chetan Sabharwal’s return for AY 2008-09 was accepted in a scrutiny assessment under Section 143(3), while Nitin Sabharwal’s returns were processed by intimation under Section 143(1).
After the original assessments, the Investigation Unit at Noida, under the Director General of Income Tax (Investigation), Lucknow, concluded prima facie that the shares had been overvalued when compared with the cost of the companies’ land and buildings, and that the main source of the investment in the Sikandara Road property was the sale proceeds. The reopening notices followed.
No opinion formed, so no change of opinion
In Nitin Sabharwal’s case, the Court noted, the returns were accepted by an intimation under Section 143(1), so no opinion was ever formed. In Chetan Sabharwal’s case, the scrutiny assessment orders reflected no opinion, expressly or by necessary implication, on the matters underlying the notice. Relying on Sanand Properties, the Court said:
“Where no opinion was formed in the first instance, the revenue is not precluded from reopening upon the discovery of facts suggesting that income has escaped assessment, and the notice here rests on the report of the Investigation Unit, Noida, which came after the assessment.”
The notice dated March 31, 2015 was therefore valid. The reasons rested on the report of the DGIT Investigation Unit, Noida, and had “a rational nexus and a live link with the belief formed by the AO.” The appeals were dismissed and pending applications disposed of.
Why the judgment matters
Reopening cases under the pre-2021 regime still crowd tax courts, and this ruling sets out non-exhaustive principles on both “reason to believe” and “change of opinion”. Its practical message is that an assessee cannot invoke change of opinion where the original assessment was a bare acceptance of the return, or an intimation under Section 143(1), and that information surfacing later through an investigation wing can supply the tangible material needed to reopen. The ruling decides only the validity of the reopening notices; the reassessment itself will now proceed on its own merits.
Case Title: Chetan Sabharwal v. Assistant Commissioner of Income Tax, Circle 28(1), New Delhi [Civil Appeal No. 13953 of 2026, arising out of SLP (C) No. 20045 of 2019, with Civil Appeal Nos. 13954, 13955 and 13956 of 2026]
Citation: 2026 INSC 1163
Bench: Justice JB Pardiwala and Justice K Vinod Chandran, Supreme Court of India
Date of Judgment: October 28, 2026
Appearances: Senior Advocate Mukul Rohatgi for the appellants