Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, I BENCH MUMBAI
Before: SHRI PAWAN SINGH & SHRI GIRISH AGRAWAL
Assessment Year: 2018-19 B S R & Associates LLP Principal Commissioner of 14th Floor, Central Wing Tower Income Tax-8, Mumbai 4, NESCO Centre, Western Express Highway, Goregaon Vs. (East), Mumbai – 400063. PAN: AADFB6889R (Appellant) (Respondent) Present for: Assessee : Shri S. K. Aggarwal, Ajit Kumar Jain Siddhesh Chaugule, C.S. Ananthan and Shailesh Nayampalli, CAs Revenue : Shri Satya Pal Kumar, CIT DR Date of Hearing : 14.10.2025 Date of Pronouncement : 31.10.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the revisionary order of Ld. PCIT, Mumbai - 8, vide order no. ITBA/REV/F/REV5/2024- 25/1073478772(1), dated 19.02.2025 passed u/s. 263 against the assessment order by Circle 16(2), Mumbai, u/s. 147 r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 09.03.2023 for Assessment Year 2018-19.
Grounds taken by the Assessee are reproduced as under: 1. On the facts and circumstances of the case and in law, the Principal Commissioner of Income Tax, Mumbai-['PCIT"] erred in invoking the provisions B S R & Associates LLP AY 2018-19 of Section 263 of the Income Tax Act, 1961 ['the Act'] and passing the order under Section 263 of the Act, which is also bad in law and prayed to be quashed 2. On the facts and circumstances of the case and in law, the PCTT has erred in assuming jurisdiction under Section 263 of the Act, without appreciating that the learned Assessing Officer ['AO"] has taken one of the possible views. Accordingly, the order under Section 263 of the Act is without jurisdiction, bad in law and prayed to be quashed. 2.1 On the facts and circumstances of the case and in law, the learned Jurisdictional PCIT had no jurisdiction to invoke the provisions of Section 263 of the Act, against the reassessment order dated March 9, 2023 which was passed by Faceless Assessing Officer ('FAO"). Accordingly, the order under Section 263 dated February 19, 2025 is bad in law and prayed to be quashed. 2.2 On the facts and circumstances of the case and in law, the learned PCTT has exceeded his jurisdiction by concluding that the findings of the learned AO are incorrect merely because of past litigation on the matters by the department. Thus, the learned PCIT has stepped into the shoes of the learned AO and even challenged the documents/details submitted and accepted by the learned AO during the reassessment proceedings. Accordingly, the order under Section 263 of the Act, is bad in law and prayed to be quashed.
3. On the facts and circumstances of the case and in law, the learned PCIT has erred in directing the learned AO to pass a fresh assessment order without appreciating that the reassessment order dated March 9, 2023 is neither erroneous nor prejudicial to the interest of revenue and none of the conditions mentioned in explanation 2 of section 263 of the Act are attracted. Accordingly, the order dated February 19, 2025 under Section 263 of the Act is bad in law and prayed to be quashed.
On the facts and circumstances of the case, and in law, the learned PCTT erred in concluding that the Assessing Officer, during the reassessment proceedings, did not verify the details of services rendered by the non-residents and simply agreed with the submissions of the assessee.
5. On the facts and circumstances of the case, and in law, the learned PCIT erred in conchaling that the order of the Hon'ble Bombay High Court in the case of Appellant's own matters for AY 2008-09 was incorrectly relied upon by learned AO since Explanation 1 to Section 9(1)(vii) of the Act was introduced by Finance Act, 2010 with retrospective effect. The learned PCIT ignored the fact that the appellant has relied on the treaty and not domestic law 6. On the facts and circumstances of the case and in law, the learned PCIT has erred in invoking the provisions of Section 263 of the Act, against the reassessment order dated March 9, 2023 which in itself is bad in law since the Notice under Section 148 of the Act, was issued by Jurisdictional Assessing Officer and the reassessment order was passed by Fareless Assessing Officer. Accordingly, the order under Section 263 of the Act, dated February 19, 2025 is bad in law and prayed to be quashed.
