Investment in Life Insurance Policy Treated as Unexplained Investment

The Issue

Whether a ₹50 lakh investment in a life insurance policy can be treated as unexplained investment under Section 69 when the assessee claims the funds belonged to a Hindu Undivided Family (HUF) but fails to provide documentary evidence.

The Facts

The Discovery: The Assessing Officer (AO) found that the assessee invested ₹50 lakhs in a life insurance policy, which did not align with her reported income.
Assessee’s Defense: She argued that the money was not hers but belonged to a specific HUF (V HUF). She claimed the funds were sourced from agricultural (orchard) income and managed by an LIC agent under a Memorandum of Understanding (MOU).
The Gaps in Evidence:
- Neither the original nor a copy of the MOU was ever produced.
- The LIC agent’s bank transactions predated the alleged MOU.
- The assessee failed to produce books of account, sale records for agricultural produce, or a cash flow statement to prove the HUF actually had ₹50 lakhs available.
Ownership: The policy was in the assessee’s name; she was the life assured and the sole beneficiary.

The Decision

Bald Assertions: The court held that a mere claim without supporting documents (like a cash book or evidence of agricultural land/sales) is insufficient to shift the burden of proof.
Section 69 Application: Since the investment was in the assessee’s name and the source remained “unexplained,” the addition was upheld.
Outcome: In favour of Revenue.

II. Substantive vs. Protective Assessment

The Issue

Can an assessee demand that an addition be made on a “protective basis” simply by claiming the income belongs to another person, even if the AO has no doubt about who the actual owner is?

The Facts

Following the addition of ₹50 lakhs, the assessee requested that the tax be levied on a protective basis in her hands, arguing the income belonged to the HUF.
Protective Assessment Definition: This is a safety measure used by the Department when there is genuine legal uncertainty or doubt in the AO’s mind as to which of two persons is liable for the tax.

The Decision

AO’s Discretion: The court clarified that the concept of protective assessment is for the benefit of the Revenue, not a right for the assessee to deflect liability. It is triggered only when the AO entertains a doubt.
No Legal Uncertainty: In this case, the AO was categorical: the policy was in the assessee’s name, and she failed to explain the source. Therefore, there was no doubt to justify a protective assessment.
Substantive Basis: The addition was rightly made on a substantive basis (taxing the actual person in whose name the asset stands).
Outcome: In favour of Revenue.

Key Takeaways

Agricultural Income Burden: If claiming high-value investments from agricultural income, you must maintain “Primary Evidence” (Mandi receipts, land records) and “Secondary Evidence” (Cash books, bank entries).
The Name Matters: Under Section 69, if an asset (Insurance, Property, Shares) is in your name, the law presumes it is your investment. The burden to prove otherwise via a “paper trail” is exceptionally high.
Protective Assessment: You cannot force the AO to make a protective assessment to buy time or shift tax onto a lower-bracket entity (like an HUF) unless the AO himself is unsure of the facts.

IN THE ITAT CHANDIGARH BENCH ‘B’

Pratibha Singh

ACIT^*

Laliet Kumar, Judicial Member
and KRINWANT SAHAY, Accountant Member

IT Appeal No. 860 (Chd) of 2025
[Assessment year 2009-10]

FEBRUARY 25, 2026

Vishal Mohan, Sr. Adv. and Aman Singhi, C.A for the Appellant. Dr. Ranjit Kaur, Sr. DR for the Respondent.

ORDER

Laliet Kumar, Judicial Member.- The present appeal is directed against the order dated 30.04.2025 passed by the Ld. CIT(A)for Assessment Year 2009-10 arising out of an assessment framed under section 143(3) read with section 147 of the Income Tax Act, 1961.

2. Briefly, the facts of the case are that the assessee filed return of income declaring income of Rs.4,81,340/-. Subsequently, information was received from LIC that the assessee had made an investment of Rs.50,00,000/- in a life insurance policy during the relevant year. Since the investment was not commensurate with the returned income, the Assessing Officer recorded reasons and initiated reassessment proceedings under section 147 after obtaining statutory approval.

