DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2(4), BENGALURU vs. CLUMAX DIAGNOSTICS AND RESEARCH CENTRE PRIVATE LIMITED, BENGALURU

Per Laxmi Prasad Sahu, Accountant Member : All these three appeals have been filed by the Revenue against the separate Orders passed by thelearned CIT(A), Bangalore, vide DIN Nos.ITBA/APL/M/250/2023-24/1061701941(1) dated 28.12.2024 ITBA/ APL/M/250/2023-24/1061701502(1) dated28.02.2024 and ITBA/APL/M/250 /2023-24/1061701657(1) dated 28.02.2024, for the Assessment Year 2018-19

ITA Nos.1110, 1114, 1115/Bang/2024
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respectively. The revenue has raised common ground s in all the three appeal except the the figures mentioned therein.
Grounds of appeal in ITA No.1110/Bang/2024 :
1. Whether on the facts and in circumstances of the case, the Ld. CIT(A) was right in considering the M/s Medall Healthcare Private Limited group as an entity even though the entity, M/s Clumax Diagnostics and Research Centre Pvt Ltd, has been filing return of income under separate PAN.
2. Whether on the facts and in circumstances of the case, the Ld. CIT(A) was right in accepting assessee's submission where the assessee has shown the net income as per Original Return of Income at Rs. 767.52
lakhs instead of actual declared income at Nil in the Return of Income filed u/s 139 of the Income Tax Act, 1961?
3. Whether on the facts and in circumstances of the case, the Ld.
CIT(A) was right in deleting the addition of Rs. 10,44,39,948/- even though the Managing Director of Medall Group has voluntarily offered an income of Rs. 10,49,82,382/- (Rs.
7,67,51,703/- as additional income and Rs. 2,82,30,679/- as regular income u/s 139) for the year under consideration.
4. Whether on the facts and in circumstances of the case, the Ld.
CIT(A) was right in deleting the addition of Rs. 10,44,39,948/- as it is a settled position of law that the admission made by the assessee in his statement recorded under oath is an important piece of evidence and refrained from making any further enquiries into the matter as held by Hon'ble Supreme Court in the case Awadh Kishore
Dass vs. Ram Gopal AIR 1979 SC 861, Hon'ble Delhi High Court in the case of PCIT vs. Avinash Kumar Setia [2017] (Delhi), Hon'ble
[2010], Kantilal C. Shah v ACIT [2011] 133 ITD 57 (Ahmedabad),
PCIT V Shri Roshan Lai Sancheti, in D. B. ITA No. 47/2018 vide its judgement dated 30.10.2018, the Hon'ble Rajasthan High Court and Hon'ble High Court of Kerala in the case of Commissioner of Income Tax v 0 Abdul Razack in [2012] 20 taxmann.com 48 (Ker.)
2. . Since the issue involved in all the three years are similar, therefore, we are taking first to appeal in ITA No.1110/Bang/2024 in the case of M/s. Clumax

