Rs 50 lakh insurance purchase with Rs 4.8 Lakh income triggers tax trouble: ITAT rejects HUF funding claim; here's why

The Income Tax Appellate Tribunal (ITAT) Chandigarh has determined that simply claiming that the funds belonged to a Hindu Undivided Family (HUF) isn’t enough to replace the need for documentary proof that show how the funds were generated, possessed and transferred. This judgement by ITAT Chandigarh was passed on February 10, 2026, when a lady claimed to be a coparcener of a HUF that had invested their agricultural income from an orchid farm to buy an insurance policy for Rs 50 lakh.

However, the Income Tax Department got wind of this large purchase and issued her a tax notice. The basis for this tax notice was that the Income Tax Department believed this investment in the insurance policy did not commensurate with her declared income on her ITR . So, the income tax Assessing Officer documented the reasons and initiated reassessment proceedings under Section 147 after getting statutory approval.

She, along with the HUF, challenged the reopening of her tax file in the Himachal Pradesh High Court. The Himachal Pradesh High Court upheld the validity of the jurisdiction assumption, stating that the Income Tax Assessing Officer had enough material to form “reasons to believe” ‘escapement’ of income.


During assessment proceedings, she argued that the investment was made not by her but by the HUF through Mr Chauhan, an insurance agent, under an alleged Memorandum of Understanding regarding the orchard’s agricultural income.

After her contentions were rejected by the tax department she felt aggrieved and filed an appeal in ITAT Chandigarh. On February 10, 2026 she lost the case there.

Summary of the judgement

Chartered Accountant Suresh Surana said to ET Wealth Online that in the given case (183 taxmann.com 702 (Chandigarh - Trib.), the appeal before the Income Tax Appellate Tribunal, Chandigarh Bench, arose from reassessment proceedings initiated under section 147 of the Income-tax Act, 1961, wherein the Assessing Officer received information from an insurance company that the assessee had invested Rs 50 lakh in a life insurance policy during the relevant financial year, despite having declared an income of only Rs 4.81 lakh. The investment was therefore considered disproportionate to her disclosed income, prompting reopening of assessment.

During assessment proceedings, the assessee contended that the investment had not been made from her individual funds but was funded by a Hindu Undivided Family (HUF) out of agricultural income derived from orchard operations. It was claimed that the funds were routed through an insurance agent with regards to a Memorandum of Understanding (MOU) concerning orchard management.

However, the Assessing Officer recorded specific factual inconsistencies. Notably, transactions in the insurance agent’s bank account predated the alleged MOU, and neither the original nor a copy of the MOU was produced before any authority.

Moreover, no books of account, no sales records of agricultural produce, no cash book, no cash flow statement, or any documentary evidence demonstrating the availability of Rs 50 lakh with the HUF were furnished at any stage. The policy stood in the name of the assessee, who was both the life assured as well as the beneficiary.

The addition of Rs 50 lakh was accordingly made as unexplained investment under Section 69 in the hands of the assessee. The Commissioner (Appeals) upheld the addition, and the matter reached the Tribunal.

Surana explains the Tribunal’s findings were as follows:

• The assessee failed to substantiate that the Rs 50 lakh insurance policy investment was funded by HUF agricultural income with credible documentary evidence.
• Mere ownership of agricultural land does not establish availability of liquid funds sufficient to make the investment.
• The alleged MOU was not produced and was contradicted by prior bank transactions, rendering the explanation unreliable.
• No books of account, sale records, cash book, or cash flow statement were furnished to demonstrate availability of funds with the HUF.
• Since the insurance policy stood in the assessee’s name and she was the beneficiary, apparent ownership rested with her.
• The burden under Section 69 was not discharged, and the statutory presumption operated against the assessee.
• Findings in other assessment years or in HUF proceedings could not determine ownership for the year under appeal.
• The plea for protective assessment was rejected as the Assessing Officer had reached a definite conclusion regarding ownership.
• No case of double taxation was established merely because parallel proceedings existed in the HUF’s case.
• The addition of Rs 50 lakh was rightly sustained as unexplained investment under Section 69 in the assessee’s hands.

According to Surana, the taxpayer lost primarily for failing to discharge the statutory burden of proof under Section 69. The explanation that the insurance investment was funded by HUF agricultural income lacked contemporaneous documentary evidence.

Surana says: “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.”

According to Surana, the Tribunal concluded that the explanation was unsubstantiated, inconsistent, and lacking transparency in the transaction chain.

Surana says: “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.”