B S R & Associates LLP AY 2018-19 7. On the facts and circumstances of the case and in law, the learned Jurisdictional PCIT had no jurisdiction to invoke the provisions of Section 263 of the Act, against the reassessment order dated March 9, 2023 which was passed by Faceless Assessing Officer ('FAO'). Accordingly, the order under Section 263 dated February 19, 2025 is bad in law and prayed to be quashed.
8. On the facts and circumstances of the case and in law, the learned PCIT has erred in revising the reassessment order dated March 9, 2023, also on the payments made to non residents on which tax was already been deducted at source by the appellant.”
2.1. Assessee has raised as many as eight grounds, all of which relate to invoking of revisional proceedings u/s.263 and passing the impugned revisionary order under the said section.
From the perusal of the impugned revisionary order passed by ld. PCIT-8, we note from para 2, wherein he observed that assessee had availed services in nature of Foreign Technical Services from various concerns for off shore clients for which it had made payment of Rs.1,07,85,243/- on which TDS was not done u/s. 40(a)(i) of the Act. According to it, in this regard, the Assessing Officer has issued and served various notices including show cause notice dated 03.12.2024 to the assessee. Assessee in its submission had justified the issue of non-deduction of tax at source along with details which were accepted by the Assessing Officer and hence no additions were made.
3.1. In para-2.1, ld. PCIT observed that ld. Assessing Officer had widely discussed the issue of payment of Rs.1,07,85,243/- to the off shore clients which were in the nature of foreign technical services on which assessee had not deducted tax as required u/s.40(a)(i). In this respect assessee had submitted that it had provided similar services to sister concerns, namely, KPMG LLP UK, KPMG LLP USA, etc. Further, in the case of KPMG in Assessment Year 2008-09, similar issue had come up which was verified and addition was made, which was contested and B S R & Associates LLP AY 2018-19 the matter travelled before the Hon'ble High Court of Bombay, wherein the appeal was held in the favour of KPMG and the Department did not prefer any further appeal to the Hon'ble Supreme Court. Thus, ld. Assessing Officer accepted the contention of the assessee and no addition was made whereby return income of the assessee was accepted.
3.2. Ld. PCIT further in para 2.2 observed about the assessment order of assessee’s related company, i.e., BSR Company LLP for Assessment Year 2020-21 wherein similar issue had been dealt with. In this case also, reference was made to the decision of KPMG for Assessment Year 2008-09 by taking note of all the judicial precedents in the case of sister concerns of assessee. Further, ld. PCIT observed in para – 2.3 that since similar nature of transaction of making payments to off shore clients on which TDS was not done, exists in the present case, consistency has to be followed and therefore ld. Assessing Officer is not correct in allowing the said expenditure which has resulted into under assessment of income to the extent of Rs.1,07,85,243/- resulting in the assessment so made erroneous in so far as prejudicial to the interest of Revenue. He further, observed in para 2.5 the fact of reopening of the case of the assessee for the issue of non-deduction of TDS for ‘Fees for Technical Services’.
3.3. A show cause notice was issued u/s.263, dated 03.12.2024 to explain why the re-assessment order passed u/s.147 r.w.s. 144B should not be revised in respect of the issue observed by the ld. PCIT. Detailed reply was furnished by the assessee dated 16.12.2024 as well as on 21.12.2024. Detailed submissions made by the assessee before the ld. PCIT during the revisionary proceedings are reproduced in the B S R & Associates LLP AY 2018-19 impugned order which have been perused. Ld. PCIT did not find himself in agreement with the submissions so made and concluded to hold that ld. Assessing Officer has not examined and verified the details of the services availed and the nature of payment made for the said services. He thus, concluded to set aside the issue of disallowance of professional fees as expenses for non-deduction of TDS on payments made under the head ‘Fees for Technical Services’ and non- verification of difference of professional fees, where TDS was deducted or not, since the same was not certified by the tax auditor in the tax audit report. A direction was issued to the ld. Assessing Officer to pass a fresh order in respect to this issue after making necessary enquiries and providing adequate opportunity to the assessee. Aggrieved, assessee is in appeal before the Tribunal.
