PRATIBHA SINGH,SHIMLA vs. ACIT CIRCLE, CIRCLE SHIMLA

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.

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.

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.

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.

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

1. 1. 1. 1. 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.

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.

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:-

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.

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.

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.

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 :

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

The Hon’ble Supreme Court in Lalji Haridas v. ITO (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. DCIT (32 SOT 592) has further clarified that protective assessment is based on doubt.

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.

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.

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.

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.