Section 41(1) of the Income Tax Act

Income-tax Act, 2025: s.38

Section 41(1) falls under section 41 of the Income-tax Act, 1961, which corresponds to section 38 (Certain sums deemed as profits and gains of business or profession) of the Income-tax Act, 2025.

Read section 38 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 41(1) is Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (227 ITR 172), cited in 621 of the 1,943 judgments on BharatTax that turn on this section.

Leading authorities on Section 41(1)

Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT
227 ITR 172 · 1997 · Supreme Court
621
citing judgments

Interest income earned on deposits, particularly before the commencement of business operations or as a requirement for business licensing, is taxable as "income from other sources" under Section 56, and cannot be treated as business income or set off against interest on borrowed funds.

CIT v. T.V. Sundaram Iyengar & Sons Ltd.
222 ITR 344 · 1996 · Supreme Court
223
citing judgments

Unclaimed deposits received in the course of trading transactions and sundry credit balances written back are taxable as business income under Section 41(1) of the Income-tax Act, 1961, as they constitute a cessation of trading liability.

CIT v. Indo Nippon Chemicals Co. Ltd.
261 ITR 275 · 2003 · Supreme Court
204
citing judgments

A liability recognized in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India (ICAI) is an allowable expense for income tax purposes.

CIT v. Sugauli Sugar Works (P) Ltd.
236 ITR 518 · 1999 · Supreme Court
203
citing judgments

For the purpose of Section 41(1) of the Income-tax Act, a liability is considered to have ceased only when the creditor actively releases or writes off the amount, or when the liability ceases to exist in the assessee's books; mere expiry of the limitation period for recovery does not constitute cessation of liability.

CIT v. Mahindra & Mahindra Ltd.
404 ITR 1 · 2018 · Supreme Court
164
citing judgments

The waiver of a loan taken for acquiring capital assets is considered a capital receipt and is not taxable as income under Section 28(iv) of the Income Tax Act. The ruling distinguishes between the waiver of trading liabilities and capital liabilities for tax purposes.

Prakash Cotton Mills Pvt. Ltd. v. CIT
201 ITR 684 · 1993 · Supreme Court
133
citing judgments

Compensatory interest or damages paid for a breach of contract, arising in the normal course of business, are allowable as a deduction under section 37(1) as wholly and exclusively incurred for business purposes. This principle extends to indirect taxes paid in the course of business, which are admissible as business expenditure.

CIT v. Oswal Agro Mills Ltd.
341 ITR 467 · 2012 · High Court
108
citing judgments

The Legislature abolished terminal depreciation under section 32(1)(iii) and the taxing of balancing charge under section 41(2), replacing these provisions with the requirement to reduce sale proceeds of depreciable assets from the block of assets.

CIT v. Godawari Power & Ispat Ltd.
42 Taxmann.com 551 · 2014 · High Court
104
citing judgments

Inter-unit transfer of power by an industrial undertaking eligible for Section 80IA deduction constitutes a specified domestic transaction under Section 92BA, requiring valuation at arm's length. This decision clarifies the application of Section 80IA(8) and transfer pricing regulations for such transactions.

Maruti Udyog v. DCIT
92 ITD 119 · 2005 · ITAT
87
citing judgments

The onus is on the revenue to establish the nexus between expenses incurred and exempt income before making a disallowance under section 14A.

CIT v. Varas International
284 ITR 80 · Supreme Court
79
citing judgments

An appellate authority can admit additional legal grounds for the first time, even if not raised earlier, provided these grounds are purely legal, go to the root of the matter, and the relevant facts for their adjudication are already on record.

Judgments on Section 41(1)

DCIT, Circle-7(1), Delhi vs. Dev Rubber Factory Private Limited, Delhi

In the result, appeal of the Revenue is partly allowed

ITA 3478/DEL/2024[2017-18]Status: DisposedITAT Delhi16 Jan 2026AY 2017-18

Bench: Shri Anubhav Sharma & Shri Manish Agarwal[Assessment Year : 2017-18] Dcit Vs Dev Rubber Factory Pvt. Ltd. Circle-7(1) 15A/13, Upper Ground Floor, Delhi East Patel Nagar, New Delhi-110008. Pan-Aafcm1581L Appellant Respondent Revenue By Shri Rajesh Kumar Dhanesta, Sr. Dr Assessee By Shri Ankit Gupta, Adv. Date Of Hearing 12.01.2026 Date Of Pronouncement 16.01.2026 Order Per Manish Agarwal, Am : The Present Appeal Is Filed By Revenue Against The Order Dated 30.05.2024 Passed By Ld. Commissioner Of Income Tax (A), National Faceless Appeal Centre (“Nfac”), Delhi [“Ld. Cit(A)”] In Appeal No. Cit (A), Delhi- 3/10359/2019-20 U/S 250 Of The Income Tax Act, 1961 [“The Act”] Arising Out Of Assessment Order Dated 22.12.2019 Passed U/S 143(3) Of The Act Pertaining To Assessment Year 2017-18. 2. Brief Facts Of The Case Are That Assessee Company Was Engaged In The Business Of Manufacturing Tubes For Automobile Tyres & E-Filed Its Return Of Income On 28.10.2017 Declaring Income At Inr 77,50,730/-. The Case Was Selected For Scrutiny Assessment Through Cass & Notice U/S 143(2) Was Issued On 10.08.2018. Thereafter Statutory Notice U/S 142(1) Alongwith Questionnaire Were Issued On Various Dates From Time To Time & In Response, The Assessee Has Submitted Its Replies. After Considering The Submissions Filed, Assessment Order Was Passed At An Income Of Inr 3,95,31,243/- Vide Order Dated 22.12.2019 U/S 143(3) Of The Act By Making Following Additions:- (I) Bogus Share Capital U/S 68 Inr 53,50,000/- (Ii) Addition On Account Of Rate & Taxes Inr 9,56,145/- (Iii) Addition Of Bogus Freight & Forwarding Expenses & Business Expenses Inr 59,25,588/- (Iv) Addition Of Vehicle Maintenance Expenses & Business Expenses Inr 81,89,820/-

Section 142(1)Section 143(2)Section 143(3)Section 250Section 41Section 41(1)Section 68