Large Cash Claims In Civil Suits Can Be Flagged To Income Tax Department: Madras High Court

The Madras High Court has recently held that courts may forward civil suit records to the Income Tax Department for its consideration when the pleadings disclose very large cash transactions.

This can be done even if the transaction took place before Section 269ST of the Income Tax Act came into force.

Justice S. Sounthar noted that Section 269ST, which bars receipt of Rs 2 lakh or more in cash, was introduced on April 1, 2017, to curb black money. The provision also prescribes a penalty equal to the amount received.

The court said that the absence of this provision at the time of the transaction does not mean that heavy cash dealings disclosed in court proceedings can be ignored.

The court observed that “such a huge transaction by the plaintiff should have been reflected in his income tax return. If it is not duly mentioned in its income tax returns, certainly, the transaction should be viewed with suspicion. Whether the transaction which has not been brought into the book or a black money transaction can be a subject matter of the suit and whether the Court can lend its helping hand to recover money based on such transaction are all matters to be decided at the time of final disposal of the suit."

The case arose from a money recovery suit filed before the III Additional City Civil Court, Chennai. The plaintiff is a private individual who claimed that he lent ₹80 lakh in cash to the defendants. The defendants are five individuals who, according to the plaintiff, borrowed the money.

The plaintiff said the cash was paid on June 21, 2016. He relied on a promissory note executed by the defendants. In the note, the defendants agreed to repay the amount with interest at 12% per annum. When the money was not repaid, the plaintiff filed a civil suit seeking recovery.

While the suit was pending, two of the defendants filed an application before the trial court. They asked the court to direct the plaintiff to disclose his Permanent Account Number. They also asked the court to forward copies of the plaint and supporting documents to the Income Tax Department. They alleged that the cash payment violated Section 269ST of the Income Tax Act.

The trial court allowed the application. It directed the plaintiff to disclose his PAN to the defendants. It also directed that the suit papers be forwarded to the Income Tax Department.

Before the High Court, the plaintiff challenged this order. He argued that Section 269ST could not apply because the transaction took place before April 1, 2017, when the provision came into force. The High Court agreed that the provision could not be applied retrospectively to impose penalties. However, it held that this did not prevent tax authorities from examining the transaction disclosed in the suit.

Justice S. Sounthar said that if the plaintiff ultimately proves payment of Rs 80 lakh in cash, “certainly it should be brought to the notice of the Income Tax Department for setting law into motion.” He also clarified that the question of whether such a cash transaction can be enforced through a civil suit will be decided only at the final stage of the case.

On the issue of PAN disclosure, the High Court disagreed with the trial court. It noted that the Supreme Court's guidelines on reporting large cash transactions do not require PAN details to be shared with the opposite party. The court held that the plaintiff cannot be compelled to disclose his PAN number to the defendants.

The civil revision petition was partly allowed. The direction to forward the plaint and documents to the Income Tax Department was upheld. The direction requiring disclosure of PAN details was set aside.

Case Title: Venkateshan v. Sanjay

Citation: 2026 LLBiz HC (MAD) 21

Case Number: CRP.No.5650 of 2025

For Petitioner: Senior Counsel V.Raghavachari For Advocate A.Ramalingam

For Respondent: K. Jegannathan