4. Before us, ld. Counsel for the assessee has placed on record a synopsis giving details of the events which took place in its own case as well as in the case of its sister concerns to demonstrate that the issue raised by the ld. PCIT in the revisionary order is squarely covered in its favour and therefore, the said revisionary order is liable to be quashed. The written submission made by the assessee is reproduced for ready reference: “BSR & Associates LLP ("the Appellant") is a Limited Liability Partnership firm of Chartered Accountants engaged primarily in providing audit and tax services to its clients. It follows mercantile system of accounting for both its audited financial statements and also for the purpose of computing taxable income from profession and other sources under the Income-tax Act 1961 ('the Act'). Assessment proceedings under Section 143(3) of the Income Tax Act, 1961 The Appellant's assessment for AY 2018-19 was completed vide Order dated 31 March 2021 under Section 143(3) read with Section 144B of the Act issued by the National Faceless-Assessment Centre, New Delhi. The B S R & Associates LLP AY 2018-19 Assessing Officer ('FAO') passed the order without any additions to the Returned Income. Notice under Section 148A of the Act a. A notice under Section 148A of the Act dated 11 March 2022 for enquiry before reassessment was issued by the Assistant Commissioner of Income Tax-Circle-16(2), Mumbai [JAO'] with the approval of the Principal Commissioner of Income-Tax-8, Mumbai. ['PCIT'] [See point 4...pages 35 to 36 of the paperbook] b. The JAO's notice alleged that the Appellant had availed professional services from various overseas concerns, and it had made Foreign outward remittances amounting to Rs. 1,07,85,243 to them without tax withholding. The JAO was of the view that these services were in the nature of "fees for technical services" and the make available clause was also satisfied. Therefore, the said payments were liable to tax withholding which the Appellant had not done. c. The Appellant made detailed submissions vide letter dated 23 March 2022 [see Point 5...pages 37 to 42 of the paperbook), which are as follows: The FAO, during the proceedings under Section 143(3) of the Act for AY 2018-19, had called for the earlier assessment orders. It was evident from these orders that there were disallowances under Section 40(a)(i) of the Act for non-withholding of tax on professional fees paid to non-residents The Appellant submitted to the JAO the following orders/ details: In the case of KPMG (Appellant's member firm) for AY 2008-09, the Hon'ble Bombay High Court deleted identical disallowances under Section 40(a)(i) for professional fees paid to non-residents without tax withholding. Both the Income Tax Appellate Tribunal [11] and Commissioner of Income Tax ['CIT(A)'] also ruled in favour of KPMG. The payments made by the Appellant were similar to those made by KPMG. Further, both the ITAT and CIT(A) in appellant's own case have consistently decided in its favour in earlier years. The details of the Orders are as under.
Assessme Orders passed Date of the order Remarks nt Year by B S R & Associates LLP AY 2018-19 2010-1 1 CIT(A)-3 Mumbai 28 July 20 14 2011-12 CIT(A)-5, Mumbai 23 March 20 16 2011-12 ITAT-L 04 January 20 18 Copy of the order Bench Mumbai enclosed at Point 24... pages 737 to 745 of the Paperbook 2012-13 CIT(A)-5, Mumbai 02 January 20 17 2012-13 ITAT-L 04 January 20 1.8 ITAT Mumbai dismissed Bench for having low tax Mumbai effect and hence not enclosed. 