Rates Charged By Power Distribution Companies, State Board For Electricity Can Be Considered To Determine Its Market: Delhi HC

A division bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma further held that the rate at which electricity is sold on the Indian Energy Exchange (IEX) platform is not a 'comparable' and should not be considered to determine the market value of the power supplied by the Assessee to its industrial units.

IEX is a platform used by power-producing units to sell surplus power for short-term requirements.

The assessee contended there is a high level of volatility in the IEX rates as it depends on the immediate availability of surplus electricity. It thus opposed the appeal preferred by the Income Tax Department, in connection with its international transactions.

It was the Department's case that the transfer of electricity from Respondent-assessee's eligible power units to ineligible units was not at the market value.

The Transfer Pricing Officer (TPO) had made additions, stating that the Assessee's transactions were not at Arm's Length Price (ALP). It had taken into account the rates of electricity quoted on the IEX.

ITAT however ruled in favour of the Assessee and deleted the additions made on account of transfer pricing of power from the Assessee's eligible units to ineligible units.

ITAT held that the IEX rates for electricity could not be used as an external CUP, as the products (energy sold on spot rates and energy supplied/ purchased by SEB) were not sufficiently comparable.

Hence, this appeal was preferred by the Revenue.

The High Court ruled, “...the transactions of sale and purchase of power on the IEX is not comparable to the regular supply of power by the SEB or the power distribution companies. Undisputedly, IEX is not a source for uninterrupted power on the basis of which any power consumer can set up its unit. It is also not disputed that there is a wide fluctuation in the IEX rates.”

The Assessee had computed the ALP by adopting the external CUP (comparable uncontrolled price) method as provided in Rule 10B(1)(a) of the Income Tax Rules, 1962. The TPO had also accepted it as the most appropriate method in the facts of the present case.

In this regard, the High Court said, “The CUP method would be an appropriate method only if the transactions are identical inasmuch as there are no differences that would materially affect the price in an open market. And, if there is any difference which affects the price, the same can be reasonably ascertained and its effect can be eliminated by an appropriate adjustment. ”

Reliance was placed on Sumitomo Corporation India Pvt. Ltd. v. CIT (2016) where the Delhi High Court held that in applying the CUP Method, a very high degree of similarity between the controlled and uncontrolled transactions is required.

Accordingly, the Court held, “Undoubtedly, there is a degree of similarity between the transaction of supply of electricity by SEBs to the Assessee and the supply of electricity by the Assessee's eligible units,” and dismissed Revenue's appeal.

Appearance: For the Appellant: Mr Induraj Singh Rai, SSC with Mr Sanjeev Menon, Mr Rahul Singh, and Mr Anmol Jagga, Advocates. For the Respondent: Mr S. Ganesh, Senior Advocate with Mr V.P. Gupta and Mr Anurav Kumar, Advocates.

Case no.: Principal Commissioner Of Income Tax – 1, New Delhi v. DCM Shriram Ltd.

Citation: 2025 LiveLaw (Del) 92

Case title: ITA 566/2023

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