“Do not affirm the reports of the People of the Book as true, nor deny them as false” is a warning against unwarranted certainty about unverified transmitted narratives.
It concerns matters for which no reliable independent proof of truth or falsehood is available. Where the Qur'an or established prophetic teaching already determines a claim, that stronger evidence governs the judgment.
Mentioning an Israelite report, accepting it as certain and identifying it as the historical cause of a verse are three different claims. Each must be justified at its own evidentiary level.