MAT accounting for electricity companies limits depreciation and prior-period adjustments, while business interest remains deductible in principle.

Interest on borrowings raised for an assessee's business purposes was treated as deductible under section 36(1)(iii), subject to verification of the factual record. Prior period expenses were considered not liable to be added back to MAT book profit under section 115JB where the liability crystallised during the year, again requiring factual verification. For an electricity-supply company, depreciation and related MAT adjustments could not be reworked by the Assessing Officer by substituting his own calculations where statutory accounts and the special accounting framework governed the figures. The article therefore states that MAT adjustments must respect the applicable statutory accounts and governing rules.

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Issues: (i) Whether interest paid on FDR loans raised by another entity for the assessee's business purposes was allowable under section 36(1)(iii); (ii) Whether prior period expenses could be added back while computing book profit under section 115JB; (iii) Whether depreciation and related adjustments made by the Assessing Officer could be disturbed for MAT purposes under section 115JB.

Issue (i): Whether interest paid on FDR loans raised by another entity for the assessee's business purposes was allowable under section 36(1)(iii).

Analysis: The materials placed before the Authority indicated that the borrowing was undertaken for the business requirements of the assessee and that the assessee was liable to bear the interest burden. The deduction was examined under the principle that interest on capital borrowed for business purposes is allowable, though the factual foundation had not been fully established before the lower authorities and the matter required verification of the details now produced.

Conclusion: The claim was held allowable in principle and answered in favour of the assessee, subject to verification of factual details by the Assessing Officer.

Issue (ii): Whether prior period expenses could be added back while computing book profit under section 115JB.

Analysis: The decisive consideration was whether the liabilities had crystallised only during the relevant year. Prior period items cannot be ignored if the liability became definite or ascertainable only in the year of account. On the materials produced before the Authority, the expenses appeared to have been raised for the first time during the year, but the factual position had not been properly examined below and required re-examination by the Assessing Officer.

Conclusion: The addition of prior period expenses to book profit was held unsustainable in principle and the issue was answered against the Revenue, subject to verification of factual details.

Issue (iii): Whether depreciation and related adjustments made by the Assessing Officer could be disturbed for MAT purposes under section 115JB.

Analysis: The Authority held that, for companies engaged in electricity supply, the statutory accounting framework and the special rules governing electricity accounts had to be read with the Companies Act, and the Assessing Officer could not rework the book figures by substituting his own depreciation calculations on the material then available. The accounting treatment of capital contributions, grants and subsidies had to be considered in the light of the governing statutory rules and the relevant company law provisions applicable to electricity companies.

Conclusion: The depreciation-based adjustment to book profit was held unsustainable and the matter was answered in favour of the assessee.

Final Conclusion: The ruling substantially favoured the assessee on the MAT-related adjustments, while the interest deduction was also accepted in principle but left for factual verification by the Assessing Officer.

Ratio Decidendi: For MAT computation, the Assessing Officer cannot disregard the statutory accounts of an electricity-supply company by reworking depreciation or prior-period items unless the governing accounting framework and the factual basis for adjustment justify such interference; a business-linked interest liability is deductible when the borrowing is shown to be for business purposes.

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