ITA Nos.1110, 1114, 1115/Bang/2024
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Diagnostic and Research Centre Pvt. Ltd., and the decision taken on this shall apply mutatis mutandis for all the three appeals.
3. Briefly stated the facts of the case are that a search and seizure action under section 132 of the Act was conducted in the case of Medall Scans and Labs Ranchi Private Limited, Guindy, Chennai – 600 032, on 29.11.2017 and in their corporate office and holding company as well as in other group companies and a survey was also conducted under section 133A of the Act in the case of Medall Scans and Labs Ranchi Private Limited. During the search proceedings conducted at the corporate office at No.68/150/3, Sri Lakshmi
Towers, 9th Main Road, III – Block, Jayanagar, Bengaluru – 560 011 on 29.11.2017 it was observed that marketing team of M/s. Medall Group would make tie ups with doctors to refer patients to nearest diagnostic center of M/s.
Medall Group. Based on the referrals made by each doctor per fortnight, the commission is calculated by accounts team. The information is intimated to treasury team in head office, Guindy for release of funds to various third party vendors. These third party/Category 1 vendors receive the money in bank accounts. The cash is withdrawn from the bank by these vendors and it is distributed to referral doctors in small envelopes. During the course of search, various inputs related to referral doctors were observed. It was noticed that the percentage of referral payment varies with the volume of business received by the company from the doctors. Further during the course of search at M/s.
CRCPL, Jayanagar office, sworn statements of various employees were recorded. They have admitted to paying referral fees to the doctors. During the search various marking vendors namely (a) M/s. VRV Associates, proprietor
Mr. S. Viswanathan (b) Mr. Vasanth Kumar KL Prop: M/s. Oviya Enterprises
(c) Mr. Wenthilnathan Prop: M/s. CerebrosBPO, M/s. Think Business Network and M/s. Dmax Solutions were covered and the proprietor and employees sworn statements were recorded which revealed payment of referral fees through them by the assessee. Search under section 132 of the Act conducted at the resident

ITA Nos.1110, 1114, 1115/Bang/2024
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of Mr. Raju Venkatraman at No.9, Casurina Drive, Kapaleeswar Nagar,
Neelankarai, Chennai – 600 041 in the case of M/s. MHPL on 29.11.2017 during the search agreements were found. A statement was recorded from Mr. Raju
Venkatraman on 30.05.2018. In his statement, he was confronted with the statements recorded from the companies own employees, statements recorded from various marketing vendors and also revelations during the course of search. Mr. Raju Venkatraman replied that he was not involved in nitty and gritty of the operations of M/s. Medall Group. He added that he was not aware that referral payments were being made to doctors by the third party Cat1
Vendors. He also referred to the (Professional Conduct, Etiquette and Ethics)
Regulation, 2002. Further, he was made aware of CBDT directive dated
August, 2012, that claim for any expenses incurred in providing freebies to medical practitioners is violations of the provisions of Indian Medical Council
(Professional Conduct, Etiquette and Ethics) Regulations, 2002, shall be inadmissible under section 37(1) of the Income Tax Act, being an expense prohibited by the law. Mr. Raju Venkatraman had also stated in his statement that he had offered income of Rs.102,02,28,000/- for different group companies from the Assessment Years 2012-13 to 2018-19 as under:
Assessee Name
Assessment Year
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Total
Medall
Healthcare
32000000
55000000
80000000
80000000
80000000
90000000
149209200
56,62,09,20C
Clumax
Diagnostics
6000000
7500000
12500000
40000000
70000000
70000000
76752000
28,27,52,00C
MSLPL
0
100000
150000
250000
400000
550000
625000
20,75,00C
Aranthangi
0
0
0
4200000
5400000
6200000
3200000
1,90,00,00C
Nashik
0
0
4000000
18500000
20500000
14000000
9000000
6,60,00,00C
Ranchi
0
0
0
0
0
0
2749000
27,49,00C
Arupukottai
0
0
300000
5300000
5500000
6400000
3500000
2,10,00,00C
Chengalpattu
0
0
300000
4200000
4600000
5300000
2600000
1,70,00,00C
Kallakurichi
0
0
0
60000
39800
0
2618000
27,17,80C
Kottayam
0
200000
4500000
5000000
250000
200000
225000
1,03,75,00C
Kumbakkonam
0
0
0
1500000
2500000
3000000
2250000
92,50,00C
Mayiladudurai
0
0
150000
2100000
2500000
3500000
2750000
1,10,00,00C
Tiruvanamalai
0
0
80000
1080000
1600000
3500000
3840000
1,01,00,00C
Total
38000000
62800000
101980000
162190000
193289800
202650000
259318200
1,02,02,28,00

