STPI registration and export turnover computation principles confirmed, with no interest imputed on receivables from associated enterprises.

STPI registration as a 100% export oriented undertaking was treated as sufficient for section 10B eligibility, so separate approval by the Board under the Industries (Development and Regulation) Act was not required and deduction was allowed. For section 10A computation, communication charges and bandwidth/VOIP charges excluded from export turnover were also required to be excluded from total turnover to preserve the deduction formula, in line with the settled ratio. On transfer pricing, the arm's length margin for software development services had to be recomputed after excluding depreciation as directed by the DRP, and the matter was restored for recomputation. No interest was imputed on receivables from associated enterprises on the facts found, as the assessee had not charged such interest and receipts were realised within a reasonable period.

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Issues: (i) whether an assessee registered with the Software Technology Park of India as a 100% export oriented undertaking is entitled to deduction under section 10B without approval by the Board constituted under the Industries (Development and Regulation) Act, 1951; (ii) whether communication charges and bandwidth VOIP charges excluded from export turnover must also be excluded from total turnover while computing deduction under section 10A; (iii) whether the transfer pricing margin of software development services was required to be recomputed after excluding depreciation in line with the directions of the Dispute Resolution Panel; and (iv) whether interest on receivables from associated enterprises was chargeable in the facts of the case.

Issue (i): whether an assessee registered with the Software Technology Park of India as a 100% export oriented undertaking is entitled to deduction under section 10B without approval by the Board constituted under the Industries (Development and Regulation) Act, 1951.

Analysis: The assessee was registered with STPI as a 100% EOU and the question was whether such registration was sufficient for section 10B eligibility. The Tribunal followed its earlier coordinate-bench view that STPI registration satisfies the statutory requirement and that separate approval by the Board was not necessary in such circumstances.

Conclusion: Deduction under section 10B was allowed in favour of the assessee.

Issue (ii): whether communication charges and bandwidth VOIP charges excluded from export turnover must also be excluded from total turnover while computing deduction under section 10A.

Analysis: The Tribunal applied the settled principle that when an item is excluded from export turnover for section 10A computation, the same item must also be excluded from total turnover to preserve the formula for deduction. The Tribunal relied on the binding High Court view and upheld the CIT(A)'s computation.

Conclusion: The exclusion had to be made from both export turnover and total turnover, in favour of the assessee.

Issue (iii): whether the transfer pricing margin of software development services was required to be recomputed after excluding depreciation in line with the directions of the Dispute Resolution Panel.

Analysis: The Dispute Resolution Panel had directed the Assessing Officer to compare the margins of the assessee and the comparables after excluding depreciation. The Assessing Officer did not follow that direction, so the Tribunal directed recomputation of the arm's length price in accordance with the panel's method.

Conclusion: The matter was restored for recomputation, resulting in relief in favour of the assessee for statistical purposes.

Issue (iv): whether interest on receivables from associated enterprises was chargeable in the facts of the case.

Analysis: The Tribunal found that the assessee did not charge interest on receivables from either associated or non-associated enterprises, and that most receipts were realised within a reasonable period. Following its earlier view, it held that no interest could be imputed on such receivables on the facts found.

Conclusion: No interest was chargeable, and the assessee succeeded on this issue.

Final Conclusion: The Revenue's appeals were dismissed, and the assessee obtained substantive relief on the disputed issues in its appeal, with one issue allowed only for statistical purposes.

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