M/S. Amtrac Automoti... v. Acit, Circle 1(1), C..., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

ITA No. 2920.Del/09, Asstt. Year 2005-06

Attorney(S)

Appellant by: None
Respondent by: Shri Manish Gupta, DR

Judges

I.P Bansal, J.M
Deepak R. Shah, A.M

Acts

COMPANIES ACT 1956

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Smart Summary

Factual and Procedural Background

The assessee (a private limited company engaged in share trading) filed an appeal raising two primary grounds: (1) that the notice under section 143(2) of the Income-tax Act was addressed to the company rather than to its Principal Officer; and (2) that an addition of Rs. 1,50,00,000/- made under section 68 in respect of amounts received by way of share capital was not sustainable.

The appeal was originally listed for hearing on 7.9.2009. On that date the assessee’s counsel filed a paper book and sought time; the matter was adjourned to 9.9.2009. On 9.9.2009 no one appeared for the assessee. With assistance of the learned Departmental Representative, the bench reviewed the orders below and the paper book and proceeded to decide the appeal on merits.

Material factual findings recorded in the assessment and appellate proceedings include that during the year the appellant had introduced fresh share capital of Rs. 15,00,000/- with a share premium of Rs. 1,35,00,000/-. Fifteen entities were recorded as subscribers (each shown as having deposited Rs. 10,00,000/-). The Assessing Officer (AO) required proof of identity, genuineness and creditworthiness of these subscribers. The assessee produced confirmations from directors of those companies, copies of income-tax returns and bank statements. The AO issued summons under section 131 to all 15 named persons; the summons were returned unserved with postal remarks stating "no such person in the above address."

The AO noted (and relied upon statements recorded by the Department’s Investigation Wing) that some of the named subscriber entities had described themselves as "name lenders" or entry providers who admitted supplying entries in lieu of cash. The AO held the credits to be unexplained cash credits and made an addition (described in the record as Rs. 1.50 lakhs to the returned income). The assessee appealed to the CIT(A); the CIT(A) considered precedent authorities and affirmed the addition following detailed reasoning. The bench (including Accountant Member DEEPAK R SHAH) considered the matter and rendered the decision dated 31.12.2009.

Legal Issues Presented

Whether the notice issued under section 143(2) of the Income-tax Act, addressed to the company instead of to its Principal Officer, was valid.
Whether the addition of Rs. 1,50,00,000/- made under section 68 in respect of amounts shown as received by way of share capital (including substantial share premium) was sustainable where the assessee failed to produce the alleged shareholders and summons issued to them were returned unserved.

Arguments of the Parties

Appellant's Arguments

The assessee contended that the procedural objection to the notice under section 143(2) was valid because the notice was not addressed to the Principal Officer but to the company itself.
On merits, the assessee relied on documentary proof produced before the AO (share application forms, bank statements, confirmations from directors, copies of income-tax returns) and relied on authorities (including CIT vs. Sophia Finance Ltd.) to contend that no addition should be made and that the AO’s enquiries did not justify treating the share subscriptions as unexplained credits.