ITA Nos.1110, 1114, 1115/Bang/2024
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4. During the course of assessment proceedings, it was brought to the knowledge of AR about the relevant Rules and Regulations of the Indian
Council of Medical Research (ICMR) as well as section 37(1) of the Act. The assessee agreed to offer its income during the course of assessment proceedings but resultantly, in all the group cases, the entire admitted amount of Rs.102,02,28,000/- was made as addition, while filing return of income, the book results were offered as income only but during the course of search proceedings the assessee agreed to offer as income towards referral fee, A question and answer No.94 was also put forth to the assessee and the assessee replied as under:
“Q.94 Do you want to say anything?
Ans: I wish to add that the stated fact of payments made to some of the CAT-1 vendors (Chennai Vendors as per our study and analysis carried out, post the investigation) were rerouted to the Doctors in the form of cash was a big shock to me and to the management, given the ramifications of various laws involved. Hence, we have carried out a detailed study and analysis pursuant to which we found out that the Chennai vendors were also rerouting to the Doctors, while carrying out the other mandated functions. No such evidences are found in respect of Non-Chennai
Vendors. In order to avoid ambiguity and to bring about sanitization on the whole, we have rebooted the entire sales and marketing team internally to avoid any such alleged recurrence of rerouting by CAT-1 vendors to referral Doctors in the form of cash. Accordingly, sums totaling Rs.102
Crores have been agreed for disallowance in the respective years and in the respective entities where it is claimed, though the total amount in no case exceed Rs.68 Crores referable to such Chennai Vendors.
I wish to state that I have voluntarily disclosed an amount of Rs 102.02
crores as I am unable to prove the documentary evidence of all transactions in view of the voluminous nature. Further I also wish to state rhat my anticipated taxable profit for the FY 17-18 is about Rs 31.35
crores in Medall Healthcare P Ltd and its subsidiaries.”

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As per the above para of the statements The details of the income estimated at Rs.31.35 Crores by the assessee during the search for the Financial Year 2017-
18 is as under:
Name of the Company
Estimated Income for the AY 2018-19
(Excluding the addition of marketing commission)
Medall Healthcare
11,38,63,699
MSLPL
Cluma) Diagnosticsil32,30,679
5,90,74,285
Aranthangi
4,39,788
Nashik
83,00,643
Ranchi
8,64,50,701
Arupukottai
10,53,714
Chengalpattu
19,89,426
Kallakurichi
26,17,001
Kottayam
51,65,946
Kumbakkonam
15,63,840
Mayiladudurai
25,40,108
Tiruvanamalai
22,30,588
TOTAL
31,35,20,418
5. While filing return, the estimated income declared was not offered but the company declared the book results in its return of income as under :
Name of the Company
Estimated
Regular
Income AY
2018-19 #
Returned Regular
Income AY 2018-19 as per Audited
Financials #
Difference
(B-A)
Medall Healthcare
11,38,63,699*
39,04,23,500
27,65,59,801
Clumax Diagnostics
2,82,30,679
5,42,434
-2,76,88,245
MSLPL
5,90,74,285
1,73,71,063
-4,17,03,222
Aranthangi
4,39,788
-35,348
-4,75,136
Nashik
83,00,643
63,04,398
-19,96,245
Ranchi
8,64,50,701
5,70,48,718
-2,94,01,983
Arupukottai
10,53,714
-9,08,319
-19,62,033
Chengalpattu
19,89,426
20,47,346
57,920
Kallakurichi
26,17,001
5,35,381
-20,81,620
Kottayam
51,65,946
-1,26,10,132
-1,77,76,078
Kumbakkonam
15,63,840
-23,54,633
-39,18,473
Mayiladudurai
25,40,108
16,07,569
-9,32,539
Tiruvanamalai
22,30,588
23,58,879
1,28,291
TOTAL
31,35,20,418
46,23,30,856
14,88,10,438

