9911796707
TMI Blog2024 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Freezing. During the year under consideration, the assesee has total receipts from medical services of Rs. 14,39,94,684/- and other income of Rs 92,80,354/-. The company is recognizing income under following sub heads of revenue: 1) Consultancy 2) Hysteroscopy 3) Investigation 4) IUI 5) IVE/ICSI 6) Misc. treatments 7) Scanning 8) Surrogacy 4. The Assessing Officer noted that out of the above, the income from surrogacy is Rs 11,90,47,249 and the rest is from other sources. After claiming all expenses, the profit before tax is shown at Rs 5,91,15,388/-. In the computation of income, the assessee has shown income of Rs 45,90,235/ being on account of ICDS effect and after considering adjustments on account of depreciation etc. the net income from business is shown at Rs 6,28,71,957/-. 5. From the details furnished by the assessee, the Assessing Officer noted that the assessee derives most of the revenue from surrogacy. The other treatments referred to above also form part of the Surrogacy program but depends on case-to- case basis depending on the issues involved. The customers opt for Surrogacy program by signing Surrogacy Agreement. Thereafter it involves multiple persons such as O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrogate child was born in many cases and full payment has been received from such patients. Further to cover up the above discrepancies, the Director of the company Dr. Samit Shekar had voluntarily admitted additional income of Rs. 8.04 crores, out of the outstanding advances of Rs 14.47 crores for FY 2016-17. 8. During the course of search assessment proceedings, when the assessee was asked to clarify as to how he has reflected the admission of additional income in the declaration made u/s 132(4) during the search, the assessee vide letter dated 16/11/2018 submitted as under: During the F.Y. 2016-17, as in every financial year at the year end, all the cases pending were evaluated basing on the progress, complexity, completion and basing on qualifying nature, income was recognized and offered as were income. The remaining amounts considered as advances received from patients accordingly. The pending cases as on 31-03-2017 are shown as Advances received from patients the same is enclosed herewith in support of the above statement. During the Course of the search under duress the department enquired the basis of recognition of us to offer income directed additional income from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing for more than 5 years. 10. He noted that when there is no progress in these cases and assessee itself submitted that most of them were not completed on account of change in guidelines by Govt. of India by way of circulars , then the onus lies on assessee to establish that treatment is still in progress and refund is due to the clients if there is no favourable change in the guidelines, by way of confirmation letters from the clients in this regard. 11. The Assessing Officer, on perusal of the agreement copies that the assessee entered with the clients for surrogacy treatment observed that there is no clause for the refund of the fees collected in the case of any contingency. Also, the fees are not collected at one go, they are collected based on the treatment provided at various stages. From the analysis of the cases, he noted that there is only a part receipts from the patients, that means there was commencement of treatment and to the extent of treatment given the fees were collected and subsequent treatment must have got halted due to change in guidelines by the Govt. of India by way of circulars and medical reasons as stated by the assessee. The assessee has already cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing Advances cases shows that in 24 cases, totaling to Rs 2,66,04,631/- are almost same as that of 37 cases totaling to Rs 2,62,04,660/- except that in those 37 cases the assessee itself has recognized as revenue as per the seized books of account and later reversed but the facts of these cases otherwise are also almost same. Rejecting the explanation given by the assessee, the Assessing Officer made addition of Rs. 2,66,04,631/- being advances from surrogacy clients as income of the year. 15. The Assessing Officer further made addition of Rs. 55,46,136/- under ICDS in respect of 54 cases by estimating the income @ 15% on 3,69,74,242/- on the ground that the assessee itself has declared income under ICDS in respect of 32 cases as income from surrogacy. 16. The Assessing Officer further made addition of Rs. 1,91,750/- on account of disallowance of ROC expenses which is not in dispute before us. He accordingly determined the total income of the assessee. 17. In appeal, the learned CIT (A) sustained the addition/ disallowance made on account of ROC expenses. So far as the remaining additions are concerned, he gave part relief to the assessee by observing as under: 6. The Decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of the above statement. During the Course of the search under duress the department enquired the basis of recognition of income directed us to offer additional income from the advances as on the date of search without verifying relevant records, not taking into account whether or not the cases had reached the stage of completion whether they were eligible to be offered as income as per the accounting standards followed by the company. Under Duress and also being apprehensive that the search proceedings may affect the treatment of patients and also, in order to safe guard and protect the health of the patients undergoing treatment the declaration was taken despite informing the Department there was no way we can offer any in cover and above the regular income for the said Financial year. However after reconciliation of accounts on the basis of finally audited accounts, we recognized income as per the income recognition treatment which has been consistently followed and included the same in gross receipts. Similarly where in certain instances company felt that income did not materialize as already observed, the company worked out proper income declared as which is thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very person has to approach the Court. As the Government of India guideline is general in nature for all foreigners, obviously the outcome of the litigation would not be litigants specific but for the general term of foreigners. Therefore this analogy is not correct. The next observation noted by the Assessing Officer was that the appellant has not refunded the money, there is no businessman who would like to refund money unless demanded and would always hope for a favourable Apex court decision so that it can perform for the agreed deliverable and earn income. If the Apex Court had decided in favour of the Government of India circular, and if the said money was not refunded, then the Assessing Officer would have been correct in recognizing the same as forfeiture of advances and as a receipt of the appellant. In the present case, the appellant is still obliged and liable to perform for the deliverables as per the agreement, if the Apex Court decides otherwise then the Government of India circular and also the Surrogacy Regulation Bill(2020) is yet to be in acted. The Assessing Officer further noted that there is no refund in case of contingency, that does not