Respondent's / Assessing Officer's Arguments

The AO argued that the summons issued under section 131 returned unserved with the remark "no such person in the above address," and that the assessee failed to produce the shareholders or to give correct addresses despite opportunities to do so.
The AO relied on investigation findings that some of the named shareholder entities and their directors had admitted before the Investigation Wing that they acted as name-lenders/entry providers and provided entries (as gift, loan or share application money) in exchange for cash, indicating that the credits were not genuine.
The AO submitted that mere documentary confirmations or bank cheques did not discharge the onus to prove that the credits represented genuine share capital and that the assessee should have produced the persons for verification or given correct addresses.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT vs. Sophia Finance Ltd.	Relied upon by the assessee to contend that the AO's powers were not such as to permit addition in the circumstances argued by the revenue.	The opinion records that the assessee relied on this decision; the court considered it but found the facts distinguishable and did not accept the argument that the decision barred the AO from making enquiries or additions in the present factual matrix.
CIT vs. United Commercial & Industrial Co. (P) Ltd., [1991] 187 ITR 596 (Cal.)	Authority cited for the proposition that mere confirmations do not absolve the assessee from proving credit entries reflected in books.	The AO relied on this authority to support the proposition that confirmations alone do not discharge onus; the court accepted this line of reasoning in evaluating the sufficiency of the assessee's proof.
CIT vs. Precision Finance Pvt. Ltd., 208 ITR 465 (Cal.)	Authority cited for the proposition that payment by account payee cheques does not necessarily make credits satisfactory.	The AO relied on this precedent; the court treated it as supporting the AO's view that cheque payments alone are not conclusive evidence of genuineness.
CIT vs. Korlay Trading Co. Ltd., 232 ITR 820 (Cal.)	Authority noting that income-tax file particulars where the shareholder is assessed to tax may not be sufficient to prove genuineness.	The AO cited this case to emphasize that assessment of a shareholder to tax does not automatically establish the genuineness of funds; the court accepted the relevance of this principle.
CIT vs. Stellar Investment, 192 ??? (Del) (and appeal dismissed by SC, 251 ITR 263 (SC))	Held that even if subscribers were bogus, increased share capital cannot be regarded as undisclosed income of the company in certain circumstances.	The court reviewed Stellar Investment and noted the principle but distinguished the present facts: in Stellar the money alleged to have been provided by others, whereas in the present case the AO had evidence suggesting the company's own money (via entry providers) was involved; hence the precedent was not treated as directly applicable.
CIT Orissa vs. Orissa Corporation Ltd., 159 ITR 78 (SC)	Authority that where the assessee has given names/addresses of alleged creditors who are assessed to tax and the Revenue fails to pursue enquiries, the assessee may be held to have discharged its burden.	The court compared the factual matrix and held it distinguishable: in the cited case summons were returned as "left that address" and the Revenue did not pursue; in the present case summons returned "no such person" and the AO pursued enquiries and investigation wing evidence existed.
Consolidated Delhi High Court decisions: CIT vs. Divine Leasing & Finance Ltd., CIT v. General Exports & Credits Ltd., CIT vs. Lovely Exports (Pvt.) Ltd. (decided Nov 16, 2006)	Principles relating to burden of proof in public issue vs. private placement: stricter scrutiny and heavier onus in private placement; need to counter the practice of converting unaccounted money via share subscriptions.	The court relied on and applied these observations to distinguish public issue situations (where less may be expected of the company) from private placement (where the company must satisfy AO as to genuineness). The court applied the stricter approach to this private placement case.
CIT v. Makhani & Tyagi (P) Ltd., 267 ITR 433 (Del.)	Held that when documentary evidence (PAN, income-tax particulars, ration card, etc.) is filed and not controverted by AO, no interference is called for.	The court noted this authority but distinguished the present facts because in the present case summons returned unserved and some subscribers had been identified as entry providers; the material filed was controverted by the AO's enquiries.
CIT vs. Durga Prasad More, 82 ITR 540	Cited (by the Revenue and the court) for the proposition that where circumstances warrant, courts should not ignore material facts suggesting non-genuineness of receipts.	The court invoked this authority to support the conclusion that the share capital receipts could not be accepted as genuine given the totality of adverse facts and absence of verifiable subscribers.
Sumati Dayal vs. CIT, 214 ITR 801	Cited for application where courts treat documentary proof and surrounding facts to assess genuineness of credits.	The court referred to this authority to support its reasoning that the appellants had failed to establish genuineness of share receipts and premium on the materials before the AO and appellate authority.

Court's Reasoning and Analysis

The court proceeded in two main steps corresponding to the two grounds raised by the assessee.

First, on the procedural challenge to the notice under section 143(2), the bench referred to section 282(1) of the Income-tax Act and observed that a notice may be served on the person named either by post or as if it were a summons issued by a court under the Code of Civil Procedure, 1908. The statute permits a notice to be addressed in the name of a company or to the Principal Officer thereof. As the notice in this case was served on the company, the court found the notice to be within the scope of section 282(1) and therefore valid. Accordingly, the court dismissed ground No. 1.