3. The reopening was challenged by the assessee as well as the HUF before the Hon’ble High Court. The Hon’ble High Court upheld the validity of assumption of jurisdiction holding that the Assessing Officer possessed material forming “reasons to believe” escapement of income. Thus, the jurisdictional issue stands concluded.

4. During assessment proceedings the assessee contended that the investment was not made by her but by Virbhadra Singh (HUF) through one Shri Anand Chauhan, LIC Agent, under an alleged Memorandum of Understanding relating to orchard income.

5. The Assessing Officer examined this explanation and recorded specific factual findings. It was observed that the MOU was stated to have been executed on 15.06.2008. However, as per the ledger produced during proceedings, Shri Anand Chauhan had already received Rs.5 lakh each on 07.06.2008 and 13.06.2008 from Universal Apple Associated and invested Rs.10 lakh in LIC on 19.06.2008. The Assessing Officer therefore recorded that money had moved even before the alleged agreement came into existence and concluded that the arrangement was a bogus claim.

6. The Assessing Officer further noted that even the Tribunal in earlier proceedings in the cases of the HUF and Shri Anand Chauhan had questioned how bank transactions could exist prior to execution of the MOU and those appeals were dismissed.

7. The Assessing Officer also rejected the plea of agricultural income observing that mere ownership of orchard land does not establish generation of liquid funds and that such agricultural income had not been accepted in related assessments.

8. While acknowledging that an HUF may in principle invest in the name of a coparcener, the Assessing Officer recorded that the condition precedent is proof of the source of funds of the HUF, which remained unproven.

9. The Assessing Officer, therefore, held that the assessee, being the beneficiary of the policy, Rs.50,00,000/- represented an unexplained investment in her hands under section 69. Further deposits of Rs.10,80,456/- in the bank account were also treated as unexplained due to the absence of evidence regarding identity, creditworthiness and genuineness.

10. The Ld. CIT(A) granted repeated opportunities, but no documentary evidence was furnished establishing HUF ownership of the investment or the source of deposits. The additions were accordingly confirmed.

11. At the outset the Ld. Sr. Advocate on instruction has submitted that the assessee is only challenging the addition of Rs. 50,00,000/- i.e; Ground No. 2 in the grounds of appeal and is not pressing any other ground raised in the memo of appeal. The Ld. AR reiterated that the investment was made out of the agricultural income of the HUF routed through Shri Anand Chauhan under an orchard management arrangement and not by the assessee in her individual capacity. It was argued that the assessee was merely a member of the HUF and that, therefore, an addition cannot be made in her hands. It was also submitted that the reopening proceedings had been challenged before the Hon’ble High Court by both the assessee and the HUF.

12. The Ld. AR further submitted that the addition of Rs. 50,00,000/- made under section 69 of the Act ought not to have been made substantively in the hands of the assessee. It was contended that the investment in the LIC policy belonged to the HUF and not to the individual assessee, and therefore, the addition, if at all warranted, could only be made on a protective basis. Since the proceedings in the hands of the HUF are pending before the Hon’ble High Court, it is inappropriate to decide the issue.

13. The Ld. AR argued that since proceedings were also initiated in the case of the HUF, the Revenue itself was uncertain about the correct person chargeable to tax, and therefore the impugned addition cannot survive as substantive.

14. It was accordingly prayed that the addition be either deleted or treated as protective, subject to determination in the hands of HUF. The Ld. AR had also filed the following written submission in support of the case of the assessee contents of which read as under:

” The present appeal stands heard by this Hon’ble Bench on 10.02.2025. The third ground in the present appeal was not pressed. As far as the first and second grounds of appeal are concerned, the submissions are as under:-