2013-14 CIT(A)-5, Mumbai 28 February 20 18 2014-15 CIT(A)-5, Mumbai 28 February 20 18 Also, assessment Orders for KPMG LLP, USA (AY 2016-17 and AY 2017-18) and KPMG LLC, USA (AY 2015-16) confirm that professional fees received from Indian entities are not taxable in India. The Assessing Officers, in these orders, concluded that these incomes do not qualify as 'fees for included services under the India- USA Tax treaty, as they do not make available technical knowledge, experience, or skill etc. Complete breakup of Rs. 1,07,85,273 was provided to the JAO in the reassessment proceedings highlighting that the professional services were rendered outside India and that the payments were covered by either Article 7 (Business Profits) or Article 15 (Independent Professional Services) of the respective treaties and would not be chargeable to tax in India in the absence of a permanent establishment/ fixed base of the non-residents in India... d. The JAO, vide Order dated 31 March 2022 under Section 148A(d) of the Act, held that professional fees paid by the Appellant to various non- residents were 'fees for technical services' under various Tax treaties, as they provided technical knowledge, experience and skill. Post this Order, a Notice dated 31 March 2022 for reassessment was issued under Section 148 of the Act by JAO. [See Point 6... pages 43 to 46A of the paperbook) Re-assessment proceedings under Section 147 read with Section 143(3) of the Act a. A notice dated 06 October 2022 under Section 143(2) read with Section 147 of the Act, on the issues relating to "Foreign remittance and non-deduction /short deduction of TDS. was issued to the Appellant by B S R & Associates LLP AY 2018-19 the Assessment Unit, Income Tax Department ['FAO"] [See Point 7... pages 47 to 50 of the paperbook). The reasons were the same as given in paragraph (b) above and concluded as such in the order under Section 148A(d) of the Act. b. The Appellant made detailed submission during the reassessment proceedings and submitted as under. It follows mercantile system of accounting. During the year total foreign remittances made were Rs. 2,66,53,970 (gross), Party-wise details of such Foreign remittances made in AY 2018-19 amounting to Rs. 2,66,53,970 were provided. The Appellant also provided reconciliation giving detailed break-up of expenses accounted in AY 2018-19, AY 2017-18, AY 2016-17 and AY 2015-16 from the remittance amount of Rs. 2,66,53,970 The Appellant had rendered audit and taxation services. The services were rendered entirely outside India and that they fell under the ambit of Business Profits" or "Independent Personal Services" under the respective Tax treaties and in the absence of a permanent establishment/fixed base, were not subject to tax in India and consequently, there was no requirement of tax withholding therefrom. Copies of invoices, declaration, agreements/Letter of engagements, Tax residency Certificates and Form 15CA/Form 15CB. c. The FAO, in the reassessment order dated 09 March 2023 [See Point 11...pages 390 to 393 of the paperbook did not make any additions on this account and accepted the Appellant's submission on merits, following the Hon'ble Bombay High Court order in the case of KPMG Assurance Consulting Services LLP ['KACSL] for AY 2008-09 and ITAT/CIT(A) orders of the Appellant's own cases. Revisionary proceedings under Section 263 by Principal Commissioner of Income Tax-8, Mumbai [PCIT"] a. The Appellant received a notice dated 03 December 2024 issued under Section 263 of the Act from PCIT for revision of the assessment order passed under Section 147 read with Section 143(3) of the Act. [See Point 12...pages 394 to 396 of the paperbook) b. The learned PCIT stated in his notice that, upon reviewing the records, it was observed that the Assessing Officer in the reassessment order, had extensively discussed the remittance/payment of Rs.