Second, on the substantive challenge to the addition under section 68 in respect of share capital and share premium, the court examined the factual matrix and materials on record: (a) the assessee had shown fresh share capital and substantial share premium; (b) the assessee produced documentary material (share application forms, bank statements, income-tax acknowledgements and confirmations), but when the AO issued summons under section 131 to the alleged subscribers the summons were returned unserved with the postal remark "no such person in the above address"; (c) the AO informed the assessee of this and asked the assessee to produce the functional directors for verification, but the assessee failed to do so and stated it was not in touch with those subscribers; (d) the Investigation Wing recorded statements from some named entities indicating they acted as entry providers or name-lenders; and (e) the company had issued shares at an apparently excessive premium (premium many times the face value), had not issued a prospectus, was prohibited from inviting the public for shares, had no history of declaring dividends, and had no evident business plan or trading operations to justify such premium.

The court analyzed precedent authorities cited by both sides and repeatedly emphasized factual distinctions. It accepted the proposition from Delhi High Court authorities that a private placement attracts a stricter burden upon the recipient-company to establish identity, genuineness and creditworthiness of subscribers. Given the unserved summons, the assessee's inability to produce the subscribers despite opportunities, and statements of entry-provider activity recorded by the Investigation Wing, the court concluded the AO had reached a dead end in enquiry and the burden had shifted onto the assessee. The assessee was unable to meet that burden. Applying the principles in the cited authorities (including Durga Prasad More and Sumati Dayal), the court held that the share capital receipts and the substantial premium were not proved to be genuinely received by the assessee.

The court therefore upheld the AO's conclusion that the credits were unexplained/unproved and affirmed the addition made under section 68.

Holding and Implications

Final Disposition: The appeal is DISMISSED.

Direct consequences of the decision:

The procedural objection to the notice under section 143(2) was rejected: the notice addressed to the company was held valid under section 282(1).
The addition made under section 68 in respect of the share capital/share premium (as reflected in the assessment and described in the record) was upheld because the assessee failed to establish the identity, genuineness and creditworthiness of the alleged subscribers; the appellate authority's affirmation of the addition stands.

Broader implications: The opinion applies and distinguishes several authorities and emphasizes that in private placement cases a stricter onus rests on the recipient company to prove the genuineness of subscribers and the source of funds. The opinion does not purport to lay down a new precedent beyond its application of existing authorities to the facts of this appeal.

Order pronounced in open court on 31.12.2009. Copies were directed to the appellant, respondent, CIT, CIT(A), and Departmental Representative, as recorded in the order.

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M/S. Amtrac Automotive India Pvt. Ltd. A-20, Naraina Industrial Area, Phase-1, New Delhi () v. Acit, Circle 1(1), C.R Building, Ip Esate, New Delhi ().

PER DEEPAK R SHAH, ACCOUNTANT MEMBER The assessee has primarily raised two grounds 1) the notice u/s 143(2) is not addressed to the Principal Officer but is addressed in the name of company itself. 2) The addition of Rs. 1,50,00, 000/- made u/s 68 on account of amount received by way of share capital is not sustainable.

2. Originally this appeal was fixed for hearing on 7.9.2009. on that day the counsel for assessee filed a paper book and sought time. Accordingly the matter was adjourned on 9.9.2009. On 9.9.2009 none appeared on behalf of assessee. ITA No.2920/Del/09 Asstt. year 2005-06 Therefore with the help of Ld. DR we have gone through the orders of the authority below as also the paper book. We now dispose off the appeal on merits.

