The Income Tax Appellate Tribunal Chandigarh held that merely claiming funds belong to a Hindu Undivided Family is insufficient without documentary proof of their source, holding, and transfer, in a case involving Rs 50 lakh life insurance purchased from alleged agricultural income.
CHANDIGARH: The Income Tax Appellate Tribunal (ITAT) Chandigarh has ruled that a mere assertion that funds belong to a Hindu Undivided Family (HUF) is insufficient to replace the requirement for documentary evidence demonstrating how those funds were generated, held, and transferred.
This decision was made in a case where a woman claimed to be a coparcener in a HUF that had used its agricultural income from an orchid farm to purchase a life insurance policy worth Rs 50 lakh.
The Income Tax Department caught wind of this substantial investment and issued a tax notice, suspecting that the investment did not align with her reported income on her Income Tax Return (ITR). Subsequently, the assessing officer documented the rationale and initiated reassessment proceedings under Section 147 after obtaining requisite approval.
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The woman, together with the HUF, challenged the reopening of her tax case in the Himachal Pradesh High Court, which upheld the jurisdiction’s validity, asserting that the Assessing Officer had adequate grounds to believe in the potential ‘escapement’ of income.
During the assessment proceedings, she claimed that the investment was made by the HUF through Mr. Chauhan, an insurance agent, based on an alleged Memorandum of Understanding regarding the agricultural income from the orchard. However, her arguments were dismissed by the tax department, prompting her to appeal to the ITAT Chandigarh, where she ultimately lost her case on February 10, 2026.
According to Chartered Accountant Suresh Surana’s summary to ET Wealth Online, the appeal at the Income Tax Appellate Tribunal arose from reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961. The Assessing Officer had received information from an insurance company stating that the assessee had invested Rs 50 lakh in a life insurance policy during the relevant financial year, despite declaring an income of only Rs 4.81 lakh. This prompted the re-opening of the assessment due to the investment being perceived as disproportionate to her declared income.
In the assessment proceedings, the taxpayer contended that the investment was funded by the HUF from agricultural income derived from orchard operations. She claimed the funds were routed through an insurance agent as per a Memorandum of Understanding (MOU) regarding the orchard management. However, the Assessing Officer identified significant factual inconsistencies. Notably, transactions in the insurance agent’s bank account occurred prior to the alleged MOU, and neither the original nor a copy of the MOU was presented to any authority.
Furthermore, she failed to provide any books of account, sales records of agricultural produce, cash books, cash flow statements, or any proof demonstrating the availability of Rs 50 lakh with the HUF at any point. Given that the insurance policy was in her name, designating her as both the life assured and beneficiary, the addition of Rs 50 lakh was classified as unexplained investment under Section 69. The Commissioner (Appeals) upheld this addition, leading to the matter reaching the Tribunal.
Surana highlighted that the Tribunal found the taxpayer had not substantiated that the Rs 50 lakh insurance policy investment was funded by HUF agricultural income, lacking credible documentary evidence.
He noted,
“Mere ownership of agricultural land does not establish the availability of liquid funds sufficient to make the investment.”
The alleged MOU was not presented and was contradicted by earlier bank transactions, casting doubt on the explanation’s reliability. The failure to provide books of account, sale records, cash books, or cash flow statements meant there was no demonstration of available funds with the HUF. With the insurance policy under her name and her being the beneficiary, clear ownership lay with her.
The burden of proof under Section 69 was not met, leading to a statutory presumption against the taxpayer. Findings from prior assessment years or HUF proceedings could not adjudicate ownership for the current tax year. The request for a protective assessment was dismissed, as the Assessing Officer had formed a definitive conclusion regarding ownership. No case of double taxation was established merely due to concurrent proceedings concerning the HUF. The ITAT correctly sustained the addition of Rs 50 lakh as unexplained investment under Section 69.
According to Surana, the taxpayer’s loss stemmed primarily from her inability to meet the statutory burden of proof under Section 69.
He emphasized,
“There were no books, no agricultural sale records, no cash trail, no credible MOU, and no financial statements of the HUF demonstrating availability of funds. Additionally, the policy stood in her own name, reinforcing apparent ownership.”
Surana concluded that the Tribunal deemed the explanation unsubstantiated, inconsistent, and lacking transparency in the transaction chain.
He remarked,
“In the absence of credible evidence establishing the source of funds, the statutory presumption under Section 69 operated against the assessee, leading to confirmation of the addition. Accordingly, the appeal was dismissed in favour of the Income Tax Department.”
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