Rates Charged By SEB For Supply Of Power Is An Appropriate External CUP For Determining Market Value Of Electricity: Delhi High Court

Date:

The Delhi High Court has held that the rates charged by the State Electricity Board (SEB) for supply of power to the Assessee was an appropriate external CUP for determining the market value of electricity as supplied by the Assessee’s eligible unit to a non-eligible unit.

The bench Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma has observed that market value of the power supplied by the assessee to its industrial units should be computed by considering the rate at which the State Electricity Board supplied power to the consumers in the open market and not comparing it with the rate of power when sold to a supplier i.e., sold by the assessee to the State Electricity Board as this was not the rate at which an industrial consumer could have purchased power in the open market. 

The Assessee/respondent is a company engaged in the business of manufacturing and trading of chemicals, PVC resins, PVC compounds, UPVC windows and door systems, cement, sugar, fertilizers, seeds, textile yarn, power generation and operating retail outlets.

The Assessee filed its return of income for AY 2014-15 declaring its taxable income. The Assessee disclosed its book profit for the purposes of Section 115JB of the Income Tax Act. The Assessee also paid tax on its book profits. Subsequently, the Assessee filed a revised return claiming a higher TDS as against claimed in the original return.

The Assessee’s return was picked up for scrutiny. During the said proceedings, it was found that the Assessee had an international transaction with associated enterprise (AE) and accordingly, the Assessing Officer (AO) referred the Assessee’s return to the Transfer Pricing Officer (TPO) for determination of the arm’s length price (ALP) on the international transaction. 

The TPO passed an order dated 31.10.2017 accepting that the Assessee’s “international transactions” were on arm’s length basis. However, in respect of certain eligible domestic transaction, it was held that the profits of the power undertaking qualifying for deduction under Section 80IA of the Income Tax Act needed to be reduced. The adjustment was determined, inter alia, on the basis that the transfer of electricity generated by the Assessee’s eligible power units was not at the market value.

The Assessee had transferred power from its eligible units to non-eligible units in three regions.

The TPO found that the rates at which the transactions in Uttar Pradesh, Rajasthan and Gujarat Regions were benchmarked were significantly higher than the average rate of power traded on the IEX.

The TPO averaged the rates at which the Assessee had benchmarked the transactions and the average rates on which power was traded at the IEX and determined the ALP rates at ₹3.47 for the UP Region, ₹5.45 for Rajasthan Region; and ₹20.54 for the Gujarat Region. Based on the rates, the TPO directed a transfer pricing adjustment of ₹30,83,65,268.

The court while ruling in favour of the assessee held that the rates at which electricity was supplied by the SEBs to industrial consumers as being the market value of the said supplies for the purposes of Sub-section (8) of Section 80IA of the Income Tax Act.

Read More: Mere Uploading Notice On GST Portal Is Not A Proper Service: Madras High Court

Case Details

Case Title: PCIT Versus DCM Shriram Ltd.

Case No.:  ITA 566/2023

Date: 21.01.2025

Counsel For Petitioner: Induraj Singh Rai

Counsel For Respondent: Senior Advocate S. Ganesh

Mariya Paliwala
Mariya Paliwalahttps://jurishour.in/
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.

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