A ₹50 lakh investment in a life insurance policy was treated as unexplained investment by the Income Tax Department after a taxpayer reported annual income of ₹4.81 lakh. The taxpayer argued that the money belonged to her late husband’s Hindu Undivided Family (HUF) and came from agricultural income earned through an orchard.
However, the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, rejected her explanation, holding that she had failed to establish the source and movement of the funds through documentary evidence.
In its order dated 25 February 2026 in Pratibha Singh vs ACIT, Circle Shimla (ITA No. 860/Chd/2025), the tribunal upheld the addition of ₹50 lakh under Section 69 of the Income Tax Act, 1961, as unexplained investment. The appeal related to assessment year 2009-10.
₹50 lakh investment routed through LIC agent
The dispute centred on an alleged arrangement under which the Virbhadra Singh HUF owned an orchard of around 100 bighas in Himachal Pradesh and engaged LIC agent Anand Chauhan to handle funds linked to its agricultural income.
According to the tribunal’s order, ₹5 lakh each was received by Chauhan from Universal Apple Associated on 7 June and 13 June 2008. The taxpayer claimed that a memorandum of understanding (MoU) between the HUF and Chauhan had been executed on 15 June 2008. Another ₹10 lakh was invested in an through the agent on 19 June 2008. The total LIC investment in the taxpayer’s name during financial year 2008-09 was ₹50 lakh.
The Assessing Officer questioned why money had moved before the alleged agreement was executed. The tribunal also noted that neither the original MoU nor a copy had been produced during the assessment proceedings, before the Commissioner of (Appeals) or before the tribunal.
The absence of the agreement, along with the unexplained transaction sequence, weakened the taxpayer’s claim that the money belonged to the HUF.
Why orchard income was not enough to explain the investment
Singh argued that the HUF had sufficient agricultural income to fund the investment. In submissions before the tribunal, she relied on the HUF’s separate tax status and its claim that it had earned substantial agricultural income.
The tribunal, however, said ownership of agricultural land does not by itself establish that an entity had liquid funds available for a particular investment.
It found that the taxpayer had not produced books of account, records of agricultural produce sales, a cash book or a cash-flow statement showing that the HUF had the ₹50 lakh needed for the policy. Nor had she established a verifiable trail connecting the HUF’s funds to the investment through the LIC agent.
The tribunal also noted that the policy was in Singh’s name. She was the life assured and the person entitled to receive the maturity proceeds. While an HUF can be a separate taxable entity, the tribunal held that this fact alone did not establish that an asset held in an individual member’s name belonged to the HUF.
The burden was on Singh to demonstrate, with reliable evidence, that the investment came from identifiable HUF funds.
Why the tribunal rejected the plea for protective taxation
Singh also argued that the ₹50 lakh addition should not have been made substantively in her hands because proceedings concerning the HUF were pending. She contended that the addition, if warranted, should instead have been made on a protective basis until the ownership of the funds was established.
The tribunal rejected this argument. It explained that protective assessments are generally used when the tax officer is uncertain about the person in whose hands income should be assessed and seeks to safeguard the revenue by proceeding against alternative taxpayers.
In this case, the Assessing Officer had concluded that the investment belonged to Singh because she had failed to explain its source. The tribunal said the taxpayer could not compel the department to make a protective addition merely by claiming that the money belonged to the HUF.
The tribunal also rejected the argument that the addition necessarily resulted in double taxation. Proceedings relating to the HUF had not reached finality, and the department had not finally accepted the claimed agricultural income as an explained source of the investment. The possibility of separate proceedings did not invalidate the addition in Singh’s case.
What the ruling means for taxpayers
The ruling underscores the importance of documenting the source of money used for high-value , particularly when the funds are claimed to belong to an HUF or another family entity.
Taxpayers should preserve bank statements, books of account, agricultural produce sale records, agreements and supporting documents that trace the movement of money from its original source to the investment. The dates of agreements and transfers should also be consistent.