Section 40(b) of the Income Tax Act

Income-tax Act, 2025: s.35

Section 40(b) falls under section 40 of the Income-tax Act, 1961, which corresponds to section 35 (Amounts not deductible in certain circumstances) of the Income-tax Act, 2025.

Read section 35 of the 2025 Act

Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.

The decision most relied on for Section 40(b) is Textile Machinery Corporation Ltd. v. CIT (107 ITR 195), cited in 165 of the 428 judgments on BharatTax that turn on this section.

Leading authorities on Section 40(b)

Textile Machinery Corporation Ltd. v. CIT
107 ITR 195 · 1977 · Supreme Court
165
citing judgments

A new industrial undertaking is not considered a reconstruction of an existing business for tax deduction purposes if it is a separate, independent production unit manufacturing commercially tangible products that can operate without losing its identity in the old business. The transfer and substantial use of assets and manpower from an old business to a new one may indicate reconstruction.

7.14 In CIT v. Gwalior Rayon Silk Mfg. Co. Ltd.
196 ITR 149 · 1992 · Supreme Court
120
citing judgments

Incentive provisions in the Income-tax Act, particularly those granting deductions for new industrial undertakings, must be construed liberally to achieve their legislative purpose. This principle guides the interpretation of conditions such as what constitutes a 'new undertaking' versus a 'splitting up or reconstruction' of an existing business for claiming deductions.

CIT v. Ramniklal Kothari
74 ITR 57 · 1969 · Supreme Court
28
citing judgments

A partner's income from a firm, including salary, bonus, commission, or remuneration, is considered business income in their hands. Expenses necessary for earning this business income are deductible.

CIT vs. South Arcot Soc. (176 ITR 117, 119) (SC) Ct v. UO Co-op Fed. (
177 ITR 418 · 1989 · Supreme Court
26
citing judgments

Provisions granting deduction, exemption, or relief to an assessee are to be interpreted liberally and in favour of the assessee.

Haji Nazir Hussain v. ITO
91 ITD 42 · 2004 · ITAT
19
citing judgments

Section 68 additions can be made based on impounded papers, even if sums are not credited in books, to prevent assessees from benefiting from their own lapses.

Assam Bengal Cement Co. Ltd. v. CIT
159 ITR 253 · 1986 · High Court
16
citing judgments

Expenditure incurred with a view to producing profits is considered revenue expenditure.

Md. Serajuddin & Brothers v. CIT
210 Taxmann 84 · 2012 · High Court
16
citing judgments

Where a firm claims deduction for partner's remuneration under Section 40(b), income from other sources that is included in the profit and loss account cannot be excluded when calculating 'book profit'.

CIT v. Anil Hardware Store
323 ITR 368 · 2010 · High Court
7
citing judgments
Sanjeevi & Co. v. CIT
62 ITR 156 · 1966 · High Court
5
citing judgments
225 ITR 640 (MP) CIT vs Orissa Corporation (P) Ltd, 159 ITR 78 (SC) CIT v. Creative World Telefilms Ltd.
292 ITR 241 · 2007 · High Court
4
citing judgments

Judgments on Section 40(b)

Siddhivinayak & Co., Umbergaon vs. Asstt. Commissioner of Income Tax, Vapi Circle, Vapi

