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)

M/S. Arun Excello Realty Pvt. Ltd., Chennai vs. DCIT, Corporate Circle-1(1), Chennai

In the result, the appeal filed by the assessee is allowed for statistical purposes

ITA 2267/CHNY/2025[2022-23]Status: DisposedITAT Chennai12 Nov 2025AY 2022-23

Bench: Shri S.S. Viswanethra Ravi & Shri Amitabh Shuklaआयकर अपील सं./I.T.A. No.2267/Chny/2025 िनधा"रण वष"/Assessment Year: 2022-23 M/S. Arun Excello Realty Private Vs. The Deputy Commissioner Of Limited, 18, Bhattad Towers West Cott Income Tax, Road, Royapettah, Chennai 600 014. Corporate Circle 1(1), Chennai. [Pan: Aafca8363E] (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri Shrenik Chordia, C.A. ""थ" की ओर से/Respondent By : Shri R.V. Aroon Prasad, Addl. Cit सुनवाई की तारीख/ Date Of Hearing : 10.11.2025 घोषणा की तारीख /Date Of Pronouncement : 12.11.2025 आदेश /O R D E R Per S.S. Viswanethra Ravi: This Appeal Filed By The Assessee Is Directed Against The Order Dated 29.07.2025 Passed By The Ld. Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre [Nfac], Delhi For The Assessment Year 2022-23. 2. The Assessee Raised 4 Grounds Of Appeal Amongst Which, The Only Issue Emanates For Our Consideration As To Whether The Ld. Cit(A) Is Justified In Confirming The Addition Made By The Assessing Officer Under Section 41(1) Of The Income Tax Act, 1961 [“Act” In Short].

For Appellant: Shri Shrenik Chordia, C.AFor Respondent: Shri R.V. Aroon Prasad, Addl. CIT
Section 133(6)Section 41(1)

ACIT, Circle-24(1), Mumbai vs. Mahavir Associates, Mumbai

In the result, the appeal of the Revenue is partly allowed while CO of the assessee is dismissed

ITA 1134/MUM/2025[2015-16]Status: DisposedITAT Mumbai07 Oct 2025AY 2015-16

Bench: Shri Pawan Singh & Shri Prabhash Shankarassistant Commissioner Of V/S. Mahavir Associates Income Tax, Circle – 24(1), बनाम Gala No. 1, Apollo Chamber, 601, 6Th Floor, Piramal Mogra Pada Road, Andheri Chambers, Mumbai – 400012, East, Mumbai – 400 069, Maharashtra Maharashtra स्थायी लेखा सं./जीआइआर सं./Pan/Gir No: Aakfm0307L Appellant/अपीलाथी .. Respondent/प्रतिवादी प्रत्याक्षेपसं/C.O. No.83/Mum/2025 (Arising Out Of Ita No. 1134/Mum/2025) (A.Y. 2015-16) Mahavir Associates V/S. Assistant Commissioner Of Gala No. 1, Apollo बनाम Income Tax, Circle – 24(1), Chamber, Mogra Pada 601, 6Th Floor, Piramal Road, Andheri East, Chambers, Mumbai – 400 012, Mumbai – 400 069, Maharashtra Maharashtra स्थायी लेखा सं./जीआइआर सं./Pan/Gir No: Aakfm0307L Appellant/अपीलार्थी .. Respondent/प्रतिवादी Assessee By : Shri Narendra Patel, Ar Revenue By: Shri Annavaran Kosuri (Sr. Ar) Date Of Hearing 21.08.2025 Date Of Pronouncement 07.10.2025 आदेश / O R D E R Per Prabhash Shankar [A.M.] :- The Instant Appeals Preferred By The Revenue & Cross Objection Of The Assessee Emanate From The Appellate Order Passed By The Learned

For Appellant: Shri Narendra Patel, ARFor Respondent: Shri Annavaran Kosuri (Sr. AR)
Section 133ASection 144Section 41(1)

DCIT, Central Circle 7(1), Mumbai vs. Sheth Realtors, Mumbai

In the result, appeal of the assessee is partly allowed

ITA 4008/MUM/2025[2017-18]Status: DisposedITAT Mumbai30 Sept 2025AY 2017-18

Bench: Shri Amit Shukla & Shri Girish Agrawalassessment Year: 2017-18 Sheth Realtors Income-Tax Officer-7(1) Vasant Oasis, Site Office, [Erstwhile Ito-23(3)(3)] Upper Basement, Mumbai Cts No 345A 1 To 3, Vs. 345A 5 To 6, Makwana Road, Marol, Andheri East., Mumbai – 400059 [Pan: Aavfa3975F] (Appellant) (Respondent) Assessment Year: 2017-18 Deputy Commissioner Of Sheth Realtors Income-Tax, Central Circle 12Th Floor, Hallmark Business 7(1), Vs. Plaza, Sant Dyaneshwar Marg Mumbai Bandra (East), Mumbai - 400051 [Pan: Aavfa3975F] (Appellant) (Respondent) Present For: Assessee : Dr. K. Shivaram, Sr. Advocate & Shri Rahul Hakani, Advocate Revenue : Shri Leyaqat Ali Aafaqui, Sr. Dr Date Of Hearing : 07.08.2025 Date Of Pronouncement : 30.09.2025 O R D E R Per Girish Agrawal: These Two Appeals Filed By Assessee & Revenue Are Against The Order Of Ld. Cit (A) 49, Mumbai, Vide Order No. Itba/Apl/S/250/2024- Assessment Year 2017-18 25/1075205796(1), Dated 28.03.2025, Passed Against The Assessment Order By Income-Tax Officer, Ward-23(3)(3), Mumbai, U/S. 143(3) Of The Income-Tax Act (Hereinafter Referred To As The “Act”), Dated 30.12.2019 For Assessment Year 2017-18. 2. Grounds Taken By Assessee & Revenue Are Reproduced As Under: I. Ita No. 2712/Mum/2025 [Assessee]

For Appellant: Dr. K. Shivaram, Sr. Advocate and Shri Rahul Hakani, AdvocateFor Respondent: Shri Leyaqat Ali Aafaqui, Sr. DR
Section 133(6)Section 139(1)Section 143(3)Section 2(24)(x)