Section 41(4) of the Income Tax Act
The decision most relied on for Section 41(4) is South Indian Bank Ltd. v. CIT (262 ITR 579), cited in 48 of the 27 judgments on BharatTax that turn on this section.
Leading authorities on Section 41(4)
For banks, bad debts written off from non-rural advances are not subject to the limitations of the provisos to sections 36(1)(vii) and 36(1)(viii), as these provisos apply only to rural advances; section 36(1)(viia) also applies exclusively to rural advances. Additionally, depreciation on investments valued at market price on the balance sheet date is eligible for deduction.
Broken period interest paid on the purchase of securities constitutes capital expenditure and is therefore not allowable as a revenue deduction.
Automated Teller Machines (ATMs) are classified as computers and are eligible for a higher rate of depreciation when their core mechanical functions are integrated with and dependent on the computer's processing capabilities.
When bad debts written off were not allowed as a deduction, any subsequent recovery from such bad debts cannot be brought to tax. This principle is upheld even if a deduction for provisions for bad and doubtful debts was allowed under section 36(1)(viia).
Section 41(1) of the Income Tax Act is not applicable to taxing a balancing charge under section 41(2) or to bad and doubtful debts specifically covered under section 41(4), as these provisions deal with distinct circumstances.
Advances made by banks that become bad debts are eligible for deduction under Section 36(1)(vii) if they meet the conditions specified in Section 36(2).
When investments are made in accordance with the Income Tax Act, and the market price of these investments changes from the value shown in the opening balance at the year-end, depreciation on such investments can be allowed.
For disallowance of expenditure under Section 14A, it is a pre-condition that the income earned must not be includible in the total income of the assessee. The Assessing Officer must record satisfaction if the assessee's apportionment of expenses is not accepted.
Expenses arising from foreign exchange fluctuations on revenue expenditure and foreign currency loans for day-to-day business operations are notional or anticipated losses and are allowable.
Section 14A of the Income Tax Act is not applicable if investments in tax-free securities are demonstrably made from interest-free funds available to the assessee. Such a scenario presumes the investment originates from own funds, thus avoiding the disallowance of related expenses.
Judgments on Section 41(4)
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