DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 2 1 1 AHMEDABAD, AHMEDABAD vs. ELECTROTHERM (INDIA) LIMITED, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD

BEFORE: SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 1640/Ahd/2025 A/w. CROSS OBJECTION No. 80/Ahd/2025 (िनधा�रण वष� / Assessment Year : 2013-14) बनाम Deputy Commissioner of Electrotherm (India) Income Tax Limited / Circle-2(1)(1), Ahmedabad A-1, Skylark Apartment, Vs. Satellite Road, Satellite, Ahmedabad, Gujarat - 380015 & Deputy Commissioner of Electrotherm (India) Income Tax Limited Circle-2(1)(1), Ahmedabad A-1, Skylark Apartment, Satellite Road, Satellite, Ahmedabad, Gujarat - 380015 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACE2669L (Appellant / Cross Objector) .. (Respondent) Shri P D Shah, AR Assessee by : Revenue by : Shri Rameshwar P Meena, Sr.DR 26/03/2026 Date of Hearing Date of Pronouncement 22/05/2026 O R D E R PER ANNAPURNA GUPTA, AM:

The present appeal filed by the Revenue and Cross objection filed by assessee are against the order of the Ld. Commissioner

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 2 – of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 30.06.2025 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2013-14.

2.1 The A.O further noted from the computation of the income that, the appellant has claimed revenue expenditure on scientific research for an amount of Rs.3,74,12,625. From the director's reply it was observed that, research and development project was approved by Ministry of Steel in August 2010 with a grant in aid of Rs 10.25 Cr for contifur project and Rs 3.5 Cr for pellet plant. The A.O further noted that grant in aid was for capital as well as for revenue expenditure. However, the appellant has claimed

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 3 – grant in aid of Rs. 5,24,71,606 as capital receipts and claimed the entire revenue expenditure of research and development of Rs. 3.74 Cr. The A.O held that the assessee has received grant in aid of Rs 5.24 Cr for capital as well as revenue expenditure, part of which is to be considered for revenue expenditure. Thus the assessee has not disclosed the material facts truly and correctly. It is true that the appellant has filed the copy of annual report and audited P&L account, however the requisite full and true disclosure of all material fact necessary for the assessment has not been met. Relying on Explanation 1 to section 147 of the Act, the A. O has recorded reasons to believe that the income of the appellant exceeding Rs. 1Lakh has escaped the assessment for the AY under consideration. After recording the reasons of reopening, the assessment was re-opened under section 147 of the IT Act.

2.2 During assessment proceedings, the A.O asked the appellant to furnish the details of claim of revenue expenditure of Rs.3.74 Cr and receipt of Government subsidy of Rs.5.24 Cr. In response the appellant furnished written submissions vide letter dated 25.02.2022 submitting the details of R&D expenditure. It was submitted that, out of total expenditure of Rs 3.74Cr. expenditure of Rs.3.73 Cr is pertaining to employee's salary engaged into carrying research and development activity relating to electronic furnace and its part. The grant given by the Government authority of Rs.5.24 Cr is not relating to revenue expenditure like manpower, consulting, travel, overhead cost etc. and therefore no amount is required to be credited to P&L account. The revenue

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 4 – expenditure claimed on R&D of Rs 3.74Cr is not relating to the project-use of countifur technology for production of steel and hence the sale receipt is not required to be considered against the expenses incurred under the head R&D expenses. The appellant also furnished copy of sanctioned letter dated 26.08.2010 to show that the grant of Rs.13.75 Cr was in relation to the capital project of the company only against which an amount of Rs.5.24 Cr has been received in the year under consideration. It was further submitted that all the expenses incurred in countifur technology had been capitalised and not claimed as revenue expenses. The appellant also furnished the copy of balance sheet to support its contention. Therefore, it was contended that the government subsidy has been rightly credited to the capital reserve and not credited to the P&L account.

2.3 Thereafter in the video conference dated 29.03.2022, the A.O noted that the appellant had clarified that all the expenditure related to the contifur project has been capitalised and added to product development cost. The appellant further submitted that due to some technical difficulties the contifur project was still under development and could not be completed. In this regard the A.O noted that on perusal of letter dated 26.08.2010 from Ministry of Steel regarding financial assistance for the research project on use of contifur technology for production of steel, it was observed that the project was intended to be completed within 12 months from the issuance of first instalment of grant. Regarding the R&D expenditure of Rs.3.74Cr the appellant further submitted that research being carried out with respect to