3. The assessee company is engaged in share trading in the year under consideration. In the course of scrutiny, the assessing officer noted that the appellant has introduced fresh share capital to the tune of Rs. 15,00,000/- at a share premium of Rs. 1,35,00,000/-. The details of persons who are stated to have deposited share application money and to whom shares were allotted are as under :- Sl. No. Name Amount

1. M/s. Active Agencies Pvt. Ltd. Rs. 10,00,000/-

2. M/s. Funtime Travels Pvt. Ltd. Rs. 10,00,000/-

3. M/s. Winsome Portfolio Pvt. Ltd. Rs. 10,00,000/-

4. M/s. AKG Portfolio Pvt. Ltd. Rs. 10,00,000/-

5. Spring Medicare Pvt. LTd. Rs. 10,00,000/-

6. M/s. S.J. hosiery Pvt. Ltd. Rs. 10,00,000/-

7. M/s. Sony financial Services Ltd. Rs. 10,00,000/-

8. M/s. Rabicon Associates Pvt. Ltd. Rs. 10,00,000/-

9. M/s. Rapchic Foods Pvt. Ltd. Rs. 10,00,000/-

10 .M/s. Neel Kant Shares Pvt. Ltd. Rs. 10,00,000/-

11. M/s. Warsi Overseas Pvt. Ltd. Rs. 10,00,000/-

12. M/s. Sunit Overseas Pvt. Ltd. Rs. 10,00,000/-

13. M/s. Milap automotive Pvt. Ltd. Rs. 10,00,000/-

14. M/s. Q-Tech Systems India Pvt Ltd. Rs. 10,00,000/-

15. M/s. Pushpanjali Caps Pvt. Ltd. Rs. 10,00,000/- 2.1 The AO asked the appellant to furnish details of such share holders mentioning their identity, genuineness of transaction and credit-worthiness. Appellant produced confirmation of deposit from directors of the respective company, copies of income tax return filed and copies of bank statement reflecting the above transactions. In order to verify the entire transactions in the ITA No.2920/Del/09 Asstt. year 2005-06 light of genuineness and creditworthiness, he issued summons u/s 131 of the Act to all the above 15 persons. They were asked to produce the copies of return for AY. 2005-06 and their ledger accounts from which the source of above share application money could have been verified. All the above summons were returned unserved with the comments from the postal authorities as no such person in the above address. The AO accordingly brought this fact to the notice of the counsel of the assessee vide order sheet entry dated 18.12.2007 and he was given an opportunity to produce the functional directors of the above companies for verification. As mentioned in the assessment order, after certain adjournments, a letter was finally filed from the appellant mentioning that it is no in touch of the above share holders and their present whereabouts are not known to it. The appellant, however, relying upon the decision of Honble Delhi High Court in the case of CIT vs. Sophia Finance Ltd. In which the powers of the Assessing Officer was not precluded from making enquiries in share application money, submitted that no addition can be made. 2.1.1 The AO however was not convinced with the submission of the appellant. He observed that that it was only in the course of enquiry that he tried to examine the above share applicants. Since the summons issued to such persons remained unserved, it became the duty of the appellant either to produce them for verification or to state their correct addresses. It appears to be highly improper that in a Private Ltd. Company, the assessee is not in a position to state the exact whereabouts or fail to produce the persons who collectively hold more than 25% of its total share holding. He also observed that mere filing of ITA No.2920/Del/09 Asstt. year 2005-06 confirmation letters do not absolve the appellant from its onus to prove the credit entries reflected in its books of accounts as has been held by Honble Calcutta High Court in the case of CIT vs. United Commercial & Industrial Co. (P) Ltd. [1991] 187 ITR 596. He further observed that the facts that the amount were paid by account payee cheques do not make it satisfactory as held in CIT vs. Precision finance Pvt. Ltd. 208 ITR 465 (Cal.). Even income tax file particulars, where the share holder is assessed to tax is not sufficient as found in CIT vs. Korlay Trading Co. Ltd. 232 ITR 820 (Cal.) 2.1.2 The AO also referred the enquiry initiated by investigation wing of the Department in August 2003 which culminated into detection of many entry operators who are operating number of accounts in the same bank/branch or in different branches, in the names of companies, firms, proprietary concerns and individuals. For the operations of these bank accounts, filing income tax returns etc. persons are hired. Like any other business it does requires manpower according to the scale of operation. Except for two or three persons who are required regularly to visit banks and do other spade work like collection of cash etc., most of the other persons involved are on part time basis. The part time employees are called as and when required to sign documents, cheque books etc. Some of the entry operators have also roped in their own relatives for operation of entry accounts and filing the income tax returns. Interestingly most of these concerns / individuals have obtained PAN from the department and are filing returns as well. What is shown in the returns is not the actual state of affairs. For example with one PAN several bank accounts are simultaneously ITA No.2920/Del/09 Asstt. year 2005-06 operated and only one account might be shown for the purpose of audit and filing income tax returns. The entry operators provide entry in the garb of share application money, gifts, loans etc. through these accounts, in lieu of cash, to any person who is having unaccounted money. 2.1.2.1 The AO observed that some of the companies show above by the appellant as its share holders were found to have stated before investigation wing that they were mere name lender for advancing money. To quote some of them, Shri Rajesh Bansal, Director of M/s. Rubicon Associates Pvt. Ltd., Shri Mahesh Garg, Director of M/s. S.J. Hosiery Pvt. Ltd. Etc. have categorically stated before the Investigation wing, in their statement taken on oath, that they used to take the amount in cash and give entries to different concerns as gift, loan or share application money. According to AO, to enquire into this aspect also, the appellant was asked to produce the functional directors of such share holders. 2.1.3. In view of these facts and circumstances, the Assessing Officer concluded that the credit in the name of these shareholders are not genuine and represents unexplained cash credits. Accordingly he made addition of Rs. 1.50 lakhs to the returned income.

