Failure to disclose the amount in Income Tax Return may be sufficient to rebut the presumption under Section 139 NI Act: High Court of Telengana.

High Court for the State of Telangana
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  • Post published:September 13, 2021
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The Court held that in case the complainant failed to show the amount spent in his income tax return creates a doubt regarding his financial position and is sufficient to rebut the presumption under Section 139 of the Negotiable Instrument Act, 1881.

In the instant case, the High Court placed reliance on the Judgment of the Bombay High Court in case titled Sanjay Mishra Vs. Ms. Kanishka Kappor @ Nikki and Another wherein it was held that

“If in a given case the amount advanced by the complainant to the accused is a large amount and is not repayable within few months, the failure to disclose the account in Income Tax return or Books of Accounts of the complainant may be sufficient to rebut the presumption under Section 139 of the Act.”

The Single Bench of the High Court of Telegana Comprised of Justice G. Sri Devi was hearing a criminal appeal filed against the judgment passed by the Court of Special Magistrate, Cyberabad at Hayathnagar. The Judgment impugned (Challenged) was delivered in a complaint case registered under Section 138 Negotiable Instrument Act, 1881 in which the accused was acquitted by the Court.

Brief Facts:

Both the complainant and the accused had entered into a settlement agreement, dated 15-10-2016, wherein the accused had agreed to pay an amount of Rs.70.00 lakhs to the complainant towards full and final settlement and out of which the accused had paid an amount of Rs.50,000/- to the complainant towards advance and further agreed to pay the remaining amount of Rs.69,50,000/- to the complainant on or before 1st November, 2016 and that the accused had issued two cheques, both dated 01-11-2016, bearing Nos. 527842 for Rs.34,50,000/- and 627844 for Rs.35,00,000/- drawn on State Bank of Hyderabad, Collectorate Complex, Nalgonda Town and District, for discharge of her legal liability to the complainant and a document was executed on 31.10.2016 in favour of the complainant requesting the complainant to present the said two cheques in the first week of November, 2016 for encashment. When the said cheques were presented by the complainant in his banker i.e., Andhra Bank, Thurkayamjal Branch, the same were dishonoured for the reason that “Payment stopped by the drawer”, vide cheque return memo dated 05.11.2016. A notice dated 15.11.2016 came to be issued to the accused which was served on the accused on 18-11-2016. Though the accused received notice, she failed to make the payment nor gave any reply. Hence, the complainant.

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Submissions made by the Appellant:

Counsel for the Appellant submitted that since it is proved that Exs’P1 and P2 cheques (Pls note, Cheques in issue are exhibited as P1 and P2 while examining them during the evidence stage of the case) have been signed and issued by the accused to the complainant, the trial Court shall raise a presumption to the effect that the said cheques have been issued towards discharge of legally enforceable debt. He further submitted that in Rangappa vs Sri Mohan the Apex Court held that presumption under Section 139 of the Negotiable Instruments Act, extends towards the existence of legally enforceable debt, which means the cheques are issued towards the discharge of debts owed by the accused to the complainant and the said debt is also a legally enforceable one.  

He also submitted that in Anil Sachar and another vs Shree Nath Spinners Private Limited and others the Apex Court mentioned certain circumstances, wherein the accused could not be able to rebut the presumption under Section 139 of the N.I. Act. He also submitted that the above two decisions are squarely applicable to the facts of the present case. Therefore, the presumption under Section 139 of the N.I. Act is attached to Ex. P1. He further submitted that it is for the accused to rebut the said presumption and it is to be seen whether the accused could be successful in discharging the said burden. Along-with the submissions made before the Court the appellant also relied on the judgments of the Apex Court in Kishan Rao vs Shankar Gouda; T.P.Murugan (dead) through L.Rs. vs Bojan and Rohitbhai Jivanlal Patel vs. State of Gujrat.

Observations of the Court:

The Court observed that the appellant admits that he was an income tax assesse, but he has not shown the amount spent for installation of Petroleum bunk of Rs. 3 Crores in his tax returns during that period. Therefore, a doubt arises whether the complainant was financially capable of spending such huge amount.

The Court noted that in the absence of any corroborative evidence, the version of the complainant cannot be accepted at its face value.

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The Court also noted that in view to the admission made by the appellant that he is an income tax assesse, the question would be whether no-showing of the amount in his income tax return is sufficient to rebut a presumption that the cheque was not issued in discharge of a debt or liability.

The Court after referring to the Judgment of the Bombay High Court in case titled Sanjay Mishra vs Ms. Kanishka Kappor @ Nikki and Another wherein the Court held as under;

“7. It ls true that merely because amount advanced is not shown in Income Tax Return, in every case, one cannot jump to the conclusion that the presumption under Section 139 of the Act stands rebutted. There may be cases where a small amount less than a sum of Rs.20,000/- is advanced in cash by way of loan which may be repayable within few days or within few months. A complainant may not show the said amount in the Income Tax Return as it is repayable within few days or few months in the same financial year. in such a case the failure to show the amount in the Income tax Return may not by itself amount to rebuttal of presumption under Section 139 of the said Act. If in a given case the amount advanced by the complainant to the accused is a large amount and is not repayable within few months, the failure to disclose the account in Income Tax return or Books of Accounts of the complainant may be sufficient to rebut the presumption under Section 139 of the Act.”

The Court further observed that in the instant case the amount spent by the complainant was not shown in his income tax returns and the trial Court has rightly held that it creates a doubt regarding the financial position of the appellant and if he really spent that much amount, there must be record for him for withdrawal of amount from his bank account and spending the same.

Consequently, the High Court refused to interfere with the findings of the trial Court and held that trial Court was justified in acquitting the accused.

Click here to read the order