Demonetization and Tax Liability under Income-tax Act, 1961
In a recent case [Share Microfin Ltd v. DCIT [2025] GCtR 1334 (ITAT, Hyderabad)], while setting aside Order passed by CIT (A), it was held that except for the specific transaction as provided in the notification, the Specified Bank Notes (SBNs) were ceased to be legal tender for all purposes between the citizens. The factual legal status of the SBNs in pursuant to the notification dated 8/11/2016 would be that it belongs to the bearer of such notes and therefore, the value of the SBNs deposited in the Bank A/c would be the money of the bearer.
It was also held that it is highly unlikely that the holder of the SBNs after the notification dated 8/11/2016 would use the SBN as a legal tender and currency in circular because no person of ordinary prudence would enter into such a transaction of accepting or tendering the SBNs other than the manner and purpose allowed in the said notification.