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

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 The cash is withdrawn from the bank by these vendors and it is distributed to referral doctors in small envelopes.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 , 1114, 1115/Bang/2024 Page 4 of 12 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:

While filing return, the estimated income declared was not offered but the company declared the book results in its return of income as under : Estimated Returned Regular Regular Income AY 2018-19 as Income AY per Audited Name of the Difference Company 2018-19 # Financials # (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

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.

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.

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:-

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 , 1114, 1115/Bang/2024 Page 9 of 12 to accept the book result shown in the income tax return. In support of his arguments, he relied on the following judgments:

In addition to the above arguments, assessee has filed written submissions which is placed on record.

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.

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.

Since we have dismissed the appeals of the Revenue in , 1115/Bang/2024, a common Order passed by us shall be kept in respective case files.

In the result, appeals filed by the Revenue are dismissed.