Section 41(4) of the Income Tax Act
Income-tax Act, 2025: s.38
Section 41(4) 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(4) is CIT v. Bank of Rajasthan Ltd. (316 ITR 391), cited in 51 of the 78 judgments on BharatTax that turn on this section.
Leading authorities on Section 41(4)
Broken period interest paid on the purchase of securities constitutes capital expenditure and is therefore not allowable as a revenue deduction.
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.
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.
The concept of 'State' under Article 12 of the Constitution has expanded beyond a mere cohesive machinery of authority to include service corporations acting as instrumentalities or agencies of the State, even when engaged in commercial activities.
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 to investments made in tax-free securities if interest-free funds are available with the assessee. This is because there is a presumption that such investments are made out of these available interest-free funds.
