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. Snowtex Investment Ltd., Kolkata vs. Income Tax Officer, Kolkata

In the result the appeal of the assessee, is allowed

ITA 1347/KOL/2016[2008-09]Status: DisposedITAT Kolkata17 Jan 2018AY 2008-09

Bench: Hon’Ble Sri N.V. Vasudevan, Jm & Dr. Arjun Lal Saini, Am] I.T.A No.1347/Kol/2016 Assessment Year : 2008-09 M/S. Snowtex Investment Ltd. -Vs.- Ito, Wd-12(3), Kolkata Kolkata [Pan : Aaecs 0334 C ] (Appellant) (Respondent) : Shri S. K. Tulsiyan, Advocate For The Appellant For The Respondent : Shri S. Dasgupta, Addl.Cit Date Of Hearing : 04.12.2017. Date Of Pronouncement : 17/01/2018 Order Per Dr. A.L. Saini, Am This Is An Appeal By The Assessee Against The Order Dated 19.04.2016 Of Cit(A)-4, Kolkata Relating To A.Y.2008-09. 2. In This Appeal, The Assessee Has Challenged The Order Of Cit(A) Whereby The Cit(A) Confirmed The Order Of Ao Imposing Penalty On The Assessee U/S 271(1)(C) Of The Income Tax Act, 1961 (Act). 3. The Facts & Circumstances Under Which Penalty U/S 271(1)(C) Of The Act Was Imposed On The Assessee Was That During The Assessment Year 2008-09, The Assessee Has Advanced Interest Free Loans To The Extent Of Rs.9,58,95,000/- & As There Had Been No Significant Repayment, The Closing Balance As On 31.03.2008 Was At Rs. 9,62,95,000/-. It Was Also Seen From The Details For A.Y. 2009-10, That There Had Been No Business Transactions Apart From Interest Free Loan Transactions. The Unsecured Loans On Which Interest Was Paid, Was Rs. 5,92,05,572/-, Which Was Much Below The Amount, Which Was Advanced By The Assessee Free Of Any Interest. Therefore, There Had Been No Justification Of Unsecured Loan Taken During The Year. Therefore, Whole Sum Of Interest Paid Of Rs. 62,84,112/- Was Disallowed. The Cit(A) Restricted The M/S. Snowtex Investment Ltd.

For Respondent: Shri S. Dasgupta, Addl.CIT
Section 271(1)Section 271(1)(c)Section 274Section 41(1)

M/S Umbika Agency, Kolkata vs. Ld. I.T.O. Ward 41(1), Kolkata

In the result, the appeals of the assessee for A

ITA 2063/KOL/2016[2005-06]Status: DisposedITAT Kolkata24 Nov 2017AY 2005-06

Bench: Hon’Ble Shri P.M. Jagtap] I.T.A. Nos. 2059 To 2063/Kol/2016 Assessment Years : 2002-03 To 2005-06 & 2007-08 M/S. Umbika Agency.............................…………………………………………Appellant 14A/1A, Ultadanga Road, Kolkata – 700 004 [Pan : Aabfu 5344 E] Income Tax Officer...................……………………………………………….......Respondent Ward 41(1) Kolkata, 3, Government Place (West), Kolkata – 700 004 Appearances By: Shri Gaurav Mathur, Advocate Appearing On Behalf Of The Assessee. Shri R.P. Nag, Addl. Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : October 03, 2017 Date Of Pronouncing The Order : November 24, 2017 Order These Five Appeals Filed By The Assessee Are Directed Against Five Separate Orders Of The Ld. Cit (A) For A.Y. 2002-03, 2003-04, 2004-05, 2005-06 & 2007-08 & Since Some Of The Issue Involved Therein Are Common, The Same Have Been Heard Together & Are Being Disposed Of By A Single Consolidated Order For The Sake Of Convenience. 2. First We Take Up The Appeal Of The Assessee For A.Y. 2002-03 Being Ita No. 2059/Kol/2016 Which Is Directed Against The Order Of Ld. Cit (Appeals) – 13, Kolkata Dated 06.07.2016. The Issue Involved In Ground No 1 Of These Appeals Relates To The Disallowance Of Rs.