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 5 – battery operated vehicle at Ahmedabad. In this regard the A.O noted that this explanation is contrary to the submission given in video conference wherein it was submitted that no other research is being carried out by the appellant. On perusal of the research and development expenditure, the A.O noted that major portion has been met towards employee remuneration. The A.O held that the appellant was into manufacturing of steel products and into battery operated vehicles however very negligible amount is towards procurement of material and equipments. The appellant had only provided minimum details of employees to whom the salary is paid. The qualification of the employees, details of project where they were working on, PF contribution etc. had not been submitted. Therefore, the A.O held that the appellant had not established that R&D expenditure, most of which was employee's remuneration was not related of contifur project and was only attributed to the projects related to electronic furnace/battery operated vehicles. As the assessee claimed to be capitalizing all the expenditure related to the contifur project whereas it had shown negligible material cost with respect to the other projects. From this the conclusion drawn by the AO was that the assessee was also claiming R&D expenditure with respect to contifur project in the P&L statement to get double benefit. Therefore, the R&D expenditure of Rs.37412695 was disallowed.

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 6 – assessment by the reason of failure on the part of the assessee to disclose full or truly all material facts necessary for the relevant assessment year, the assessment could not be reopened beyond 4 years. He noted that as per the facts of the case there was no failure on the part of the assessee to disclose fully or truly and all material facts and, accordingly, placing reliance on the decision of the Hon’ble Apex Court in the case of ITO vs. Techspan India Pvt. Ltd. (92 Taxmann.com 361), he held reopening to be invalid. The findings in this regard are contained at 12 to 12.3 of the order of the Ld.CIT(A) as under:

“12. From the above, it is evident that for the A.Y 2013-14, the assessment was selected for scrutiny and assessment under section 143(3) has also been completed on 16.03.2016. It is also a fact that the subsidy/grant in aid received by the appellant of Rs 5.25Cr during the year under consideration has been credited to the capital reserve and thus disclosed in the finances of the appellant. It is seen from the reasons of re-opening that the assessment was re-opened on perusal of the financials of the appellant wherein all this information has already been disclosed. The assessing officer has no fresh tangible material available with him which indicates that the income of the appellant has escaped the assessment due to non- disclosure of true and full information by the appellant. The A.O has relied on provisions of Explanation 1 to section 147 of the IT Act. However, it can be seen from the facts of the case that, the provisions of the Explanation 1 to section 147 is not applicable in in the appellant's case, as the subsidy received as 5.24Cr has been accounted as capital reserve and the scrutiny assessment in the appellant's case has already been completed under section 143(3) of the IT Act.

12.2 There is no dispute on the fact that the assessment has been re- opened after 4 years from the end of the assessment year. As per the first provision to the 147 of the IT Act unless the income is escaped for assessment by reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for the relevant assessment year, the assessment cannot be reopened beyond 4 years. In this case as already discussed above, there is no failure on the part of the appellant to disclose fully and truly the material facts. The Hon. Supreme Court and various other High Courts have held

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 7 – that, beyond 4 years from the end of the assessment year, for the reopening of the assessment, the A.O should have fresh tangible evidence which indicates that income has escaped for assessment. The assessment cannot be reopened due to change of opinion. Reliance is placed on the decision of Hon'ble Supreme Court in case of ITO vs Techspan India pvt ltd. (92 Taxmann.com 361). The Hon'ble Apex court has decided as under-

"The language of section 147 makes it clear that the Assessing Officer certainly has the power to re-assess any income which has escaped assessment for any assessment year subject to the provisions of sections 148 to 153 However, the use of this power is conditional upon the fact that the Assessing Officer has some reason to believe that the income has escaped assessment. The use of the words 'reason for believe' in section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the Assessing Officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of same facts and circumstances which have already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the Assessing Authorities to re-assess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge, and the said fact would have material bearing on the outcome of the relevant assessment order. (Para 8)

Section 147 does not allow the re-assessment of an income merely because of the fact that the Assessing Officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the Assessing Officer the power of review and section 147 confers the power to re-assess and not the power to review. [Para 9)

12.3 As discussed above in this case the assessment was re-opened on the basis of audit report/financials filed by the appellant and not on the basis of any fresh tangible material available with the A.O which indicates the escapement of income. Therefore, in the facts of the case the reopening done by the A. O under section 147 of the IT Act is not as per the provisions of the Act. Hence the notice issues under section 148 is in violation of provisions of the Act.”

