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)

Das Enterprise, Kolkata vs. ITO, WD-49(3), Kolkata

ITA 1321/KOL/2016[2011-2012]Status: DisposedITAT Kolkata09 Jan 2019AY 2011-2012

Bench: Sri J. Sudhakar Reddy) Assessment Year: 2011-12 Das Enterprise……………….……...............….……...........…………..……………….…...……..….…….......Appellant 22 & 23, Feeder Road P.O. & P.S. Belghoria Kolkata – 700 056 [Pan : Aaepd 8027 G ] Vs. Income Tax Officer, Ward-49(3), Kolkata.……......……….........…………..………….…............Respondent Appearances By: Shri Arun Kumar Dubey, Ca, Appeared On Behalf Of The Assessee. Shri Nicholas Murmu, Jcit D/R. Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : November 27Th, 2018 Date Of Pronouncing The Order : January 9Th , 2019 Order Per J. Sudhakar Reddy, Am :- This Appeal Filed By The Assessee Is Directed Against The Order Of The Learned Commissioner Of Income Tax (Appeals)-15, Kolkata, (Hereinafter The ‘Ld. Cit(A)’), Dt. 08/03/2016, Passed U/S 250 Of The Income Tax Act, 1961 (Hereinafter The ‘Act’), Relating To Assessment Year 2011-12. 2. The Assessee Is A Partnership Firm & Is In The Business Of Trading In Rice. It Filed Its Return Of Income On 30/09/2011 For The Assessment Year 2011-12, Declaring Total Income Of Rs.44,650/-. A Survey Was Conducted U/S 153A Of The Act, On 15/03/2011. Thereafter Assessment Was Completed U/S 143(3) Of The Act, On 18/03/2014, Determining Total Income At Rs.40,45,850/- Interalia Making Additions On Account Of Undisclosed Investment In Stock U/S 69 Of The Act, Unexplained Money Being Difference In Cash Balance, Suppression Of Sales, Cessation Of Liabilities & Disallowance U/S 40(A)(Ia) Of The Act, Of Carriage Inward. Aggrieved, The Assessee Carried The Matter In Appeal Before The Ld. First Appellate Authority. The Ld. First Appellate Authority, Granted Part Relief.

Section 133(6)Section 143(3)Section 153ASection 250Section 40Section 41Section 41(1)Section 69