DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2(4), BENGALURU V. MEDALL SCANS AND LABS PRIVATE LIMITED, CHENNAI

ITA 1114/BANG/2024

AI Insights

The case involves three appeals filed by the Revenue against the orders passed by the learned CIT(A) for the Assessment Year 2018-19. The appeals were related to the income declared by M/s. Clumax Diagnostic and Research Centre Pvt. Ltd. and M/s. Medall Scans and Labs Ranchi Private Limited, which were part of the Medall Group. The primary issues revolved around the acceptance of the assessee's income declarations and the deletion of certain additions made by the AO. The Revenue contended that the CIT(A) erred in accepting the assessee's submissions and in deleting the additions made by the AO, which were based on the voluntary income offered by the Managing Director of the Medall Group. The Tribunal dismissed the Revenue's appeals, agreeing with the CIT(A)'s decision and noting that the assessee had paid more tax than what was agreed at the time of search.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312192 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Awadh Kishore Dass vs. Ram Gopal AIR 1979 SC 861, PCIT vs. Avinash Kumar Setia [2017] (Delhi), ACIT vs. Hukum Chand Jain [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, Commissioner of Income Tax v 0 Abdul Razack in [2012] 20 taxmann.com 48 (Ker.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V. PADMANABAN
• Keywords: Rejection of books of accounts; Search and seizure
• Section: 132; 139; 133A; 37(1)

Judgement Text

"IN INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI. LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI. SOUDARARAJAN K, JUDICIAL MEMBER ITA Nos. and Assessment Years Appellant Respondent 1110/Bang/2024 2018-19 DCIT, Central Circle – 2(4), Bangalore. M/s. Clumax Diagnostic and Research Centre Pvt. Ltd., No.68/1150/3, Sri Lakshmi Towers, 9th Main Road, 3rd Block, Jayanagar, Bangalore – 560 011. PAN : AACCC 5919 P 1114/Bang/22024 2018-19 -do- Medall Scans and Labs Ranchi Private Limited, No.67, TNPL Building, II Floor, Annasalai, Guindy, Chennai – 600 032. PAN : AAJCM 7807 P 1115/Bang/2024 2018-19 -do- -do- Assessee by : Shri. V. Padmanaban, CA Revenue by : Smt. Neha Sahay, JCIT(DR)(ITAT), Bangalore. Date of hearing : 12.02.2025 Date of Pronouncement : 30.04.2025 ORDER 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 Page 2 of 12 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 Chhattisgarh High Court in the case of ACIT vs. Hukum Chand Jain [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 Page 3 of 12 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 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: 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 Page 5 of 12 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.” ITA Nos.1110, 1114, 1115/Bang/2024 Page 6 of 12 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 ITA Nos.1110, 1114, 1115/Bang/2024 Page 7 of 12 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 Page 8 of 12 1.Awadh Kishore Dass Vs. Ram Gopal AIR 1979 SC 861 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 ITA Nos.1110, 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:  ITAT 'C' Bench Bangalore in the case of Sri. Maruthivandith Reddy Mannur, vs DCIT vide ITA No. 835 & 836/BANG/2024.  High Court of Madras in case of CIT vs Jayalakshmi Ammal vide 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.  High Court of Madras in case of CIT vs Khader Khan Son vide TCA No. 867 of 2007. 10. In addition to the above arguments, assessee has filed written submissions which is placed on record. 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. ITA Nos.1110, 1114, 1115/Bang/2024 Page 10 of 12 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 ITA Nos.1110, 1114, 1115/Bang/2024 Page 11 of 12 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. ITA Nos.1110, 1114, 1115/Bang/2024 Page 12 of 12 15. In the result, appeals filed by the Revenue are dismissed. Pronounced in the court on the date mentioned on the caption page. Sd/- Sd/- (SOUNDARARAJAN K) (LAXMI PRASAD SAHU) Judicial Member 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 Assistant Registrar ITAT, Bangalore. "