TaxTMI 
TaxTMI 
2025 (7) TMI 1628
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....this case. The Union Government is aiming for "Digital India", and the Hon'ble Prime Minister of India is leading the battle for complete digital transactions by every citizen of this country. Nowadays, we can see digital transactions even in small tea shops, paan shops, etc. In Kerala, even coolie workers accept their wages through digital transactions of Unified Payments Interface(UPI) like Google Pay, PhonePe, Paytm etc. I am of the considered opinion that, when the government of India aims a goal of complete digital transactions by every citizen of this country instead of cash transactions, a court of law cannot turn its face and legalise cash transactions. 2. I will first consider the facts of this case. The revision petitioner was an accused in S.T. No. 387/2013 on the file of the Judicial First Class Magistrate Court, Pathanamthitta. It was a prosecution initiated by the 1st respondent against the revision petitioner alleging offences punishable under Section 138 of the Negotiable Instruments Act, 1881 (for short "NI Act"). (Hereinafter, the revision petitioner and the 1st respondent are mentioned as the accused and the complainant, respectively.) 3. According to t....
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....l. Aggrieved by the same, this Criminal Revision Petition is filed. 6. Heard Adv. D. Kishore, the learned counsel appearing for the accused and Adv. Manu Ramachandran, the learned counsel appearing for the complainant. 7. The main contention raised by Adv. D. Kishore, who appeared for the accused, is that the admitted transaction, according to the complainant, is by cash. The counsel relied on Section 269SS of the Act 1961 and submitted that any transaction above Rs. 20,000/- can only be made through an account transaction or by issuance of a cheque or a draft. The counsel submitted that, in this case, admittedly Rs. 9,00,000/- is alleged to be paid by the complainant to the accused in cash. Therefore, the counsel submitted that the same violates Section 269SS of Act 1961, and consequently, a penalty is to be imposed as per Section 271D of Act 1961. The counsel submitted that, if this Court accept the contentions of the complainant, the accused is bound to pay a penalty under Section 271D of Act 1961. The accused completely denies the transaction. The counsel submitted that, even in the reply notice sent by the accused to the statutory notice, it is specifically stated that t....
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....y enforceable debt"? 10. Point No.1 For a proper consideration of the above point, the relevant section of the NI Act is to be considered first. Section 138 of the NI Act reads like this: "138. Dishonour of cheque for insufficiency, etc., of funds in the account.-Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless- (a) the cheque has been presented to the bank within a period of six months....
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....aragraph Nos. 20, 21 and 22. But the said principle is overruled by a three judge bench decision of the Apex Court in Rangappa v. Sri Mohan [2010 KHC 4325]. 14. In the light of the above authoritative judgment and also in the light of the clear wording in Section 139 of the NI Act, it is clear that there is a presumption under Section 139 of the NI Act as far as legally enforceable debt is concerned. The first point is answered accordingly. 15. Point No. 2 The presumption under Section 139 of the NI Act can be rebutted by an accused by raising a probable defence which creates doubts about the existence of a legally enforceable debt or liability. In Rangappa's case (supra) itself, this point is considered by the Apex Court about the manner in which an accused can rebut the presumption under Section 139. Therefore, it is clear that the accused can rebut a presumption under Section 139 of the NI Act by a probable defence by preponderance of probability as stated in Rangappa's case (supra). It will be beneficial to extract paragraph No.18 of Rangappa's case (supra): "18. In light of these extracts, we are in agreement with the respondent-claimant that the ....
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....ction 139 of the NI Act by the standard of proof of a probable defence through preponderance of probabilities, which creates doubts about the existence of a legally enforceable debt. The second point is also answered accordingly. 17. Point No. 3 The next point to be decided is whether a debt created by a cash transaction in violation of the Act 1961 can be treated as a legally enforceable debt. For deciding that, Section 269SS of Act 1961 is to be considered. Section 269SS is extracted hereunder: "269SS. Mode of taking or accepting certain loans, deposits and specified sum.- No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,- (a) the amount of such loan or deposit or specified sum or the aggregate amount of such loan, deposit and specified sum; or (b) on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum taken or accepted earlier by such person from the depositor is rema....