4. Before Ld. CIT (A) the assessee raised the same grounds as now raised before us. As regards issuance of notice u/s 143(2) Ld. CIT (A) held that the notice is addressed in the name of company directly. The notice was received by the appellants and has also complied with the same notice. The in view of ITA No.2920/Del/09 Asstt. year 2005-06 section 292B the objection is to be rejected. As regards merit of addition Ld. CIT (A) held 2.3.2. I have considered the submissions of the appellant very carefully. I have also gone through the case laws on which appellant has relied upon. Some of them which are most relevant are discussed here as under :- 2.3.2.1 In the case of CIT vs. Stellar Investment 192 287 (Del) Honble Delhi High Court has observed as under :- It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. IF the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that, would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. In our opinion, no question of law arises and the petition is, therefore, dismissed. The Honble Apex Court has dismissed the appeal of revenue against this order summarily [251 ITR 263 (SC)] by making following observations : We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The Appeal is dismissed. No order as to costs. 2.3.2.2 On a careful perusal of the decision of Honble Delhi High Court in the case of Stellar Investment Ltd. It will be noticed that Honble High Court has observed that in a case some bogus shareholders are found in whose names shares have been issued but the money had been provided by some other persons then the addition cannot be made in the hands of the company receiving the shares subscription. In the instant case apparently some of the shareholders are bogus as has been admitted by them in the course of enquiry conducted by Investigation Wing (as mentioned in para 2.1.2 above) and they have also stated that they are only entry provider and the recipient companies themselves in lieu of cash had obtained entries. Thus it is not somebody elses money in the name of bogus shareholder is introduced in the company as share capital but the money of the appellant itself appears to have been ITA No.2920/Del/09 Asstt. year 2005-06 introduced. Thus the facts and circumstances of the present case are different than that of the facts of the Stellar Investment Ltd. 2.3.2.3. As regards decision of Honble Supreme Court in the case of CIT Orissa vs. Orissa Corporation Ltd. 159 IR 78 (SC) the facts were as under :- The Books of Accounts of the Assessee contained three cash credits aggregating Rs. 1,50,000/- allegedly received as loans from three individual creditors under Hundis. Letters of confirmation as well as the discharged hundis were produced ; but notices/summons sent to them remained unserved because they had reportedly left that address. The view of the Tribunal was that merely because the Assessee could not produce these three parties, there was nevertheless no jurisdiction to draw an adverse inference. This approach as accorded approval by the Supreme Court in these words In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section