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6. The AO noted that the book result declared by the assessee in the income tax return is less than the details of income estimated during the course of search statement. So, difference was added as income of the assessee.
7. Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A) allowed all the grounds raised by the assessee.
8. Aggrieved from the above Order, the Revenue has filed the appeal before the Tribunal. The learned DR relied on the Order of AO and submitted that learned CIT(A) has wrongly allowed all the grounds raised before him. While filing return of income, the assessee has not declared the income offered towards referral fee as well as estimated income offered during the course of statement recorded. The AO has made correctly addition where the estimated income is more than the book result. The income should have been considered individually but not as in the group of income. The search statement has great evidentiary value. The details of the estimated income of Rs.31.35 Crores was submitted during the course of statement recorded. Therefore, the said income should have been offered by the assessee if the book results are lower than the estimated income. Further, in respect of ground No.2, the learned CIT(A) is not justified in deleting the addition made by the AO. The learned DR further submitted that learned CIT(A) has wrongly deleted the addition made by the AO on the basis of statements recorded under section 132 of the Act on oath during the course of search, which is an important piece of evidence and refrained from making any further enquiries into the matter and the addition deleted by the learned CIT(A) is not correct. The statement recorded under section 132(4) of the Act is an important piece of evidence and this issue has been settled by the various courts as well as by Hon’ble Apex Court which are as under:-

ITA Nos.1110, 1114, 1115/Bang/2024
2.PCIT Vs. Avinash Kumar Setia [2017] (Delhi)
3.ACIT Vs. Hukum Chand Jain [2010]
4.Kantilal C. Shah Vs. ACIT [2011] 133 ITD 57
5.PCIT Vs. Shri. Roshan Lai Sancheti in D. B. ITA No.47/2018
9. On the other hand, the learned Counsel relied on the Order of the learned
CIT(A) and submitted that the income offered during the course of assessment proceedings towards referral fee were not challenged before the learned CIT(A)
The revenue has taken wrongly in its grounds of appeal. Therefore, ground
No.2 raised by the Revenue is not sustainable. The only challenge was regarding estimated income added by the AO only on the basis of statements recorded without any corroborative materials. During the course of search there was no any incriminating materials were found. The ld. CIT(A) has been correctly decided the appeal in favour of the assessee. The estimated income offered by the assessee for entire groups are Rs. 31.35 Crores during the course of search statement is lower than the actual returned income of Rs. 46.23 Crores
(which is book results) offered by the assessee as a whole in the case of group.
Therefore, there is no tax evasion. Even the AO has made addition without any incriminating documents, no credible evidences were found during the course of search towards the estimated income as added by the AO. This addition made by the AO is beyond the Board Circular issued by the CBDT. He further submitted that the AO has not rejected the books of accounts of the assessee and books of accounts of the assessee are audited by the CA as per the provisions of the Companies Act 2013 and the financial statements are submitted before the ROC. Once the income shown in the book result has been accepted in the Annual General Meeting (AGM) and which was filed before the ROC, cannot be disturbed without any cogent documents / credible evidence. AO is bound

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to accept the book result shown in the income tax return. In support of his arguments, he relied on the following judgments:

ITAT 'C' Bench Bangalore in the case of Sri. Maruthivandith Reddy
Mannur, vs DCIT vide ITA No. 835 & 836/BANG/2024. 
TCA No. 488 & 489 of 2016. 
ITAT 'C' Bench Bangalore in the case of Ramachandra Setty, vs
ITO Ward -1 vide ITA No. 1156 & 1163/BANG/2023. 
11. Considering the rival submissions, we noted that the referral fee paid to the doctors and during the course of search statement accepted by the head of the company (MD & CEO), offered as income for different companies for different Assessment Years of Rs.102,02,28,000/- during the course of assessment proceedings but it was not offered in the income tax return filled as income as well as the estimated income and actual book results waere offered as income by the assessee but where the estimated income is more than the book results have not been offered as income. However, during the course of assessment proceedings when the ICMR Rules were brought to the knowledge of the AR, the assessee offered income of Rs.102,02,28,000/- for the entire grop companies and paid tax there on which were not challenged before the ld. CIT
(A). We observe from the written submissions that learned Counsel has clearly mentioned that this issue was not raised before the learned CIT(A). The only issue challenged before the learned CIT(A) is difference in the estimated income and the book results added by the AO. Therefore, the ground taken by the Revenue in this regard is not sustainable.

