AS Sir Dr. MPS RAMANI Ph.D.[Tech] observed:“The accused or anyone else can inform the Income Tax Department separately if they think that they should.” These observations was also given in some cases. And As you seen in Sanjay Mishra case “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 section 138 of the said Act. The alleged debt cannot be said to be a legally recoverable debt.”
So main thing is in explanation u/s 138 N I Act, Explanation.-For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.
To report to Income Tax Department is another issue, the person having illegal money may/may not suffer in Department. So whenever this point is pressed, that illegal money can not be recovered through Legal means, so the person having illegal money has to suffer. Because in law, the complainant/every litigant should reach court with clean hands. If any transaction is prime facie is against the law, i.e. illegal, how can it be got enforced through court.
In similar activities, some persons give loan to many persons without having money lending license or permission through Reserve Bank of India even though that money is shown in creditor’s books i.e. in income tax return etc, yet if proved that money lending license/ permission from RBI is required, and not obtained, by the creditor/lender, he has to suffer due to explanation u/s 138 N I Act, and it is decided by the court that it is not debt that is legal enforceable debt. In a case Anil S/o Baburao Kataria vs Purshottam S/o Prabhakar Kawane Decided On: 21.11.2009 IN THE HIGH COURT OF BOMBAY (AURANGABAD BENCH).
If I am wrong, may be corrected by other learned members of the forum.