IEX Rates Can’t Be Used As Benchmark For Transfer Pricing Of Captive Power Supply: Delhi HC

The Delhi High Court has dismissed an appeal filed by the Income Tax Department reaffirming that electricity traded on the Indian Energy Exchange (IEX) cannot be treated as a comparable benchmark for determining arm’s length price (ALP) in transfer pricing disputes involving captive power supply transactions. The Bench of Justices Dinesh Mehta and Amit Mahajan noted that the department was unable to distinguish the facts of the present matter from those already considered by the Court in DCM Shriram Ltd. Consequently, the Court observed that there was no reason to take a different view and dismissed the Revenue’s appeal. The dispute arose from Assessment Year 2021–22 and involved a transfer pricing adjustment of ₹33.59 crore relating to transfer of power under the provisions of Section 92F read with Section 80IA of the Income Tax Act, 1961. The Income Tax Appellate Tribunal (ITAT) had earlier partly allowed the assessee’s appeal and deleted the adjustment by relying on an earlier Delhi High Court ruling in the case of Principal Commissioner of Income Tax v. DCM Shriram Ltd. The Court extensively referred to principles laid down in DCM Shriram Ltd. and examined whether rates prevailing on IEX could qualify as comparable uncontrolled transactions under the Comparable Uncontrolled Price (CUP) method. The Court highlighted that electricity markets operate under a regulated framework and that a valid application of the CUP method requires a high degree of similarity between the controlled transaction and the comparable uncontrolled transaction. It observed that electricity traded on IEX differs materially from regular power supplied by State Electricity Boards (SEBs) or power distribution companies. The judgment noted that power availability on IEX is uncertain and often volatile. Purchasers on the exchange are required to participate in bidding processes for short-duration slots and cannot withdraw their bids after submission. Such transactions primarily address temporary or surplus power requirements and do not ensure uninterrupted power supply necessary for industrial operations. The Court further accepted the assessee’s argument that electricity traded through IEX is fundamentally different from power supplied by distribution companies because exchange-based transactions involve payment for power purchased, whereas power supplied by distribution companies is billed based on actual consumption measured through metering systems. According to the Court, these differences have a substantial impact on pricing and therefore prevent meaningful comparison. The Court observed that the CUP method cannot be applied where significant dissimilarities exist and where adjustments cannot adequately eliminate the effect of those differences. It held that supply by SEBs or distribution companies possesses a sufficient degree of similarity to captive power transactions and therefore may be considered for ALP determination. The Bench also relied upon the Supreme Court’s decision in Commissioner of Income Tax v. Jindal Steel and Power Ltd., where the apex court interpreted the concept of “market value” under Section 80IA. The Supreme Court had ruled that market value should be based on the price paid by industrial consumers for electricity in the open market and not on prices at which power producers sell surplus power to electricity boards under statutory arrangements. The Supreme Court had emphasized that electricity supplied to industrial consumers by SEBs represented realistic market value because those were the prices consumers would ordinarily pay if captive generation facilities were unavailable. In contrast, rates for compulsory sale of surplus power to electricity boards could not be regarded as open-market prices. The Delhi High Court concluded that the questions of law were required to be answered in favour of the assessee and against the Revenue, ultimately dismissing the appeal. Case Details Case Title: PCIT Versus Shahi Exports Pvt. Ltd. Citation: JURISHOUR-1275-HC-2026(DEL) Case No.: ITA 369/2026 CM APPL. 30855/2026 CM APPL. 30856/2026 Date: 08.05.2026 Counsel For Petitioner: Ruchir Bhatia, SSC Counsel For Respondent: M.P. Rastogi Click Here To Read Order Read More: Reply to SCN Can’t Be Treated as “Empty Formality”: Orissa High Court Quashes GST Demand of Rs. 57.30 Lakh

IEX Rates Can’t Be Used As Benchmark For Transfer Pricing Of Captive Power Supply: Delhi HC

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