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12. Further, in respect of deletion of addition made by learned CIT(A) towards difference in book result and estimated income offered during the course of search is where the estimated income is higher than the book results.
During the course of statement recorded as per question and answer No.94 noted supra, the MD and CEO has declared additional income of Rs.31.35 Crores for the whole group and tabulated entities wise. The books of accounts have been audited by a Chartered Accountant appointed as per the Companies Act, 2013. In the audited books the AO has not found any fault. We also noted that at one hand the AO has taken only the figures where the estimated income is higher than the book results whereas in some cases the book results shown in the income tax return is more than the estimated income which has been accepted by the AO and this is not consistently followed by the AO. He should have adopted only one approach and as a whole group concern. As per audited accounts, the book result is Rs.46,23,30,856/- whereas the estimated income is Rs.31,35,20,418/- which is estimated for the entire Financial Year at the time of statements recorded. How the income estimated at the mid of the year can be considered as true income for the whole year? Therefore, it is not prejudicial to the interest of the Revenue. We further noted that this estimation made during the search is without any incriminating documents materials which is against the instruction No. 286/2/2003 (inv.II) dated 10.03.2003. Therefore, the case laws relied on by the learned DR do not support the case of the Revenue. We have also gone through the Order of the learned CIT(A). The learned CIT(A) has done a reasoned Order. The relevant part is as under:
“5.0
After careful consideration of the appellant's submissions and facts available on record, it can be clearly seen that even though the difference between the net income as per estimation during the course of search and the net income as per original return is a negative amount in this case at the entity level, but if the overall M/s. Medall healthcare Pvt.
Ltd. Group is considered there is only a positive difference. The group is liable to pay a tax of Rs. 1,463.29 lacs as per the returned of income filed by the Appellant. However if the appellant had filed the return based on the estimated income agreed at the time of search, the tax payable by the group after the disallowance would have been just Rs. 809.94 lacs. Hence

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it is very clear that the appellant has paid more tax (Rs. 653.35 lacs) than what has been agreed at the time of search.
5.1
Moreover, while considering the Entities of M/s. Medall healthcare Pvt. Ltd. as a group, not only does the net income as per original return exceed the net income as per estimation during the course of search, but also the Net tax payable as per original return exceeds that of the estimation during the course of search at the group level. This makes it even clearer that there is no scope of tax evasion by setting off taxes against each other. Further, other than the fact that the assessee had made a disclosure during search no other material has been brought on record to justify this addition.”
13. From the above Order, we do not find any infirmity in the Order of the learned CIT(A). We slightly modify the Order of the learned CIT(A) in para
No.5.2. The learned CIT(A) has mentioned that ground No.1 to 7 of the assessee are allowed. However, on going through the grounds taken by the assessee before the learned CIT(A) and written submissions made before us, the additional income offered during the course of assessment proceedings by the assessee towards referral fee paid to the doctors was not raised. Therefore, this income offered by the assessee has not been deleted by the learned CIT(A).
Considering the totality of the facts and circumstances of the case, we are dismissing the appeals of the Revenue.
14. Since we have dismissed the appeals of the Revenue in ITA
No.1110/Bang/2024 and the decision of the same shall apply mutatis mutandis in ITA Nos.1114, 1115/Bang/2024, a common Order passed by us shall be kept in respective case files.

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15. In the result, appeals filed by the Revenue are dismissed.
Pronounced in the court on the date mentioned on the caption page. (SOUNDARARAJAN K)
Accountant Member
Bangalore,
Dated : 30.04.2025. /NS/*
Copy to:
1. Appellant 2. Respondent 3. Pr.CIT4.CIT(A)
5. DR, ITAT, Bangalore.
By order