mean that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would also stay the same and the addition of Rs. 2,66,04,631/- is hereby deleted on account of the same observations while deleted the sum of Rs. 2,62,04,660/-. In view of the same, the ground no. 2 and 3 are allowed. The Assessing Officer further made an addition of Rs. 55,41,136/-. The Assessing Officer noted that the appellant had disclosed an income of Rs. 45,90,235/- on the basis of ICDS, wherein the new patient advances for the period 01.04.2016 to 31.03.2017 are able to be offered for income on the are/Appeal No. 10288/2018-19/CITA-considered only 32 cases pertaining to the advances received during the year and not on the earlier advances received in the prior years to 01.04.2016. The Assessing Officer considered that the sum of Rs. 2,62,04,660/- and sum of Rs. 2,66,04,631/- has already been added which cumulates to a sum of Rs. 5,28,09,291/- and therefore the same has been excluded from the cumulative advances for the purpose of adjudication. Before moving further it is important to note that for the said sums the matter is subjudice and no progress as such can be attributed and even if there was some progress, the same needs to be revived again so there cannot by any con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h would not need interference. In view of the same addition of Rs. 18,39,200/- is confirmed out of the sum of Rs. 55,46,136/- and with a direction that the same has to be deducted from the income of the subsequent year as it would lead to double addition. In view of the same, the ground no. 4 and 5 are partly allowed. The ground no. 6 pertains to levy of interest and is consequent to the adjudication above. The Assessing Officer is directed to levy interest as per law and accordingly the ground no.6 is allowed. The ground no. 1 and 7 are general in nature and therefore needs no adjudication. To sum up the appeal is partly allowed. 18. Aggrieved with such order of the learned CIT (A) the Revenue is in appeal before the Tribunal by raising the following grounds: 1. The Ld.CIT(Appeal) erred both in law and on facts of the case in granting relief to the assessee. 2. The Ld.CIT(Appeal) erred in deleting the addition of Rs. 2,62,04,660/- and Rs. 2,66,04,631/- made towards advances for surrogacy received from foreign clients. 3. The Ld.CIT(Appeals) failed to appreciate the fact that since the treatment could not be carried on due to Government guidelines and there was no provision for ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Infertility for childless parents who are not capable of conceiving children. The activities of the assessee include surrogacy treatment. During the financial year 2016-17 relevant for the assessment year 2017-18, the gross receipts from the activity amounted to Rs. 14,39,94,684/-. Proper books of account have been maintained by the appellant and the said books of account have been audited both under the Company Law and under the Income-Tax Act. The appellant based on the final accounts, prepared its return of income (page No.1 of the annexures) and arrived at an income of Rs. 6,28,71,960/-. The said income was admitted in the return of income filed for the assessment year under consideration. The Income-Tax Authorities conducted search and seizure operations u/s 132 of the I.T. Act on 10.1.2017. The authorities did not find any incriminating material. However, it was observed that there were advances received and opening outstandings in the books of account. The Assessing officer is of the view that the said amounts represent the income and accordingly made additions of Rs. 2,62,04,660/- and Rs. 2,66,04,631/-. The addition made is on account of the fact that the advances rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treat all the concerned. h) All the connected parties i.e, the genetic parents, surrogate mother and the hospital (fertility centre) discuss about the issue after the surrogate mother is chosen by the genetic parents. At that stage the genetic parents, the hospital and the surrogate mother enter into a tripartite agreement, a copy of the sample agreement is placed in the paper book. i) The fertility centre conducts the pathological and other tests in order to decide the possibility of transferring the embryo in the womb of surrogate mother. If she is found medically fit, the process commences as per the terms of the agreement. j) The genetic parents would come, enter into an agreement and wait for their turn which would normally take about two to three years. k) In some cases, the genetic parents would not come forward for the arrangement by the Hospital with a hope that they may get natural child and for this purpose they await. In such cases some delay occurs even after receipt of advances. l) In the said agreement, the total amount is paid by genetic parents which includes hospital fee for treatment, the amount to be incurred towards surrogate mother for preserving/carrying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treat it as income; b) If the apex court decides the WP against the foreign nationals and the foreign nationals demand the amount the advances have to be refunded. c) In case the Supreme Court decides that the advances paid by foreign nationals be refunded, the amount has to be refunded to them. d) The Surrogacy Regulation bill (2020) proposed by the Department of Health and family welfare, Governement of India is yet to be enacted. The Select committee of Parliament was tasked with preparing a detailed report to be tabled in Rajya Sabha to provide their views with regard to the Surrogacy Bill. Page 3 (page No.49 of the annexures) of the Select Committee report of Parliament states that Major recommendations made by the Parliamentary Standing Committee The Committee was of the view that the altruistic Surrogacy be replaced with Compensated Surrogacy and Surrogacy procedures should also be available to PIO, NRI, OCI, live in couples, divorced women and widows . Clause 4.36 on page 47- The Committee, however, after having detailed discussions on the matter feels that the facility to avail surrogacy procedure may be extended to persons of Indian origin because they have their ancest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made under ICDS. 22. It is the submission of the learned Counsel for the assessee that when the liability to repay the advances received still exists, therefore, the advances cannot be termed as income of the assessee as they are still representing the liability to genetic parent. It is his argument that when the advances received are kept in the books of account mostly from the year 2013 and onwards and that such advances are due to the foreign nationals, as long as the liability to pay the amount subsists, it continue to be a liability and does not become income of the assessee. It is his argument that such advances do not partake the character of income unless the foreign national, who paid the advance surrenders his rights. It is also his submission that in subsequent years, the assessee has repaid most of the advances and therefore, making addition of the same to the total income of the assessee during the impugned assessment year is not justified. 23. A perusal of the order of the learned 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 Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X
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