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 Financial Software and System Private Limited, Chennai vs. DCIT, Corporate Circlr -2 [1], Chennai

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

ITA 439/CHNY/2022[2017-18]Status: DisposedITAT Chennai24 Aug 2022AY 2017-18

Bench: Shri G. Manjunatha & Shri Sonjoy Sarmaआयकर अपील सं./I.T.A. No.439/Chny/2022 िनधा"रण वष"/Assessment Year: 2017-18 M/S. Financial Software & Systems Vs. The Deputy Commissioner Of Private Limited, 42, “Saradha”, Ground Income Tax, Corporate Circle 2(1), Floor, 3Rd Main Road, Gandhi Nagar, Room No. 511, 5Th Floor, Wanaparthy Adyar, Chennai 600 020. Block, #121 Uttamar Gandhi Salai, Chennai 600 034. [Pan:Aaacf2351C] (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri Ashik Shah, C.A. ""थ" की ओर से/Respondent By : Shri A.S. Sumanth, Jcit सुनवाई की तारीख/ Date Of Hearing : 17.08.2022 घोषणा की तारीख /Date Of Pronouncement : 24.08.2022 आदेश /O R D E R Per G. Manjunatha: This Appeal Filed By The Assessee Is Directed Against The Order Of The Ld. Commissioner Of Income Tax (Appeals) 18, Chennai, Dated 25.02.2022, Relevant To The Assessment Year 2017-18. 2. The Appeal Filed By The Assessee Is Delayed By 31 Days In Filing The Appeal Before The Tribunal Due To Outbreak Of Covid-19 Pandemic & Accordingly, The Delay Is Condoned & Admitted The Appeal For Adjudication.

For Appellant: Shri Ashik Shah, C.AFor Respondent: Shri A.S. Sumanth, JCIT
Section 115JSection 143(3)Section 41(1)

DCIT, Chennai vs. Cooper Standard Automotive India P Ltd., Chengalput

In the result, the appeal filed by the Revenue is dismissed

ITA 794/CHNY/2016[2005-06]Status: DisposedITAT Chennai10 Aug 2022AY 2005-06

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./I.T.A. No.794/Chny/2016 िनधा"रण वष"/Assessment Year: 2005-06 The Deputy Commissioner Of Vs. M/S. Cooper Standard Automotive Income Tax, India P. Ltd., Plot No. 3-A, Ford Corporate Circle 1(2), Supplier Park, Kilkaranai Village, Chennai 600 034. Melrosapuram Post Via Singaperumal Koil, Chengalpet 603 204. [Pan:Aabcc3665P] (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri Varuvooru Sreedhar, Addl. Cit ""थ" की ओर से/Respondent By : Shri R. Meenakshisundaram, Advocate सुनवाई की तारीख/ Date Of Hearing : 08.06.2022 घोषणा की तारीख /Date Of Pronouncement : 10.08.2022 आदेश /O R D E R Per V. Durga Rao: This Appeal Filed By The Revenue Is Directed Against The Order Of The Ld. Commissioner Of Income Tax (Appeals) 1, Chennai, Dated 05.01.2016 Relevant To The Assessment Year 2005-06. The Only Effective Ground Raised In The Appeal Of The Revenue Is As To Whether The Waiver Of Loan Amount Taken For Business Purposes Is Assessable As Business Income Under Section 28(Iv) R.W.S. 41(1) Of The Income Tax Act, 1961 [“Act” In Short] Or Not.

For Appellant: Shri Varuvooru Sreedhar, Addl. CITFor Respondent: Shri R. Meenakshisundaram, Advocate
Section 143(1)Section 147Section 148Section 28

Asst CIT Circle- 7 (3)(3), Mumbai vs. M/S Piramal Glass Ltd, Mumbai

In the result, appeal by the Revenue is dismissed

ITA 8060/MUM/2019[2003-04]Status: DisposedITAT Mumbai05 Aug 2022AY 2003-04

Bench: Shri Vikas Awasthy & Shri M. Balaganeshआअसं. 8060/मुं/2019 ("न.व. 2003-04) Cit, Circle 7(3)(2), Room No.128A, 1St Floor, Aaykar Bhavan, M.K.Road, Mumbai - 400 020 ...... अपीलाथ" /Appellant बनाम Vs. M/S. Piramal Glass Ltd. (Earlier Known As Gujarat Glass Pvt. Ltd.) 1 Piramal Towerannexe, Ganpatrao Kadam Marg, Lower Parel, Mumbai – 400 013. Pan: Aabcg-0093-R ..... ""तवाद"/Respondent अपीलाथ" "वारा/ Appellant By : Shri Minlind Chavan ""तवाद" "वारा/Respondent By : Shri Ronak Doshi सुनवाई क" "त"थ/ Date Of Hearing : 13/05/2022 घोषणा क" "त"थ/ Date Of Pronouncement : 05 /08/2022 आदेश/ Order Per Vikas Awasthy, Jm: This Appeal By The Revenue Is Directed Against The Order Of Commissioner Of Income Tax (Appeals)-13, Mumbai [In Short ‘The Cit(A)] Dated 22/10/2019 For The Assessment Year 2003-04. 2. Shri Ronak Doshi Appearing On Behalf Of The Assessee Submitted At The Outset That Revenue In Appeal Has Raised Eight Effective Grounds. Majority Of The Grounds Raised In Appeal By Revenue Are Either Covered By The Order Of 2 Tribunal In Assessee’S Own Case In Ita No.9645/Mum/2004 For Assessment Year 2001-02 Decided On 02/08/2016 Or By The Order Of Hon'Ble Bombay High Court In The Case Of Assessee Titled Pcit Vs. Piramal Glass Ltd. In Income Tax Appeal No.556 Of 2017 Decided On 11/06/2019. 3. Per Contra, Shri Minlind Chavan Representing The Department Vehemently Defending The Assessment Order Prayed For Reversing The Findings Of Cit(A) & Upholding The Additions Made In The Assessment Order. However, Ld. Departmental Representative Fairly Stated That Substantial Issues Raised In The Appeal Have Been Considered By The Tribunal In Assessee’S Own Case For Preceding Assessment Years.

For Appellant: Shri Minlind ChavanFor Respondent: Shri Ronak Doshi
Section 32Section 36(1)(iii)