AI Drafter 
TaxTMI 
TaxTMI 
2016 (8) TMI 1589
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.... friendly relations. The accused had approached her husband for a friendly loan of Rs. 10 lakhs in order to purchase a property. The complainant collected the amount of Rs. 10 lakhs from her resources and gave the same to the accused in the first week of October, 2008, for 24 months only. The amount was to be repaid in monthly instalments of Rs. 35000/- on fifth of every English calendar month. The remaining amount of Rs. 1,60,000/- was to be paid by the accused to the complainant on 03.10.2010. The accused, with a view to secure his liability, issued a post-dated cheque bearing No. 159064 dated 21.07.2011 for Rs. 10 lakhs drawn on Axis Bank, Shakti Nagar branch, in favour of the complainant and assured that the said cheque would be honoured on presentation. The accused, however, did not comply with the said agreement. Consequently, the accused was informed that the complainant shall proceed to deposit the cheque for encashment. The same was not objected to by the accused. When the cheque was deposited, the same was returned unpaid for insufficient funds vide cheque returning memo dated 09.08.2011. Consequently, a legal notice dated 23.08.2011 was sent to the accused which was desp....
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....while holding that the accused had rebutted the said presumption, took into account the following aspects: "(a) That the complainant admitted that she is not an income tax payee. She deposed that her husband had given the amount to the accused by way of cash. This was in contravention of section 269SS of the Income Tax Act. (b) The complainant had deposed in her cross-examination that the amount of Rs. 10 lakhs was arranged by her husband by selling his house and by their own savings. She had claimed that the amount had been advanced in the presence of CW2-Raghubir Singh Chaudhary. CW2 had deposed that the complainant handed over Rs. 10 lakhs to the accused in cash and at that time, the accused handed over the fully filled cheque of Rs. 10 lakhs in the name of the complainant, to the complainant. The trial court was, however, not impressed with this version, on the ground that no written agreement had been entered into between the parties. It was also hard to believe that a person would sell his property and give his savings to another person by way of a friendly loan to the tune of Rs. 10 lakhs. (c) A perusal of the cheque revealed that the cheque was si....
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....an Lal, Veena Rani and Parmod, who were officials of Branch No. 123, LIC. Till date, they had not been returned the friendly loans by the accused. Learned counsel for the appellant has particularly highlighted the suggestion given to CW2 Raghubir Singh Chaudhary, in his cross-examination. In his cross-examination, CW2 stated that, "it is wrong to suggest that the loan has been given on interest basis. Volunteered that the said loan was given as a friendly loan." Learned counsel for the appellant, therefore, points out that even according to the respondent/accused, the loan had been given to him by the complainant, though, according to the accused, the same was given on interest and not as a friendly loan. 12. Learned counsel submits that whether loan in cash had been advanced, or not, is a matter of fact. Merely because the same was not advanced by way of an account payee cheque and there may have been contravention of Section 269SS of the Income Tax Act, the transaction does not become illegal. If the advancement of the loan, in cash, as a matter of fact is established, violation of Section 269SS of the Income Tax Act would not render the loan as not recoverable through a legal....
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.... Learned counsel submits that the appellant has neither produced any receipt in respect of the alleged advancement of loan, nor reflected the availability of funds in her account, or in her income-tax returns for the relevant period. She also did not reflect the alleged loan in the income tax returns for the relevant period. Thus, the presumption under Section 139 of the NI Act stood rebutted on preponderance of probabilities. 18. Having heard learned counsel, perused the record and considered the rival submissions, I am inclined to allow the present appeal and convict the respondent. 19. Firstly, the Trial Court has completely ignored and glossed over the testimony of CW-2 Raghubir Singh Chaudhary. CW-2 was an independent witness. The respondent could not establish any reason to doubt the testimony of CW-2. CW-2 stated that he, the husband of the complainant, and the accused worked for LIC. He had known both the husband of the complainant and the accused for two decades and more. He stated that they all had friendly and family relations. Thus, there is no reason to doubt the testimony of CW-2. CW-2 in his examination-in-chief, inter alia, deposed: "... ... ... Accus....