131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy r were such who could advance the alleged loans. There was no effort made to pursue the so- called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises. 2.3.2.4. If we peruse carefully the above decision, it will be noticed that Honble Supreme Court has observed that : (1) There was no effort made to pursue the matter further except issuing summosn u/s 131. (2) The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. In the instant case however facts are slightly different as summons were issued which returned un-served with the remarks no such person in the above address as against in that case where summons were returned un- served with the remark left that address. There is huge difference ITA No.2920/Del/09 Asstt. year 2005-06 between the observation left and observation no such person in the above address . Further this fact of non service of summon was brought to the notice of appellant also by the AO and AO has given opportunity to the appellant to produce the functional directors of the above companies for verification. This could not be done by the appellant as according to it the appellant company is not in touch with these shareholders. In the circumstances the AO could not have done anything more especially in the background of the fact that some of them had already been enquired by investigation wing and they had stated that they are only entry provider and they have given entries in lieu of cash to any person who has approached them. Thus it cannot be said that revenue has not pursued the matter any further except issuing summons and did not examine the source of income of these share subscribers to find out whether they were creditworthy or were such who could subscribe to such huge money towards share application in the appellant company. Thus the facts of the present case again are different as compared to the facts of the case in CIT Orissa vs. Orissa Corporation Ltd. (supra). 2.3.2.5. The Honble Delhi High Court while deciding the appeals by consolidated order in the cases of CIT Vs. Divine Leasing and Finance Ltd., CIT v. General Exports & Credits Ltd. And CIT Vs. Lovely Exports (Pvt.) Ltd. In ITA No. 53/2005, 56/2005, 305/2006, 880/2006, 953/2006, decided on November 16, 2006, on the above observation of Honble Supreme Court has given a very significant finding which is reproduced herein below : This reasoning must apply a fortiori to large scale subscriptions to the shares of a public company where the latter may have no material other than the application Forms and Bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/Assessee or to Creditors of the Assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift. In the same order Honble Delhi High Court has again given following observation which is very relevant and therefore reproduced as under :- There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade of channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenues insistence that it should prove the negative. In the case of public issue, the Company concerned cannot ITA No.2920/Del/09 Asstt. year 2005-06 be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the AO for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Section 68 and

