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of <h1>Cash transactions above Rs. 20,000 violating Section 269-SS remain legally enforceable under Section 138 despite Income Tax penalties</h1> <h3>Prakash Madhukarrao Desai Versus Dattatraya Sheshrao Desai</h3> Bombay HC held that transactions violating Section 269-SS of Income Tax Act (accepting cash exceeding Rs. 20,000) remain legally enforceable under Section ... Dishonor of Cheque - legally enforceable debt or not - Transaction in violation of Section 269-SS of Income Tax Act - unaccounted cash - Can such tranaction be permitted to be enforced, by institution of proceedings under Section 138 of the Negotiable Instruments Act ? - HELD THAT:- Acceptance of an amount exceeding Rupees Twenty Thousand in cash attracts penalty under Section 271-D of the Act of 1961 but such acceptance does not nullify the transaction. Infact, the penalty can be waived on showing reasonable cause. Hence, violation of Section 269-SS by the drawer of the cheque would not render the amount in question non-recoverable. A transaction not reflected in the books of accounts and/or Income Tax returns of the holder of the cheque in due course can be permitted to be enforced by instituting proceedings under Section 138 of the Act of 1881 in view of the presumption under Section 139 of the Act of 1881 that such cheque was issued by the drawer for the discharge of any debt or other liability, execution of the cheque being admitted. Violation of Sections 269-SS and/or Section 271-AAD of the Act of 1961 would not render the transaction unenforceable under Section 138 of the Act of 1881. The decisions in Krishna P. Morajkar [2013 (7) TMI 1163 - BOMBAY HIGH COURT], Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari [2015 (2) TMI 1351 - BOMBAY HIGH COURT] lay down the correct position and are thus affirmed. The decision in Sanjay Mishra [2009 (2) TMI 901 - BOMBAY HIGH COURT] with utmost respect stands overruled. Issues Involved:1. Whether a transaction not reflected in the books of account and/or the Income Tax Returns of the holder of the cheque and in violation of Section 269-SS of the Income Tax Act, 1961 can be held to be 'a legally enforceable debt' and enforced by proceedings under Section 138 of the Negotiable Instruments Act, 1881.Summary:Issue 1: Transaction Not Reflected in Books of Account/Income Tax ReturnsThe court examined whether the absence of a transaction in the books of account or Income Tax returns of the holder of the cheque precludes the enforcement of the debt under Section 138 of the Negotiable Instruments Act, 1881. It was held that the statutory presumption under Section 139 of the Act of 1881 includes the existence of a legally enforceable debt or liability. The court emphasized that this presumption is rebuttable and it is upon the accused to raise a probable defense to contest the existence of such debt or liability. The court concluded that the complaint under Section 138 of the Act of 1881 is maintainable even if the amount is not disclosed in the Income Tax returns of the complainant.Issue 2: Violation of Section 269-SS of the Income Tax Act, 1961The court considered whether the violation of Section 269-SS of the Income Tax Act, 1961, which prohibits taking or accepting loans or deposits exceeding Rs. 20,000 in cash, renders the transaction unenforceable. It was held that while breach of Section 269-SS attracts penalty under Section 271-D, such a breach does not nullify the transaction. The court noted that the penalty could be waived upon showing reasonable cause, and thus, a transaction in violation of Section 269-SS remains enforceable under Section 138 of the Act of 1881.Conclusion:The court concluded that a transaction not reflected in the books of accounts and/or Income Tax returns of the holder of the cheque can be enforced by instituting proceedings under Section 138 of the Act of 1881. Violation of Sections 269-SS and/or 271-AAD of the Income Tax Act, 1961, does not render the transaction unenforceable. The decisions in Krishna P. Morajkar, Bipin Mathurdas Thakkar, and Pushpa Sanchalal Kothari were affirmed, and the decision in Sanjay Mishra was overruled.Final Order:The appeal was directed to be placed before the learned Single Judge for adjudication on merits.
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