Bar U/S. 269SS Income Tax Act Not Applicable To A Person Who Makes An Advance Of More Than ₹20,000 In Cash: Bombay HC

Update: 2023-12-27 07:15 GMT

The Bombay High Court observed bar under Section 269-SS Income Tax Act is applicable to a person who accepts deposit by way of cash and not to a person who makes or offers any money to the payee.

The Court was deciding a criminal appeal filed against the judgment of the Metropolitan Magistrate that had acquitted a man accused of an offence punishable under Section 138 of the NI Act by applying this provision.

A Single Bench of Justice Prithviraj K. Chavan held, “It is thus clear that no person should accept any loan or deposit of a sum of Rs.20,000/- or more otherwise than by an account payee cheque or account payee bank draft. The provision does not say that a person cannot advance more than Rs.20,000/- in cash to another person. Restriction on cash advances was, in fact, on the taker and not on the person who makes an advance. The penalty for taking such advance or deposit in contravention of provisions of Section 269-SS was to be suffered by the taker who accepts the advance. The learned Magistrate has wrongly invoked the aforesaid provisions while dismissing the complaint.”

The Bench said that the provisions of Sections 269-SS and 271D of the Income Tax Act, 1961 have absolutely no bearing in the case.

Advocate Abhijeet A. Desai appeared on behalf of the appellant while Advocate Dinesh Jain and APP G.P. Mulekar appeared on behalf of the respondents.

In this case, the appellant/original complainant and respondent/original accused were friends and neighbours. The complainant had advanced a friendly loan of Rs. 3 lakhs to the accused pursuant to her request as she was in financial need due to the ailment of her husband and for the daughter who was undergoing a training as an Air Hostess. The accused promised to refund the same by the end of June, 2007 and hence, four cheques were issued by her in lieu of the said amount. The complainant deposited the cheques in the bank as the accused could not repay the amount till June, 2007.

The complainant had initially deposited two cheques of Rs. 1.5 lakhs each in the bank and then she received a memo from the bank that the said cheques deposited by her were dishonoured for insufficiency of funds. A legal notice was issued to the accused but no reply was received from her which resulted in filing of the complaint against her under Section 138 NI Act to enforce legal liability. The Metropolitan Magistrate after recording the evidence of the complainant as well as the accused, acquitted her of the offence. Hence, the matter was before the High Court.

The High Court in view of the above facts noted, “… the impugned judgment and order of acquittal rendered by the Magistrate is unsustainable and, therefore, needs to be quashed and set aside. … The learned Magistrate had rendered the judgment in most cryptic and perfunctory manner, in the sense, neither the facts have been clearly stated nor the evidence has been properly discussed. The learned Magistrate has also misinterpreted and misread the legal position as envisaged not only under sections 138 and 139 of the N.I. Act but also the provisions of Section 269-SS of the Income Tax Act. The learned Magistrate has failed to appreciate vital admissions in the cross-examination of the appellant as well as D.W.2 – Moulik Shah in it’s correct perspective which have been elicited at the time of recording evidence.”

The Court added that the findings arrived at by the Court below are patently illegal and perverse and, therefore, need to be set aside. It, therefore, reversed the judgment rendered by the Metropolitan Magistrate and found the accused guilty of the offence and hence, convicted her under Section 138 of NI Act.

“Respondent No.1-accused is sentenced to undergo simple imprisonment of one year and shall pay fine of Rs.5,00,000/-. … In default of payment of fine, respondent No.1-accused shall undergo simple imprisonment for four months”, directed the Court.

Accordingly, the High Court allowed the appeal and quashed the impugned judgment.

Cause Title- Arti Rajesh Karangutkar v. Anna Rocky Fernandes & Anr. (Neutral Citation: 2023:BHC-AS:38533)

Click here to read/download the Judgment

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