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....of this suggestion was to extract an admission of the witness CW-2, that the loan was advanced on interest basis, and not as a friendly loan. Thus, the advancement of the loan by the complainant to the respondent/accused stands established. 24. The mere advancement of the loan in cash, may entail consequences for the party acting in breach of Section 269 SS of the Income Tax Act. That is not the concern of this Court. Whether, or not, the appellant reflected the availability of the said amount in her income-tax returns, is also not a matter of concern for this Court. That would again be an aspect to be considered by the income-tax authorities. The advancement of loan, in cash, to the tune of Rs. 10 Lakhs is not prohibited in law. The transaction of advancement of loan of Rs. 10 Lakhs, in cash, does is not illegal. Such a transaction is enforceable at law. 25. Breach of Section 269SS of the Income Tax Act provides the penalty to which the person would be subjected to under Section 271D of the Income Tax Act. Section 271D does not provide that such a transaction would be null & void. The payer of the money in cash - in violation of Section 269SS of the Income Tax Act would, the....
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....o prevent the evasion of tax. In the absence of any evasion of tax, the borrower (the defendant) in the case cannot take shelter under the Section and he is liable to repay the amount. (ii) As Section 269SS is visited with penalty under Section 271D of the Income Tax Act, the object of imposing penalty is merely to the protection to the Revenue, and then the contract will not be regarded as prohibited by implication. (iii) If it was not the object of the parties at the time when the transaction was entered into to circumvent or to defeat the provisions of the Income Tax, the contract is not void." 28. In the present case, the object of the parties when the transaction was entered into cannot be said to be to circumvent or defeat the purpose of the Income Tax Act. The defendant would not have issued the cheque in question had the object of the loan transaction been to defeat the provisions of the Income Tax Act. 29. Lastly, I may refer to the judgment of the Karnataka High Court in Mohammed Iqbal v. Mohammed Zahoor,. The issue that arose before the court in this case was whether the provision of Section 269SS of the Income Tax Act disentitle the plaintiff fro....
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.... so taken or accepted, as may be imposed by the Joint Commissioner. 11. The contravention of Section 269-SS though visited with a stiff penalty on the person taking the loan or deposit, nevertheless, the rigor of Section 271D is whittled down by Section 273B, on proof of bonafides. It cannot therefore be said that the transaction of the nature brought before this court could be declared illegal, void, and unenforceable". 30. In cases where the complainant claims to have advanced a friendly loan in cash, and where the transaction of loan is not evidenced by any other documentary or other reliable evidence, no doubt, the aspect whether the availability of funds in cash with the complainant/lender, and its advancement as loan to the accused have been reflected in the income tax returns of the complainant/lender, or not, become relevant. If, the availability of funds, and the loan transaction itself is not so reflected, that factor is taken note of by the Court as relevant to hold that the presumption under Section 118 and 139 of the NI Act stands rebutted. However, these considerations would not be relevant, where loan transaction itself is otherwise established, either th....
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....e issued as a security cheque on the premise that on the due future date the debt which shall have crystallized by then, shall be paid. So long as there is a debt existing, in respect whereof the cheque in question is issued, in my view, the same would attract Section 138 of NI Act in case of its dishonour". 32. The other considerations that weighed with the learned Magistrate so as to hold that the presumption in favour of the appellant/complainant stood rebutted, appear to be wholly irrelevant. Merely because there was no written agreement with regard to the loan transaction, does not raise a doubt about the existence of such a transaction, when the same has been established by the unimpeached testimony of CW-2, who is an independent and credible witness. The cheque in question was, admittedly, delivered by the accused himself. Even in his examination-in-chief, the accused DW-1 merely states that "the husband of the complainant visited my house and took the cheque in question in lieu of security with the assurance that he would provide the requisite friendly loan to the tune of Rs. 10 Lakhs". He does not state that he delivered a blank cheque, merely signed by him, to the husb....