Delhi HC Quashes Rs. 26.52 Cr Income Tax Addition on Power Pricing, Upholds SEB Rates for S. 80IA Deduction [Read Order]

The Delhi High Court quashed the addition of Rs.26.52 crore on DCM Shriram Ltd. stating that SEB rates were appropriate to determine the market value of power transactions for claiming deduction under section 80IA of the Income Tax Act. 

The case began when the Transfer Pricing Officer (TPO) proposed an adjustment of ₹30.83 crore. The TPO argued that power rates quoted on IEX should be used instead of State Electricity Board (SEB) rates for benchmarking transactions between eligible and non-eligible units of the company. The Income Tax Appellate Tribunal (ITAT) later ruled in favor of the assessee, stating that SEB rates were the appropriate benchmark.

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The Principal Commissioner of Income Tax challenged this deletion before the High Court of Delhi, contending that SEB rates were artificially high and that IEX rates reflected true market conditions.

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On the other hand, the assessee argued that the IEX rates were highly volatile and represented short-term transactions, making them an unreliable benchmark. The assessee submitted that its power transactions had consistently been benchmarked against SEB rates since 1997-98, a practice that had been accepted in previous tax assessments.

The bench, comprising Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma, upheld the ITAT ruling, stating that the power traded on IEX was not comparable to the power supplied by SEBs.

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The court observed that IEX transactions involve bidding for power in fifteen-minute slots, whereas SEBs ensure a continuous and regulated supply of electricity. Thus, the IEX rates could not be used as a reliable external comparable uncontrolled price (CUP).

The High Court further cited the Supreme Court’s decision in CIT v. Jindal Steel and Power Ltd., which held that power pricing should be benchmarked against SEB rates rather than the rates at which surplus electricity is sold in the market.

The Delhi High Court dismissed the Revenue’s appeal, confirming that the ₹26.52 crore addition against the assessee was unjustified.

In short, the appeal of the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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