69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee. IF the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. 2.3..2.6 The facts of the present case when analysed in the light of this observation it will be seen that the instant case is not a case of public issue of shares. Rather it is a case of private placement. Therefore in light of the observation of Honble Delhi High Court the legal regiment will be different as compared to the Public issue. Whereas in the case of public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers but same can not be said in the case of private placement. As per the observation of Honble High Court, a very strict approach to the burden has to be adopted and the same is laid almost entirely on the assessee which receives the share subscription. IT is, highly improbable in the case of the appellant that it is not knowing the latest address of all these shareholders and is not in touch with them from whom such a huge amount has been received as share application money with a huge premium especially when all these shareholders taken together hold more than 25% of shares. In a case of public issue it can be said that appellant has discharged the onus the moment it has furnished the PAN of shareholders, shareholder register, share application form, share transfer register etc. But in the case of private placement it has to satisfy the AO about the genuineness of the transaction which in the instant case is highly doubtful as some of the applicants during course of investigation by Investigation Wing had confessed of having provided entry only. Thus the AO has reached a dead end of the enquiry and the onus has shifted on the appellant to produce the persons for verification. 2.3.2.7. The decision of Honble Dellhi High Court in the cae of Lovely Export per se, is reproduced as under :- ITA No. 953/2006 The ITAT has dismissed the Revenue Appeal and thus there are concurrent findings pertaining to the factual matrix. The following ITA No.2920/Del/09 Asstt. year 2005-06 paragraph from the impugned decision adequately encapsulate the necessary details : Thus, the question is whether in the present case, the AO had material to conclude that the share applicants in questions did not exist. It is seen that the assessee company has furnished the necessary details such as PAN No. / Income-tax Ward No. /ration card of the share applicants and some of them are assessed to tax. The share application money has been received through banking channel. In some case, the confirmations / affidavits of share applicants containing the above detail were also filed. It is seen that the AO did not carry out any inquiry into the income tax record of the persons who have given the PAN No. / Ward No. in order to ascertain the non-existence of the share applicants in question. The AO has neither controverted nor disapproved the material filed by the assessee. In the case of CIT v. Makhani & Tyagi (P) Ltd. reported in 267 ITR 433 (Del), the jurisdictional High Court has held that when the documentary evidence was placed on record to prove the identity of all the shareholders including their PAN/GIR numbers and filing of other documentary evidence in the form of ration card etc. which had neither been controverted nor disapproved by the AO no interference was called for. The Tribunal was justified in deleing the addition. The AO proceeded to make the impugned addition on the ground that in some case some summons issued were returned unserved and in some case summon though served but there was no compliance . In this connection, it may be mentioned that in the case of CIT v. Orissa Corpn. 159 ITR 78, the Honble Court has held that when the assessee borrows the loan and if an assessee gives names and address of the creditors. Who are assessed to tax and full particulars is furnished then the assessee has discharged in the duty. If the Revenue merely issues summons u/s 131 and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear. Addition cannot be made u/s No question of law, far less any substantial question of law arises for our consideration. We may however briefly reflect upon a submission made by learned Counsel for the Respondent to the effect that that Assessee had, by its letter dated March 8, 1999 requested the AO to examine the Assessment Records of the share applicants whose GR Nos. had been supplied. It is not controverted that action was not taken by the AO, but it has justifiably been contended that this inaction was due to paucity of time left at that stage since the assessment had to be framed by March 31, 1999. It has been pointed out that several adjournments had been granted by the Assessment Officer on the asking of the Assessee. The timing of the Assessees said letter is most suspect. Generally speaking, it is incumbent on the AO to manage his schedule, while granting adjournments, in such a manner that he does not run out of time for discharging the duties cast on him by the statute. In the present case the ITA No.2920/Del/09 Asstt. year 2005-06 details had been furnished to the AO much before March 1999 but he failed to react to the shifting of the burden to investigate into the creditworthiness of the share applicants. Therefore, the Appeal is dismissed. 2.3.2.8. From perusal of above decision again it is noticed that Honble High Court has allowed the appeal on the ground that AO did not carry out any inquiry into the income tax record of the persons who have given the PAN No. /Ward No. in order to ascertain the non-existence of the share applicants in question. The AO has neither controverted nor disapproved the material filed by the assessee. However, the facts as mentioned earlier in the instant case are different as the AO has issued summons which returned unserved with the remarks no such person in the above address. The appellant has also failed to produce these persons. Some of the shareholders are apparently entry provider to the recipient as was sated by them before investigation wing. Thus it cannot be said that AO has not carried out enquiries except issuing summons. Thus again the facts of the present case are different. 2.3.2.9. What I want to emphasize by mentioning these facts that it is not straight case of applicability of decision of various courts on which appellant has relied upon. The facts are different and therefore the case has also to be dealt with differently. It is true that AO is not able to establish that the entire amount received as shares subscription from these parties are the own money of the appellant itself. But he has reached a dead end of the enquiry and the burden has shifted on the appellant. If we see the facts of the case in the light of guidelines given by Honble Delhi High Court in the case of Lovely Exports (supra), then it will be noticed that the appellant has given the identity of subscribers but genuineness of transaction is not established. Even it cannot be said that identity has been established when letter addressed has returned unserved. Accordingly I hold that straightway the appellant cannot be allowed relief as further investigation is required regarding the genuineness of the transaction and also the creditworthiness of the creditor / subscriber. 2.3.2.10. Accordingly during appellate proceedings, I myself had given an opportunity vide order sheet entry dated 15.1.09 to Ld. AR of the appellant Shri Sanjay Kumar to submit as to whether he is in a position to produce all the parties before me for the examination or not. It was very clearly told to him that if the appellant is not able to produce them then it cannot be said that identity is established and in such situation the addition will be upheld. Shri Sanjay Kumar stated as evidenced by order sheet entry that he will be able to state anything in this regard by 9.2.09. Accordingly the appeal was refixed for hearing on 9.2.09. Neither on 9.2.09 anybody appeared nor any adjournment sought. Actually till date ITA No.2920/Del/09 Asstt. year 2005-06 also nobody appeared with offer to produce these shareholders. In the circumstances I hold that identity of these shares subscribers itself is not established, the genuineness of transaction is already suspect and so the creditworthiness could not be established. In the circumstances I have no option but to uphold the addition made by the AO and reject the submission of the appellant.