1. The HUF of Virbhadra Singh had made various investments in LIC in the name of its co-parceners /members during assessment year 2008-2009, 2009-2010, 2010-2011. The HUF owned the investment in the LIC policies. The case of the HUF was that it is owner of 100 bigha orchard situated in Village Damrali and a memorandum of understanding was entered into between the HUF on one side and Sh. Anand Chauhan the other side. Though this Hon’ble Tribunal has discarded the said Memorandum of Understanding holding the same not to be genuine and further holding it to be fabricated but cognizance has been taken of the fact that the revenue has accepted in the case of HUF for assessment year 20102011, that the investment in LIC had been owned to have been made by the HUF. A copy of the assessment order for assessment year 2010-2011, which is subject matter of appeal before the Ld. Commissioner of Income Tax (Appeals) has been placed on record after this Hon’ble Tribunal had shown indulgence and remanded the case back to the Ld. CIT(A).

2. As far as assessment year 2009-2010 is concerned, the impugned assessment order in the case of the HUF stands reopened and further proceedings are lying stayed by virtue of the interim protection granted by the Hon’ble High Court of Himachal Pradesh in CWP No.2029 of 2015. The moot issue which arises for consideration of this Hon’ble Tribunal is that whether the amount of Rs. 50,00,000/- invested in the name of the assessee by the HUF has rightly been taxed as unexplained income by attributing the rigors of Section 69 of the Income Tax Act, 1961.

3. By virtue of Section 2(31), the definition of a person has been laid down by the legislature. A perusal of Section 2(31) would go to reveal that HUF is a separate and distinct person other than the individual and the same are different assessee’s under the Income Tax Act, 1961. Once the HUF has not disputed the making of investment and the same has been taken cognizance of by the Hon’ble High Court of Himachal Pradesh in CWP No. 3077 of 2016, the addition so made in the hands of the assessee is absolutely illegal and not sustainable in the eyes of law.

4. After the reopening of the case, the assessee in light of the ratio lay down by the Hon’ble Supreme Court of India in the case of G.N.K Driveshafts had sought reasons for reopening which have been placed on record at paper book, page no. 5 to 10. Objections were filed to the reopening of the case wherein in unambiguous terms it was made known to the revenue that the assessee had not made any investment in LIC from her individual sources of income. The same had been made by the HUF of the assessec.

5. In the revised return of income filed by the HUF, the income from agriculture was shown at Rs.2,21,35,000/- and the same has pending adjudication after the reopening of case and the assessment has not yet been completed in the said case. The revenue / respondent while rejecting the objections has not prima facie disputed the said fact. However, since because the earning of the agriculture income of the HUF has been disputed, the objections were dismissed.

6. On identical facts for Assessment year 2010-2011 where assessment in the case of HUF has been concluded and a copy of the assessment order has been placed on record vide the second paper-book. The Ld. Assessing Officer has taken cognizance of the fact of investment of LIC in the HUF polices and however, the agriculture income beyond Rs. 15,000,00/- has been added as income from undisclosed sources. The said issue is pending adjudication before Ld. CIT(Appeals). Initially the said revised return had been accepted by the revenue, however, under section 263 proceedings were initiated by the Ld. Principle Commissioner of Income Tax and the order of assessment was set aside with the direction of re-assessment of the assessee. An appeal against order under section 263 stands dismissed by this Hon’ble Tribunal which has been upheld by the Hon’ble High Court and SLP against the same is pending adjudication before the Hon’ble Supreme court of India.

7. In that facts of the case following submission are being made:-

a. The assessee (Pratibha Singh) in her individual capacity has not made any investment in LIC.

b. HUF is a separate assessee with the Income Tax Department and in the assessment year under consideration the HUF has declared income of Rs. 2,37,73,937 (16,38,937+2,21,35,000) through which the investment in LIC have been made.

c. That Anand Chauhan has also accepted the said fact and in his case the agriculture income has been added on protective basis and the said issue are also sub-judice before this Hon’ble Tribunal and is listed for 25.02.2025.

8. In the assessment proceedings for assessment year 2010-2011 the revenue has itself accepted and assessed the agriculture income in the hands of the HUF, though treated the same as unexplained income, and the investment by the HUF has not been negated.

