Lowe’s Services India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Background:
Lowe’s Services India Pvt. Ltd., a subsidiary of Lowe’s US, provides software development (SWD) & ITeS-Business Support Services to its AE. For AY 2020-21, return was filed at ₹78.61 Cr. The AO/TPO proposed TP adjustments of ₹50.69 Cr, disallowances u/s 36(1)(va) (₹1.32 lakh) & u/s 80G (₹76.48 lakh). DRP deleted major TP adjustments but sustained interest on receivables & denied 80G deduction. Final assessed income: ₹81.69 Cr. Assessee appealed.
Key Issues & Findings:
TP Adjustment – Interest on Outstanding Receivables (₹1.98 Cr)
- TPO originally applied SBI PLR @13.62% p.a. → computed ₹4.65 Cr.
- DRP substituted with LIBOR+350 bps = 5.817%, reducing adjustment to ₹1.98 Cr.
- ITAT: DRP’s use of LIBOR+350 bps arbitrary; LIBOR not suitable (post-2021 phase-out).
- Held: Outstanding receivables must be benchmarked as financing transaction in invoice currency; AO to re-examine afresh considering SOFR/appropriate base rate & also assessee’s plea on working capital adjustment.
- Issue remanded back to AO.
Double Disallowance u/s 36(1)(va) (₹1.32 lakh)
- Found added both in 143(1) & again in final order.
- ITAT directed deletion of duplicate addition.
- Incorrect MAT Book Profit (₹158.55 Cr vs returned ₹118.10 Cr)
- AO adopted higher figure without draft order direction.
- ITAT: AO cannot enhance book profit at final stage; must adopt ₹118.10 Cr.
- Relief granted.
Non-grant of MAT Credit (₹2.25 Cr) & TDS Credit (₹2.35 lakh)
- AO directed to verify & allow.
80G Deduction on CSR Donations (₹76.48 lakh)
- AO/DRP denied citing CSR nature.
- ITAT: Deduction allowable unless donation is to Swachh Bharat Kosh or Clean Ganga Fund. Assessee gave to other registered trusts, furnished receipts & 80G approvals.
- Relied on FNF India Pvt. Ltd. v. ACIT & Axis Securities v. PCIT.
- Directed AO to allow deduction u/s 80G.
Tribunal’s Conclusion:
- Major TP issues (SWD & ITeS benchmarking) already deleted by DRP.
- Only surviving TP issue on receivables remanded for fresh benchmarking.
- Double disallowance deleted, MAT profit corrected, MAT/TDS credits to be allowed, 80G deduction allowed.
- Appeal partly allowed with substantial relief on corporate tax matters & CSR donations.
Final Outcome: Lowe’s India secured relief on 80G CSR deduction, MAT profit correction, double PF disallowance & credits; TP interest on receivables remanded for fresh review.
