Section 41 of the Income Tax Act
Income-tax Act, 2025: s.38
Section 41 of the Income-tax Act, 1961 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 is CIT v. Vasisth Chay Vyapar Ltd. (410 ITR 244), cited in 63 of the 156 judgments on BharatTax that turn on this section.
Leading authorities on Section 41
Section 44BB, which provides for presumptive taxation of profits and gains of business in the case of exploration of mineral oils, does not override the provisions of Sections 5, 9, or 90 of the Income-tax Act, 1961. For business profits to be taxed in India, the existence of a Permanent Establishment (PE) in India must be established by the Revenue.
When assessing expenses under Section 40A(2), tax authorities must consider the entire position judiciously from the viewpoint of a prudent businessman, not arbitrarily or capriciously. The revenue must demonstrate tax evasion and cannot disallow expenses if the recipient is taxed at the same or higher rate.
Banks can claim tax deductions for broken period interest on Held to Maturity (HTM) government securities if classified as stock-in-trade, treating it as revenue expenditure, not capital expenditure.
The ITAT Mumbai in M/S Novozymes South Asia Put Ltd. v. ACIT (2018) has allowed employee stock option plans (ESOPs) as a deduction, recognizing them as an effective tool for employee reward and retention.
For a revision under Section 263 to be valid, the Commissioner must independently apply their mind to the material placed before them and be satisfied that the assessment order was erroneous and prejudicial to the revenue, even if the Assessing Officer brought the material to their notice.
Revision proceedings under section 263 are valid even when the Commissioner acts on records placed before him, rather than calling for them himself.