9. In that factual background, it is, most respectfully submitted that this Hon’ble Tribunal in the case of HUF under Section 263 proceedings have endorsed the finding that the agriculture income of the HUF was utilized for buying LIC policies in the name of the members/co-parceners. Investment in the name of members/co-parceners is not prohibited under the Mitakshara Schools of thought which governs the HUF. As the investment has been made by the HUF the addition so made and sustained is absolutely illegal and not sustainable in the eyes of law. Law to that effect is no longer res-integra. The Hon’ble Supreme court in the case titled as ITO v. C.H. Atchaiah reported in 1996 (218 ITR 239 Page) has laid down the law, that income must be assessed in the hands of the right person. It is also no longer res-integra. That an HUF is a separate assessable entity has held by the Hon’ble Supreme Court in the case of Surjit Lal Chhabda v. CIT reported as 101 ITR 776 page Supreme Court.

10. As the case of the assessee HUF (Virbhadra Singh HUF) has already been reopened and the matter is sub-judice the assessment of the same in the hands of the individual assessee amounts to double taxation which is not permissible as held by the Hon’ble Supreme Court of India in the case titled as Lalji Haridas v. ITO reported as [1961] 43 ITR 387 (SC) page (Supreme Court).

11. In that facts and legal circumstances of the case, the assessment of the investment as unexplained in the hands of the assessee (Pratibha Singh) is absolutely illegal and not sustainable in the eyes of the law.

12. Before parting, it is, most respectfully submitted that though the same has been assessed as out of agriculture income in the hands of the HUF in whose case substantive addition has been made for Assessment year 2010-2011 and as per the law, the fiscal loss every years is independent year but the principles of constructive res-judicata as propounded by the Supreme Court in the case of Radhasoami Satsang v. CIT reported as 193 ITR 321 Page Supreme Court have to be taken cognizance of the case, if the same is taken cognizance of natural influence of the same is that the assessment so made in the hands of the assessee in her individual capacity is per-se illegal and not sustainable in the eyes of the law.

It is, therefore, most respectfully prayed that the addition may kindly be deleted or any other relief be given as this Hon’ble Tribunal deems fit and proper in the facts and circumstances of the case.”

15. The Ld. DR relied upon the findings of the Assessing Officer and submitted that the assessee failed to produce any documentary evidence either before the Assessing Officer, Ld. CIT(A) or before the Tribunal establishing the source of investment or bank deposits. It was submitted that the investment stood in the name of the assessee and the assessee failed to discharge the onus cast upon her under section 69 to satisfactorily explain the source of the investment.

16. The Ld. DR further contended that the mere assertion that the funds belonged to the HUF without cogent documentary evidence cannot shift the burden from the assessee. It was further argued that the concepts of protective and substantive assessment apply only when the Assessing Officer is uncertain about the real owner of the income and consciously seeks to safeguard the Revenue by taxing the same income in alternative hands.

17. In the present case, the Assessing Officer had arrived at a clear finding that the investment belonged to the assessee and therefore the addition was rightly made on a substantive basis.

18. We have carefully considered the rival contentions and perused the material available on record. Since the Hon’ble High Court has upheld the assumption of jurisdiction, the issue cannot be re-agitated before us. The reopening is therefore upheld. Before we deal with the core issue it is necessary to capture the list of dates and event in the present case, which are as under :

28.07.2009	Assessee filed original return declaring income Rs.4,81,340
07.06.2008	Rs.5,00,000 cash received by Shri Anand Chauhan from Universal Apple Associated
13.06.2008	Another Rs.5,00,000 cash received by Shri Anand Chauhan
15.06.2008	Alleged MOU between Virbhadra Singh (HUF) and Shri Anand Chauhan (as claimed by assessee)
19.06.2008	Rs.10,00,000 invested in LIC policy through Shri Anand Chauhan
FY 2008-09	Total investment of Rs.50,00,000 made in LIC policy in name of assessee
22.03.2016	Notice u/s 148 issued after recording reasons & approval u/s 151
25.04.2016	Assessee requested original return be treated as return in response to notice u/s 148
09.05.2016	Copy of recorded reasons supplied to assessee
20.05.2016	Notice issued u/s 143(2)
23.05.2016	Notice issued u/s 142(1) along with questionnaire
16.06.2016	Assessee filed objections against reopening
24.11.2016	Objections disposed of by speaking order
14.12.2016	Writ petition listed before Hon’ble Himachal Pradesh High Court
26.12.2016	High Court dismissed writ petitions (assessee & HUF)