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 8 – 4. He further held the reopening to be invalid noting that while the reopening had been resorted to recording reasons for escapement of income on account of subsidy received by the assessee entirely treated as capital while a part of it was revenue in nature, while addition was made to the income of the assessee in the assessment framed u/s.147 of the Act on an entirely different issue of R&D expenditure claimed by the assessee, which, the AO found to be a double deduction claimed by him. Referring to the decision of the Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (331 ITR 236) he held that in the facts of the present case since the basis for reopening the case of the assessee itself failed, the AO had no jurisdiction to proceed with the re-assessment and to frame assessment u/s.147 of the Act. His finding in this regard are contained at para 13 and 13.2 of the order as under:

“13. Now coming to the second contention of the appellant that the addition/disallowance made is on different issue than the issue on which the reopening under section 147 was done. From the facts discussed above it is seen that the assessment was re- opened on the issue that the grant in aid/subsidy received by the appellant of Rs 5.24Cr has capital as well as revenue component. however the appellant has credited the entire grant as capital reserve. Whereas, the assessing officer has disallowed the expenditure claimed of Rs 3,74,12,695 on the ground that this expenditure pertains to contifur project and the appellant has already capitalised the entire expenditure for this project, therefore, again claiming the same as revenue expenditure resulted in double benefit It can be seen from the submission of the appellant filed during the assessment proceedings, that the R&D expenditure claimed of Rs 3.74Cr pertains to the project other than contifur project for which appellant has received subsidy/grant in aid. The entire expenditure pertaining to the contifur project has been capitalised and for the same the appellant has also furnished balance sheet and copy of audit report. On verification of the balance sheet, the assessing officer

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 9 – has not found any discrepancy in the same. However, on the basis of his own assumptions, the A. O held that the appellant has claimed double deduction 13.2 From the above it is evident that the disallowance made by the A.O is different than the issues on which the assessment was reopened under section 147 of the IT Act. As per the Explanation 3 to section 147 of the IT Act, the A.O may assess or re-assess the income in respect of any issue which has escaped assessment and such issues comes to his notice subsequently in the course of assessment proceedings. Thus what is required as per the Explanation 3, is that the A.O has to make an addition on the grounds on which the assessment was reopened and thereafter he is free to make the additions on the issues which comes to his notice during the assessment proceedings. This issue has been decided by the Hon. Bombay High Court in case of CIT vs Jet airways (331 ITR 236) as under- "The Explanation 3 to section 147 lifts the embargo inserted by judicial interpretation on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of the Explanation 3 by the Finance (No. 2) Act, 2009. However, the Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or to render the substance and core nugatory Section 147 has the effect that the Assessing Officer has to assess or reassess the income (such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings However, if after issuing a notice under section 148 he accepts the contention of the assessee and holds that the income for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income, and if he

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 10 – intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee” Therefore, the disallowance/addition made by the A.O is not per the provisions 147 of the IT Act. Accordingly, the additions made in the assessment completed under section 147 rws 144B cannot be sustained. Appeal on this ground is thus ALLOWED.”

“1. "Whether the learned CIT(A), NFAC, has erred in deleting the entire addition of Rs. 3,74,12,695/- on account of R&D expenditure claimed, primarily comprising of employee remuneration, without adequate supporting documentation and thus indicating an attempt to claim R&D expenditure related to the CONTIFUR project both as capital and as revenue expense, thereby seeking a double benefit?" 2. "Whether the Ld. CIT(A) NFAC has erred to appreciate that the R&D expenditure/Subsidy and its utilization has emanated from the reasons recorded by the AO for escapement of income." 3. "The appellant craves leave to amend OR alter any ground OR add a new ground, which may be necessary." 4. "It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored?"

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 11 – Revenue before us. The Ld. DR has also been unable to point out any infirmity in the decision relied upon by the Ld.CIT(A) in the case of Techspan India Pvt. Ltd. (supra) of the Hon’ble Apex Court holding that Section 147 of the Act does not allow re- assessment of income merely because the AO has a change of opinion. Further, the Ld. DR was unable to controvert the fact noted by the Ld.CIT(A) that while the reopening was resorted to on account of the escapement of income relating to subsidy received by the assessee which ought to have been returned as revenue receipt, the addition to the income of the assessee, however, was made on account of a totally different issue of Revenue expenditure claimed by the assessee as double deduction. The Ld. DR has also been unable to distinguish the decision of the Hon’ble Bombay High Court relied upon by the Ld.CIT(A) in the case of Jet Airways (supra) to hold that re- assessment framed by making addition on an issue for which reopening was not resorted to and the basis for reopening having failed, the re-assessment framed was invalid and without jurisdiction. He was unable to draw our attention to any contrary decision of either the Jurisdictional High Court in this regard or the Hon’ble Apex Court in this regard. In view of the above, we find no reason to interfere in the order of the Ld. CIT(A) holding the assessment framed in the present case u/s.147 of the Act to be invalid.

ITA No. 1640/Ahd/2025 A/w. CO No. 80/Ahd/2025 [Electrotherm (India) Limited] A.Y. 2013-14 - 12 – 8. The Cross Objection filed by the assessee was not pressed before us and the same is dismissed as not pressed.

This Order pronounced on 22/05/2026

Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 22/05/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��यथ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. 5. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad