Woman with ₹4.81 Lakh Income Faces Tax Trouble Over ₹50 Lakh LIC Policy

The Income Tax Appellate Tribunal (ITAT) has rejected a tax exemption claim regarding a ₹50 lakh LIC policy held by a woman who declared an annual income of only ₹4.81 lakh. As she failed to prove the source of the investment, a tax liability on the ₹50 lakh sum was upheld.

If you have a low annual income but have made a large investment, it is crucial to be able to prove the source of those funds. A case of this nature came before the Chandigarh bench of the ITAT, involving a woman who declared an income of ₹4.81 lakh but had invested ₹50 lakh in an LIC policy.

The woman claimed that the funds originated from the agricultural income of her late husband’s Hindu Undivided Family (HUF). However, the tribunal dismissed her appeal, as she failed to provide sufficient documentation.

What was the woman’s argument regarding the funds?

The woman argued that the money belonged to her late husband’s HUF. She stated that the family owned orchard land in Himachal Pradesh, which generated agricultural income, and that these earnings were used to purchase the insurance policy. She further contended that the amount should not be treated as fully taxable personal investment, noting that related proceedings concerning the HUF were also underway.

What is the case about?

The case, *Pratibha Singh vs. Income Tax Department*, pertains to the assessment year 2009-10. The woman had declared an income of ₹4,81,340. Meanwhile, the Income Tax Department discovered that a life insurance policy worth ₹50 lakh had been purchased in her name.

Given the significant discrepancy between her declared income and the investment, the department questioned the source of the funds. Consequently, the ₹50 lakh was treated as an unexplained investment and added to her taxable income under Section 69 of the Income Tax Act.

What is the lesson for taxpayers?

In a ruling delivered on February 25, 2026, the ITAT upheld a tax addition of ₹50 lakh and dismissed the appeal. This case highlights that when making large-value investments, merely claiming a source of funds is insufficient. It is essential to maintain records such as bank statements, income documentation, sales receipts, and other transaction-related papers. This is particularly important when an investment is funded by a family or a Hindu Undivided Family (HUF); in such instances, there must be clear evidence regarding the actual source of the funds and the details of their transfer.

Why did the ITAT reject the claim?

The Tribunal observed that the woman failed to provide sufficient evidence to substantiate her claim. The mere fact that an HUF owns agricultural land does not prove that it had ₹50 lakh in cash available for investment.

The woman failed to produce records concerning the sale of agricultural produce, ledgers, cash books, or a clear account of the financial transactions. Furthermore, no copy of the agreement—which was purportedly the basis for the transfer of funds—was provided. Additionally, the policy was held in the woman’s name, and she was the sole beneficiary entitled to receive the maturity proceeds.