Section 143(1)Section 148

M/S Umbika Agency, Kolkata vs. Ld. I.T.O. Ward 41(1), Kolkata

In the result, the appeals of the assessee for A

ITA 2061/KOL/2016[2004-05]Status: DisposedITAT Kolkata24 Nov 2017AY 2004-05

Bench: Hon’Ble Shri P.M. Jagtap] I.T.A. Nos. 2059 To 2063/Kol/2016 Assessment Years : 2002-03 To 2005-06 & 2007-08 M/S. Umbika Agency.............................…………………………………………Appellant 14A/1A, Ultadanga Road, Kolkata – 700 004 [Pan : Aabfu 5344 E] Income Tax Officer...................……………………………………………….......Respondent Ward 41(1) Kolkata, 3, Government Place (West), Kolkata – 700 004 Appearances By: Shri Gaurav Mathur, Advocate Appearing On Behalf Of The Assessee. Shri R.P. Nag, Addl. Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : October 03, 2017 Date Of Pronouncing The Order : November 24, 2017 Order These Five Appeals Filed By The Assessee Are Directed Against Five Separate Orders Of The Ld. Cit (A) For A.Y. 2002-03, 2003-04, 2004-05, 2005-06 & 2007-08 & Since Some Of The Issue Involved Therein Are Common, The Same Have Been Heard Together & Are Being Disposed Of By A Single Consolidated Order For The Sake Of Convenience. 2. First We Take Up The Appeal Of The Assessee For A.Y. 2002-03 Being Ita No. 2059/Kol/2016 Which Is Directed Against The Order Of Ld. Cit (Appeals) – 13, Kolkata Dated 06.07.2016. The Issue Involved In Ground No 1 Of These Appeals Relates To The Disallowance Of Rs.

Section 143(1)Section 148

M/S Umbika Agency, Kolkata vs. Ld. I.T.O. Ward 41(1), Kolkata

In the result, the appeals of the assessee for A

ITA 2060/KOL/2016[2003-04]Status: DisposedITAT Kolkata24 Nov 2017AY 2003-04

Bench: Hon’Ble Shri P.M. Jagtap] I.T.A. Nos. 2059 To 2063/Kol/2016 Assessment Years : 2002-03 To 2005-06 & 2007-08 M/S. Umbika Agency.............................…………………………………………Appellant 14A/1A, Ultadanga Road, Kolkata – 700 004 [Pan : Aabfu 5344 E] Income Tax Officer...................……………………………………………….......Respondent Ward 41(1) Kolkata, 3, Government Place (West), Kolkata – 700 004 Appearances By: Shri Gaurav Mathur, Advocate Appearing On Behalf Of The Assessee. Shri R.P. Nag, Addl. Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : October 03, 2017 Date Of Pronouncing The Order : November 24, 2017 Order These Five Appeals Filed By The Assessee Are Directed Against Five Separate Orders Of The Ld. Cit (A) For A.Y. 2002-03, 2003-04, 2004-05, 2005-06 & 2007-08 & Since Some Of The Issue Involved Therein Are Common, The Same Have Been Heard Together & Are Being Disposed Of By A Single Consolidated Order For The Sake Of Convenience. 2. First We Take Up The Appeal Of The Assessee For A.Y. 2002-03 Being Ita No. 2059/Kol/2016 Which Is Directed Against The Order Of Ld. Cit (Appeals) – 13, Kolkata Dated 06.07.2016. The Issue Involved In Ground No 1 Of These Appeals Relates To The Disallowance Of Rs.

Section 143(1)Section 148

M/S Umbika Agency, Kolkata vs. Ld. I.T.O. Ward 41(1), Kolkata

In the result, the appeals of the assessee for A

ITA 2059/KOL/2016[2002-03]Status: DisposedITAT Kolkata24 Nov 2017AY 2002-03

Bench: Hon’Ble Shri P.M. Jagtap] I.T.A. Nos. 2059 To 2063/Kol/2016 Assessment Years : 2002-03 To 2005-06 & 2007-08 M/S. Umbika Agency.............................…………………………………………Appellant 14A/1A, Ultadanga Road, Kolkata – 700 004 [Pan : Aabfu 5344 E] Income Tax Officer...................……………………………………………….......Respondent Ward 41(1) Kolkata, 3, Government Place (West), Kolkata – 700 004 Appearances By: Shri Gaurav Mathur, Advocate Appearing On Behalf Of The Assessee. Shri R.P. Nag, Addl. Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : October 03, 2017 Date Of Pronouncing The Order : November 24, 2017 Order These Five Appeals Filed By The Assessee Are Directed Against Five Separate Orders Of The Ld. Cit (A) For A.Y. 2002-03, 2003-04, 2004-05, 2005-06 & 2007-08 & Since Some Of The Issue Involved Therein Are Common, The Same Have Been Heard Together & Are Being Disposed Of By A Single Consolidated Order For The Sake Of Convenience. 2. First We Take Up The Appeal Of The Assessee For A.Y. 2002-03 Being Ita No. 2059/Kol/2016 Which Is Directed Against The Order Of Ld. Cit (Appeals) – 13, Kolkata Dated 06.07.2016. The Issue Involved In Ground No 1 Of These Appeals Relates To The Disallowance Of Rs.

Section 143(1)Section 148