9911796707
TMI Blog2024 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, statutory notices u/s 143(2) and 142(1) were issued and served on the assessee in response to which the assessee filed the requisite details from time to time. 3. During the course of assessement proceedings, the Assessing Officer noted that the assessee company is engaged in treatment options for Infertility such as Surrogacy, I.V.F, 1.C.S.., IUI, Egg/ Oocyte Donation, PGS/Embryo Donation, Oocyte/Embryo 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that in these surrogacy treatment cases, which is spread over a period of time across different years, while the assessee is debiting the expenses related to surrogacy treatment in various cases in the profit and loss account but the revenue is not recognized proportionately and being deferred. When these specific discrepancies in the above cases were pointed out during the search and seizure operation the assessee admitted in the sworn statement stating that "surrogate 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer therefore, confronted the assessee regarding the discrepancy. However, the assessee did not give any reasonable explanation which could satisfy the Assessing Officer. Further, on examination of 37 cases aggregating to Rs. 2,62,04,660/- with the books of account he found that in all the cases except Billy Cuthbert, which being a refund case, the balances are lying for more than 3 years. In fact, when considered till the month of Dec. 2018 then some of the balances are outstanding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an amount of Rs. 5,28,09,291/- is outstanding in certain cases due to change of guidelines by way of government circulars in 2012 & 2015, as per Supreme Court Verdict and on medical Grounds. On verification of the above-mentioned list of cases where the advances outstanding are aggregating to Rs. 5,28,09,291/-, with the Books of accounts the Assessing Officer found that it includes those cases whose outstanding advances summing up to Rs 2,62,04,660/- as mentioned earlier. 14. The remaining outstanding 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 decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while filing the return of income post the search proceedings the appellant stated as under: "During the F.Yr. 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 income. The remaining amounts were 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 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er further stated that these parties are not part of the litigants in the Apex Court in the writ petition filed by one of the foreign nationals in WP(Civil) 841 of 2015. The observation of the Assessing Officer is incorrect in the manner with regard to that if the said parties are not litigants in the Apex Court it will result in the advances to be considered as income of the appellant. The Government of India guidelines bars foreigners of surrogacy treatment in India and if certain people have moved the Hon'ble Apex Court does not mean that every 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31.03.2018 as per the tables brought out in the assessment order. The quantum of Rs. 2,26,48,125/- pertain to 14 parties and the sum of Rs. 39,58,506/- pertain to 10 parties. The Assessing Officer noted that the cumulative amount of these 24 parties being a sum of Rs. 2,66,04,631/- has a similar case pertaining to 37 parties cumulating to Rs. 2,62,04,660/- and therefore considered the sum of Rs. 2,66,04,631/- as income of the appellant in the para 5.1 of the assessment order. As the analogy followed is identical for the addition made, the adjudication made 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases mentioned on page 21, as on the date of the assessment order, no delivery has taken place in 20 cases therefore it would not be fair on the same. That leaves a balance of 20 cases out of which 7 pertain to the balance part of the subsequent F.Y of 3 months from a period of 01.01.2018 to 31.03.2018 of Rs. 42,75,291/-, the Assessing Officer is directed to consider an estimated income of Rs. 4,27,529/- @ 10% and allow the same as deduction in the subsequent year and the appellant's AR agreed for the same. The balance 13 cases were delivered in the subsequent year which 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. She submitted that the when treatment could not have been carried out by the assessee again due to the government guidelines and when there was neither any provision for reviewing the surrogacy agreement nor any clause for refund of the advance therefore, the advances were assessable income. 21. The learned Counsel for the assessee, on the other hand, while supporting the order of the learned CIT (A) drew the attention of the Bench to the following written submission to support his case: The appellant is a company in which public are not substantially interested and is providing medical services 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. 6,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirement of a surrogate mother. However, in many cases of infertility it is found that the woman is not capable of carrying a pregnancy in her womb to term which may be because of several disorders and therefore needs a surrogate mother to preserve the pregnancy. g) The genetic parents choose the surrogate mother to carrying the pregnancy on behalf of the genetic mother. They choose the surrogate mother from others. Always it is the choice of the genetic parents to choose the surrogate mother and is not the choice of the hospital or the doctor. The duty of the appellant and the doctor is to give an opinion and to 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 medicall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s do not partake the character of income unless the foreign national who paid the advances surrenders their right. Till then the amounts are to be retained as liability and cannot be considered as income. It is submitted that a liability cannot be considered as income unless the liability ceased to exist. In the case of the assesse, the liability exists and the assesse is bound to repay the amount or adjust the same against any future liability. a) In case the Writ Petition filed before the Supreme Court is disposed of in favour of foreign nationals, the assesse may have to perform the procedure of surrogacy and at that time the assesse 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere being shown as advances from surrogacy clients for 4 to 5 years and since the assessee had recognized the advance of Rs. 2,66,04,660/-as revenue in its books, but reversed the entries after the search and since the assessee did not refund any part of the advances to any of these clients over the years, therefore, the learned CIT (A) was not justified in deleting the addition of Rs. 2,62,04,660/- and Rs. 2,66,04,631/- respectively. Similarly, in absence of furnishing any documentary evidence to show that there was any progress in the treatment of corresponding clients, the learned CIT (A) was not justified in granting relief of Rs. 37,06,936/- in respect of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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