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....f the amount is above Rs. 20,000/-, provided that such transactions will not come within the purview of the exemptions mentioned in the section. Similarly, Section 269ST also prohibit that no person shall receive an amount of two lakh rupees or more in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. Section 271D of Act 1961 says that if a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of Section-269SS, shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted. Of course, Section 273B deals with situations in which 'penalty not to be imposed in certain cases'. It will be better to extract Section 273B of Act 1961: "273B. Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271AA, section 271B, s....
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....refore, the judgment of the Krishna Janardhan Bhat's case (supra) is in effect confirmed in Rangappa's case (supra), except regarding the declaration regarding non availability of the presumption under Section 139 of the NI Act. 22. The Bombay High Court in Sanjay Mishra v. Kanishka Kapoor @ Nikki and Another [2009 (2) KLD 825] considered the impact of Section 269SS of the Act 1961. It will be better to extract the relevant portion of the above judgment: "13. In the present case, there is a categorical admission that the amount allegedly advanced by the applicant was entirely a cash amount and that the amount was 'unaccounted'. He admitted not only that the same was not disclosed in the Income Tax Return at the relevant time but till recording of evidence in the year 2006 it was not disclosed in the Income Tax Return. By no stretch of imagination it can be stated that liability to repay unaccounted cash amount is a legally enforceable liability within the meaning of explanation to S.138 of the said Act. The alleged debt cannot be said to be a legally recoverable debt." 23. It is true that the Bombay High Court relied on the judgment of Krishna Janardh....
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....nd not one which is criminal or quasi-criminal in nature. Thus, in the light of statutory presumption under sections 118 and 139 of the Act of 1881, it would be for the accused to rebut such presumption in the light of what has been held in Rangappa (supra). 18. In view of the aforesaid discussion, it is held that a transaction not reflected in the books of account 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 section 269SS and/or section 271AAD 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, Bipin Mathurdas Thakkar and Pushpa Sanchalal Kothari (supra) lay down the correct position and are thus affirmed. The decision in Sanjay Mishra (supra) with utmost respect stands overruled." 24. The Hon'ble Division Bench of the Bombay High Court observed that the ....
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....ce by another learned Single Judge of the Bombay High Court in Prakash Madhukarrao Desai v Dattatraya Sheshrao Desai (2023 KHC Online 3165). It will be beneficial to extract the relevant portion of the above reference order: "8. The provisions of S.139 of the IT Act enjoins upon every person to furnish a return of his income during the previous year before the due date, failure to do so entails the imposition of penalty and also imprisonment as provided in S.276 CC of the IT Act. Thus, a person is under statutory obligation, under the pain of penalty or imprisonment to furnish a return of his income for the previous year before the due date. The term 'legal' would mean what is permissible by a statute and the term 'illegal', would mean what is prohibited by a statute or something done contrary to the manner as postulated by the provisions of a statute. Thus, when S.139 of the IT Act casts a burden upon a person to file a return, not doing so, or filing a return, not showing an entry of a transaction, would mean that the statutory requirement, in that regard stands violated, thereby making such person liable for penalty and / or imprisonment, thereby making ....
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....ions of the Income-tax Act would be a matter between revenue and the defaulter and the advantage cannot be taken by the borrower [as held in Bipin Madhurdas Thakkar and Krishna Morajkar, 2015 (3) ABR (Cri) 463 (supra)], in my considered opinion, would tend to defeat the very purpose of the Income-tax Act and would bolster the parallel economy of transactions in cash." 25. I agree with the observations of the learned Single Judge in the above reference order, which leads to the Division Bench judgment. 26. Another contention raised by the complainant is that, even if it is stated that there is a violation of Section 269SS of Act 1961, the penalty is only to be paid by the person who received the amount in cash. Here, the accused received the amount in cash. No penalty is to be paid by the complainant because he paid the amount in cash to the accused, and only the accused is liable to pay a penalty because he received the amount in cash. But the question to be decided in a proceedings under Section 138 of the NI Act is whether there is any legally enforceable debt. Debt is not defined in the NI Act. Therefore, the ordinary meaning of debt is to be considered. A debt is generall....