19. The entire defence of the assessee rests upon an alleged arrangement whereby funds of the HUF of Shri Virbhadra Singh were purportedly handled by Shri Anand Chauhan under a Memorandum of Understanding dated 15/6/2008 for the management of orchard income. It has been claimed that cash was deposited in the bank account of Shri Anand Chauhan and thereafter routed to the assessee for investment in the LIC policy. However, the Assessing Officer has recorded a categorical factual finding that transactions in the bank account of Shri Anand Chauhan existed even prior to the alleged MOU dated 15/6/2008. This finding has remained unrebutted. Further, neither the original nor a copy of the MOU was produced before the Assessing Officer, the Ld. CIT(A), or even before us. This aspect is crucial when the assessee herself claims to be a coparcener in the HUF and isthe wife of the late. Shri Veer Bhadra Singh.

20. The alleged routing of funds through a third person, without establishing the source of such funds in his hands or in the hands of the HUF, does not prove ownership of HUF funds. On the contrary, it indicates the absence of a verifiable source. Mere assertion that the funds belonged to the HUF cannot substitute documentary evidence establishing generation, possession and transfer of such funds.

21. The Assessing Officer has also rightly observed that ownership of agricultural land by itself does not establish the availability of liquid funds. No books of account, no sale records of agricultural produce, no cash book and no cash flow statement demonstrating the availability of Rs.50,00,000/- with the HUF have been produced at any stage of proceedings.

22. We further note that obtaining an LIC policy necessarily requires submission of a proposal form, declaration of personal particulars, medical examination of the life assured and acceptance of contractual terms. Such acts can only be performed by an individual and not by an HUF as a taxable entity. The policy admittedly stands in the name of the assessee, and she is the life assured as well as the beneficiary entitled to receive maturity proceeds.

23. Therefore, even assuming that funds were allegedly arranged by others, unless the HUF proves the source of funds and records the investment in its own accounts, the investment legally belongs to the individual in whose name the policy stands. No such evidence has been produced.

24. The assessee has thus failed to rebut the categorical finding of the Assessing Officer that the source of funds claimed to belong to the HUF remained unproven in any assessment year. The explanation that the investment of Rs.50,00,000/- was made by the HUF out of agricultural income is unsupported by documentary evidence and remains merely a bald assertion.

25. The explanation of routing funds through Shri Anand Chauhan in fact weakens the assessee’s case. Mere cash deposits in a third-party bank account followed by transfer to the assessee cannot establish that the investment was made by the HUF unless the source of such cash is proved through credible contemporaneous evidence. No such evidence has been furnished.

26. Further, it is an undisputed proposition that a Hindu Undivided Family is a separate taxable entity within the meaning of section 2(31) of the Act. However, the mere existence of an HUF does not automatically establish that an asset standing in the name of an individual member belongs to the HUF. The burden squarely lies upon the assessee to establish with cogent evidence that the source of investment emanated from identifiable HUF funds. In the present case, except for making a bald assertion that the HUF owned agricultural land and earned agricultural income, no reliable evidence demonstrating the actual flow of funds from the HUF to the impugned LIC policies has been brought on record. The alleged Memorandum of Understanding has already been held to be not genuine and therefore cannot support the claim of HUF ownership. In the absence of proof of source, the statutory presumption under section 69 operates against the assessee.

