2024 (12) TMI 20 - AT - Income Tax

Recognition of revenue from surrogacy cases - advance from surrogacy clients as income of the year - addition on the ground that the assessee has received these amounts from the surrogacy patients which are lying in the books of account for a long time and such outstanding advances represent the income of the assessee - assessee itself has recognized these receipts as revenue from surrogacy clients in the books of accounts maintained by it as seized from the assessee's premises during the search operation and it is only on a subsequent date that the assessee has reversed these entries - addition by estimating the income @ 15% under ICDS HELD THAT - A perusal of the order of the CIT (A) shows that he granted relief to the assessee on the ground that the matter is subjudice before the Hon'ble Supreme Court where the Rule notified by the Central Government was under challenge. We find the learned CIT (A) decided the appeal assuming the pendency of the writ petition. The record shows that the Hon'ble Supreme Court had already dismissed the writ petition before passing of the appellate order. Therefore, the order of the learned CIT (A) which is based on wrong fact is liable to be set aside. At the same the time, it is an admitted fact that the advances were received in the past years and do not pertain to the impugned AY It is on account of the circular issued by the Govt. of India debarring the foreign nationals from commission of surrogacy in India, that the procedures could not take place and further the assessee had shown the amounts as advance outstanding in its books of account. We find merit in the argument of assessee that when the advances are received in the books of account mostly from 2013 onwards and such advances received are from the foreign nationals, hence the liability to pay the amount subsists, it continues to be a liability and does not become the income of the assessee. When the assessee after doing certain procedures has recognized part of the income received from those foreign nationals as income of the assessee, the accounts of the assessee cannot be said to be true and correct. Since it is the submission of assessee that it has recognized most of the amounts due to the foreign nationals as well as the persons of Indian origins as income in subsequent A.Ys, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction that (a) the assessee has refunded the amounts to the foreign nationals where a request has been made and (b) whenever certain procedures have been conducted, the assessee has recognized part of such income as his income in the concerned assessment year and (c) the assessee has recognized such advances as income due to cessation of liability in any of the later years. AO shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

Summary

Issues Involved:

1. Recognition of Advances from Surrogacy Clients as Income
2. Addition under Income Computation and Disclosure Standards (ICDS)
3. Disallowance of ROC Expenses

Issue-wise Detailed Analysis:

1. Recognition of Advances from Surrogacy Clients as Income:

The primary issue in this case was whether the advances received from surrogacy clients, particularly foreign nationals, should be recognized as income. The assessee, a company engaged in providing infertility and surrogacy treatment, had received substantial advances from clients, which were shown as liabilities in its books. The Assessing Officer (AO) argued that these advances should be recognized as income since the services could not be carried out due to government guidelines prohibiting surrogacy for foreign nationals. The AO noted that the advances were outstanding for several years and that the assessee had initially recognized them as revenue but later reversed these entries. The assessee contended that the advances remained liabilities as they were subject to potential refund depending on the outcome of pending litigation in the Supreme Court challenging the government guidelines. The CIT (A) initially deleted the additions, reasoning that the matter was subjudice and the advances could not be considered income until the liability ceased. However, the Tribunal found that the CIT (A) based its decision on incorrect assumptions about the pendency of the writ petition, which had been dismissed. The Tribunal restored the issue to the AO for further examination, directing the AO to verify whether the assessee had refunded any advances or recognized them as income in subsequent years.

2. Addition under Income Computation and Disclosure Standards (ICDS):

The second issue involved the addition made by the AO under ICDS. The AO added Rs. 55,46,136/- by estimating income at 15% on certain advances, arguing that the assessee had recognized income under ICDS for some cases but not for others. The CIT (A) partially allowed relief by confirming an addition of Rs. 18,39,200/- while directing that the same be deducted in the subsequent year to avoid double addition. The Tribunal upheld the CIT (A)'s decision, noting that the income recognition under ICDS should be based on actual progress in the treatment cases, and directed the AO to ensure no double addition occurs.

3. Disallowance of ROC Expenses:

The disallowance of ROC expenses amounting to Rs. 1,91,750/- was not disputed by the assessee before the Tribunal, and thus, this issue was not a point of contention in the appeal.

Conclusion:

The Tribunal allowed the appeal filed by the Revenue for statistical purposes, emphasizing the need for the AO to reassess the recognition of advances as income, taking into account any refunds or income recognition in subsequent years. The Tribunal directed the AO to provide the assessee an opportunity to substantiate its claims with evidence and to decide the issues as per the facts and law.