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....ded for the redressal of the grievances to the litigants. Efforts to defeat the objectives of law by resorting to innovative measures and methods are to be discovered, lest it may affect the commercial and mercantile activities in a smooth and healthy manner, ultimately affecting the economy of the country." 27. The Apex Court held that the laws relating to the said Act are required to be interpreted in the light of the object intended to be achieved by it, despite there being a deviation from the general rule. The Apex Court expressed that the object of Section 138 of the NI Act is to ensure that commercial and mercantile activities are conducted in smooth and healthy manner. In Sanjay Mishra's case (supra), the Bombay High Court extracted the above judgment of the Apex Court in Dalmia Cement's case (supra) and observed that the alleged liability to repay an unaccounted cash amount, admittedly not disclosed in the income-tax return, cannot be a legally recoverable liability. I perfectly agree with the above observation of the learned Judge of the Bombay High Court. Accordingly, it is declared that debt created by a cash transaction above Rs. 20,000/- in violation of the....
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....sions of the Income Tax Act and it is observed that, a loan transaction beyond a sum of Rs. 20,000/- otherwise than by cheque or draft, it has to be noted, is interdicted under S.269(SS) of Income Tax Act, which came into force from 01/04/1984 and any infraction there of liable to be punished under S.217(d) of the above Act. It cannot be treated as a proposition, that any transaction in violation of that provision, will make the transaction itself unenforcible through Court of law. It was only observed in that decision that, that has to be taken into consideration while considering the facts of that case to arrive at a conclusion, as to whether the transaction alleged by the complainant is believable or not. It was a case where the complainant was a partner of a money lending firm having money lending licence and doing business in money lending, who is expected to do transaction in accordance with law. Further the evidence of the complainant in that case was that, this amount was not shown in the account of the firm and it was not mentioned in the Income Tax return of the firm and he had only informed about the same to his son alone, coupled with the fact that, such a huge amount w....
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....of action for the Income Tax Authorities to prosecute the person, who violated that provision. Further it will be seen from the evidence as well as the submission made by the counsel for the revision petitioner that, both the revision petitioner and the complainant were coming from village area, not conversant with these aspects fully as well. So under the circumstances, the dictum laid down in the decision in Bhaskaran Nairs case (supra) is not as such applicable to the facts of this case, to disbelieve the case of the complainant, so as to give the benefit of acquittal to the revision petitioner as claimed by the counsel for the revision petitioner. " [underline supplied] 31. I am of the considered opinion that the above judgment of this Court is without adverting the decisions of the Apex Court in Rangappa's case (supra) and Krishna Janardhan Bhat's case (supra). Therefore, the dictum laid down by this Court in the above judgment is per incuriam. 32. Counsel for the petitioner relied on an article of late Adv. Sri. Alex M. Scaria. Adv. Alex M. Scaria was a lawyer with innovative thinking on all legal issues. I heard him arguing several complicated legal is....
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....d has a case that the complainant has no source to pay an amount Rs. 9,00,000/-. The accused has got such a case from the stage of the reply notice itself. In Ext.P7 reply notice, the accused clearly stated that the complainant has no source to raise an amount of Rs. 9,00,000/-. Even though some evidence is adduced by the complainant to show that he withdrew some amount from some other account, since the complainant admits that he is not a taxpayer, it cannot be said that the amount is a legally enforceable debt. Therefore, I am of the considered opinion that this is a case in which the complainant fails to prove that there is legally enforceable debt. The accused rebutted the presumption under Section 139 of NI Act. Consequently, the conviction and sentence imposed on the accused are to be set aside. 36. Therefore, this Criminal Revision Petition is allowed. The conviction and sentence imposed on the revision petitioner/accused as per the judgment dated 21.06.2019 in S.T. No. 387/2013 on the file of the Judicial First Class Magistrate Court-II, Pathanamthitta and the judgment dated 30.11.2023 in Crl. Appeal No.59/2019 on the file of the Additional District & Sessions Court-III,....