5. We have perused the orders of authorities below and the grounds raised before us as well as the paper book filed. As regards objection to the notice issued in the name of assessee, we find that as per section 282 (1) a notice under this Act may be served on the person therein named either by post or as if it were a summons issued by court under the Code of Civil Procedure 1908. The notice can also addressed in the name of Company to the Principal Officer thereof. Therefore the notice can be served in the name of a company either on the company itself or on the Principal Officer thereof. There is no denying fact that the notice was served on the company itself. Therefore, the same is within the provision of section 282 (1) of the Act and hence valid. Accordingly ground No. 1 is to be dismissed.

6. As regards ground No. 2, we find that the assessee has stated to have received fresh share capital to the tune of Rs. 15 lacs and share premium of Rs. 1,00,35,000/- i.e. a share of face value of Rs. 10/- each issued at a premium of Rs. 90/- totalling to Rs. 100/-. When the AO asked the appellant to furnish the details the assessee produced share application forms and other details like bank statement, copy of acknowledgment of return etc. However when the AO conducted inquiry at the stated address, summons were received back unserved with the postal remark no such person in the above address. This fact was ITA No.2920/Del/09 Asstt. year 2005-06 brought to the notice of assessee also. Thereafter the assessee except producing the papers could not prove existence or availability of the respective share applicants. When the identity of the person is required to be proved so as to examine whether in fact they have applied for allotment of shares, the existence itself is not proved. The existence of a person is not merely on paper. Particularly when the AO required the assessee to produce the share applicants and particularly when at the stated address the share applicants do not found to be existing, it cannot be said that the amount received by assessee is proved to be towards share capital. The transaction cannot be proved merely on paper. Neither before AO nor before Ld. CIT (A) the assessee could make the share applicants available. Therefore when the identity of the person itself is not proved, the amount received by assessee cannot be considered to be genuinely received. 6.1. It is also to be noted that the assessee company is stated to have issued shares at premium 9 times its face value. The assessee is a private limited company. It has not issued prospectus for issue of shares nor under the Companies Act 1956, it can invite the public to apply for and allot the shares. The company is prohibited from making any invitation for allotment of shares. How the premium was fixed is not forth coming. Looking to the balance sheet or past history of assessee, the assessee company has never declared dividend in the past. The company has no business plans which can raise its profitability in the near future. The income declared by the assessee is only by way of short term capital gain and the assessee do not seem to have carried on any business. ITA No.2920/Del/09 Asstt. year 2005-06 In such circumstances the share premium is not found to be justified by any of the act on the part of assessee. These facts are revealing more than the apparent shown on the paper. All these facts put together reveal that neither the identity of the share applicants are proved nor justification for share premium has been proved. In such circumstances the court cannot put blinker on the eye and look only at the papers presented before it. There is something more than that meets the eye. As rightly contended by Ld. DR in such situation the observation of Honble Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540 and in the case of Sumati Dayal Vs. CIT 214 ITR 801 are apt for application. We therefore do not find any reason to hold that the share capital receipts by assessee were from persons whose identity is established and the amount is genuinely received towards share capital.

7. In the result the appeal is dismissed. Order pronounced in the open court on 31.12.2009. [I.P. BANSAL] [DEEPAK R SHAH] JUDICIAL MEMBER ACCOUNTANT MEMBER Veena Dated : Copy forwarded to: -

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR, ITAT TRUE COPY By Order, Deputy Registrar, ITAT

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