27. The assessee has relied upon proceedings in the case of the HUF for other assessment years to contend that the Revenue has accepted the investment to belong to the HUF. We are unable to accept this contention. Each assessment year is a separate unit of assessment, and findings in another year, particularly when the issue itself is disputed and pending adjudication, cannot determine ownership in the year under consideration. Even in the HUF proceedings, the Revenue has not accepted the agricultural income as an explained source but has treated the same as unexplained income and the said proceedings have not attained finality. Thus, there is no final acceptance by the Department that the funds originated from genuine HUF sources.

28. Moreover the argument of the assessee that addition in her hands results in taxation in the hands of a wrong person and leads to double taxation is also misconceived. Double taxation would arise only where the same income is finally assessed in two hands. Mere pendency of proceedings in another case does not invalidate an otherwise lawful addition. The investment admittedly stands in the name of the assessee, and she has failed to satisfactorily explain its source. Until it is demonstrated on evidence that the funds belonged to the HUF, the assessee continues to be the apparent owner and the provisions of section 69 are clearly attracted.

29. In view of the above discussion and taking note of the surrounding circumstances mentioned hereinabove, we are of the opinion that the conduct of the assessee lacks transparency in the transaction chain. Furthermore, failure of the assessee to establish the identity of the real source, the capacity of the HUF to generate liquid funds of such magnitude and the genuineness of the transaction. The plea that the assessee was merely a name lender is an afterthought and is unsupported by the record. In view of the above the contention of the assessee are required to be rejected that the money invested in the LIC belongs to the HUF.

30. Now we will deal with the second contention of the assessee, which is that the addition ought to have been made on a protective basis on the ground that the income allegedly belonged to the HUF.

31. The contention of the assessee proceeds on a fundamental misconception of law relating to protective and substantive assessments. The concept of protective assessment arises only where the Assessing Officer himself entertains a doubt regarding the person in whose hands a particular income is chargeable to tax and, in order to safeguard the interest of the Revenue, simultaneously proceeds against more than one person.

32. The Hon’ble Supreme Court in Lalji Haridas v. ITO [1961] 43 ITR 387 has explained that protective proceedings are justified only in situations where it is not possible to predicate with certainty whether the income belongs to one person or another and the enquiry is undertaken to determine the correct person liable to tax. Thus, the very foundation of a protective assessment is the existence of doubt in the mind of the Assessing Officer. A protective addition, therefore, is not a right available to the assessee but is merely a device available to the Revenue to prevent escapement of income where ownership is uncertain. The assessee cannot compel the Assessing Officer to adopt a protective assessment when the Assessing Officer has reached a definite conclusion regarding taxability. Further, the coordinate bench in M.P. Ramachandran v. Dy. CIT [2009] 32 SOT 592 (Mumbai) has further clarified that protective assessment is based on doubt.

33. In the present case, the Assessing Officer has recorded a categorical finding that the investment in the LIC policy stood in the name of the assessee and the assessee failed to satisfactorily explain the source thereof. The addition has thus been made after reaching a clear and conclusive determination of ownership of the unexplained investment.

34. The mere claim of the assessee that the funds belonged to the HUF does not create a legal uncertainty in the assessment proceedings. Protective assessment cannot be invoked merely because an assessee disputes ownership. It arises only when the Assessing Officer himself taxes the same income in alternative hands owing to his own doubt. No such action or intention is discernible from the assessment order. Therefore, the pre-condition for making a protective addition, namely uncertainty in the mind of the Assessing Officer as to the person chargeable to tax, is absent in the present case. Once the Assessing Officer has reached a definite satisfaction that the unexplained investment belongs to the assessee, the addition necessarily assumes the character of a substantive addition.

35. The assessee cannot seek conversion of a valid substantive addition into a protective one merely on the basis of an alternative explanation regarding source, as that would amount to shifting the burden of proof cast under section 69.

36. In view of the above legal position, we hold that the Assessing Officer was justified in making the addition on a substantive basis, and the plea of the assessee to treat the addition as protective is devoid of merit.

37. In the result, the appeal of the assessee is dismissed.