In the result, appeal filed by the assessee is allowed

ITA 108/SRT/2021[2015-16]Status: DisposedITAT Surat06 May 2022AY 2015-16

Bench: Shri Pawan Singh, Jm & Dr. A. L. Saini, Am आयकरअपीलसं./Ita No.108/Srt/2021 ("नधा"रणवष" / Assessment Years: (2015-16) (Virtual Court Hearing) Siddhivinayak & Co., Vs. The Acit, Vapi Circle, Vapi. Opp. Swapnalok Society, Solsumba, Umbergassessing Officern, Gujarat- 396165. "थायीलेखासं./जीआइआरसं./Pan/Gir No.: Acifs0846E (Assessee) (Respondent) Assessee By : Shri Hardik Vora, Ar Revenue By : Shri Sita Ram Meena, Sr. Dr सुनवाईक"तार"ख/ Date Of Hearing : 11/02/2022 घोषणाक"तार"ख/Date Of Pronouncement : 06/05/2022 आदेश / O R D E R Per Dr. A. L. Saini: Captioned Appeal Filed By The Assessee, Pertaining To Assessment Year (Ay) 2015-16, Is Directed Against The Order Passed By The Learned Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre (Nfac) [In Short “The Ld. Cit(A)”] In Appeal No. Itba/Nfac/S/250/2021-22/1032226450(1) Dated 06.04.2021, Which In Turn Arises Out Of An Assessment Order Passed By The Assessing Officer Under Section 143(3) Of The Income Tax Act, 1961 [Hereinafter Referred To As The “Act”] Dated 26.12.2017. 2. Grounds Of Appeal Raised By The Assessee Are As Follows: “1. On The Facts & Circumstances Of The Case As Well As Law On The Subject, The Learned Commissioner Of Income-Tax (Appeals) Has Erred In Confirming The Disallowance Of Indirect Expenses Of Rs.1,11,554/- & Interest Of Rs.1,79,944/- On Partner’S Capital. 2. On The Facts & Circumstances Of The Case As Well As Law On The Subject, The Learned Commissioner Of Income-Tax (Appeals) Has Erred In Confirming Action Of The Assessing Officer Assessing Income Of The Assessee At Rs.16,65,499/- By Treating Income Declared During Survey As Deemed Income Not Includible Under Any Of The Heads Of Income Prescribed U/S 14 Of The Income Tax Act, 1961.”

For Appellant: Shri Hardik Vora, ARFor Respondent: Shri Sita Ram Meena, Sr. DR
Section 133ASection 14Section 143(3)Section 69A

Rajhans Paper Company, Mumbai vs. ITO -14(2)-3, Mumbai

In the result, the appeal filed by the assessee is hereby allowed

ITA 1237/MUM/2014[2009-10]Status: DisposedITAT Mumbai04 Apr 2022AY 2009-10

Bench: Shri Amarjit Singh, Jm & Shri S. Rifaur Rahman, Am आयकर अपील सं/ I.T.A. No. 1237/Mum/2014 (निर्धारण वर्ा / Assessment Year: 2009-10) M/S. Rajhans Paper Company बिधम/ Ito, Ward-23(3)(2) C/O Shirish H. Shah & Co. ½, Mumbai. Vs. Mangrol Mansion 6, Rustom Sidhwa Marg, Fort, Mumbai- 400001. स्थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aaffr8622J (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Assessee By: Shri Rahul Sarda Revenue By: Shri T. Shankar (Sr. Ar) सुनवाई की तारीख / Date Of Hearing: 10/02/2022 घोषणा की तारीख /Date Of Pronouncement: 04/04/2022 आदेश / O R D E R Per Amarjit Singh, Jm: The Assessee Has Filed The Present Appeal Against The Order Dated 16.12.2013 Passed By The Commissioner Of Income Tax (Appeals) -25, Mumbai [Hereinafter Referred To As The “Cit(A)”] Relevant To The A.Y.2009- 10. 2. The Assessee Has Raised The Following Grounds: - “(A) Principles Of Natural Justice Violated 1. The Ld. Cit(A)-25, Mumbai Erred On Facts & In Law In Not Giving A Reasonable & Sufficient Opportunity Of Being Heard Before Passing The Order Conforming The Order Of The Income Tax Officer-14(3)(2), Mumbai(Ao). A.Y. 2009-10 2. The Learned (Cit(A) Erred In Stating That The Appellant Has Not Disputed The Figure Of Unaccounted Out Of The Books Excess Stock At Rs.25,95,321/-, As Against The Figure Of Rs.18,14,908/- As Computed As Per Appellant’S Earlier Letter Dated 15.04.2009. (B) Addition U/S 69-Rs.25,95,321/-

For Appellant: Shri Rahul SardaFor Respondent: Shri T. Shankar (Sr. AR)
Section 133ASection 143(1)Section 143(2)Section 143(3)Section 40Section 69