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I have one physical interface Ethernet with name eth0 and IP address 192.168.40.50 and a lo(loopback) with 127.0.0.1. After manually down lo using ifconfig lo down command, then I observed that self ping on Ethernet (192.168.40.50) has been stopped. What is the specific reason for this type of behavior in Linux.

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Firstly lo is called the loopback interface. Any communication with-in the local environment (your computer) is carried over this interface, i.e, routed through this interface. So in your case, when you are trying to ping your own physical interface, your linux box will try to route the ICMP traffic through lo which is down. So the packets will never reach your interface to send ECHO-reply.

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