B S R & Associates LLP AY 2018-19 1,07.85.243/- to offshore clients for Foreign Technical Services on which TDS was not deducted under section 40(a)(1) of the IT Act and following the Hon'ble Bombay High Court decision in the case of KPMG and ITAT/CIT(A) decision in assessee's own case, did not make any addition. However, it was seen in the related case for M/s, BSR & Co. LLP for AY 2020-21, the Assessing Officer disallowed similar expenses due to non- dediction of TDS in the assessment order. Given the consistency in disallowing such transactions, the non-deduction of TDS on Rs. 1,07,85,243/- resulted in underassessment of income and short levy of tax amounting to Rs.60,21,926/-. Additionally, it is observed that the assesee in its Return of Income for AY 2018-19 disclosed payment of Professional fees outside India amounting to Rs. 2,06, 03,737 and the balance expenses i.e. Rs.98,18,494/- (Rs. 2,06,03,737 Rs. 1,07,85,243) was not ascertained and needs further examination. Consequently, the assessment order dated 09.03.2023 is considered erroneous and prejudicial to the revenue's interest under Section 263 of the Act. c. The Appellant made submissions dated 16 December 2024 and submissions dated 21 December 2024 in response to the PCIT's notice. See Point 13...pages 397 to 424 and see Point 14...pages 425 to 432]. d. The Appellant submissions in brief are summed up below: The Appellant submitted that it consistently followed Mercantile system of accounting. The Appellant clarified that the total expenditure on professional fees paid to non-residents in AY 2018-19 is as follows:
SI. Nature of expenses Amount No. 1 Remittance/Payment of Professional fees paid to Non- 64,02,375 residents with deduction of tax at source 2 Remittance/Payment of Professional fees paid to Non- 1,42,01,362 residents without deduction of tax at source Total Amount Appearing in P&L A/c of ITR 2,06,03,737
[See page 427] The Appellant, during the reassessment proceedings submitted the details of remittances made to tax residents of USA, UK, Singapore, Netherlands and Bangladesh amounting to Rs. 1,34,09,254 (out of B S R & Associates LLP AY 2018-19 Rs. 1,42,01,363) and not just Rs. 1,07,85,243 as was mentioned in the 263 notice. [See page 427) A detailed chart reconciling the amount of Rs. 1,42,01,363 appearing in the ITR and the data submitted by the Appellant during the reassessment proceedings amounting to Rs. 1.34,09,254 was furnished. The Appellant explained that only a payment of Rs. 7,92,109 made to M/s. KPMG USCMG LLC, USA was not covered during the reassessment proceedings for the reason that the actual remittance was made during in AY 2019-20 (subsequent year). The nature of services, however, was same as in the cases of the remittances made during AY 2018-19[See detailed table given as Exhibit 1 below) The Appellant also provided copies of Treaties with USA, UK, Singapore Netherlands and Bangladesh. [See Point 15... pages 433 to 514 of the paperbook] The Appellant provided copies of Orders issued by Bombay High Court for AY 2008-09 and ITAT, Mumbai and CIT(A) orders in the matter of KACSI. for AY 2008-09 and AY 2018-19 and BSR & Co LLP for AY 2012-13 and AY 2014-15 to AY 2017-18 where appeals of Revenue on identical issues were dismissed. [See Point 16 to Point 23... pages 515 to 736 of the Paperbook) The Appellant also provided copies of other judicial precedents such as SC judgement in the case of CIT vs G.M. Mittal Stainless Steel (P) Ltd. [TS-10-SC-2002] (See Point 2 of the case law compilation pages...3 to 6) where it was held that when the Assessing Officer follows the decision of Jurisdictional High Court, there can be no basis for the interference in the assessment order as being prejudicial to the interest of revenue. SC judgement in the case of CIT vs Arvind Jewellers [TS-6-HC- 2002] (See Point 3 of the case law compilation pages...7 to 10)- CIT cannot revise assessment order passed by AO only because a different view could be taken.
Assessee submitted that the issue is squarely covered by the decision of Coordinate Bench of ITAT, Mumbai in the matter of KPMG Assurance and Consulting Services LLP for Assessment Year 2018-19 in dated 28.08.2025 which is the sister concern of the group to which the assessee belongs to. The Coordinate B S R & Associates LLP AY 2018-19 Bench in the said case dealt with similar factual and legal matrix and quashed the revisionary order passed u/s.
The relevant paras in this regard is extracted below for ready reference.
From the above history of proceedings under various sections of the Act before various authorities, it is evident that the issue raised by Id. PCIT for invoking the impugned revisionary proceedings u/s.263 and passing the revisionary order there under are on the same issue which has been adequately and repeatedly dealt in the assessment completed w/s.143(3) which went up to the stage of appellate proceedings before the Coordinate Bench and also in reassessment proceedings u/s.147, wherein ld. Assessing Officer had accepted the claim of the assessee. We are in a state of wonderment as to what more would Id. PCIT require so as to hold the Assessing Officer who has not conducted adequate enquiries and detailed verification to invoke the proceedings w/s.263. Ld. PCIT in paragraph 5.5 mentions that the decision of ITAT on similar issues in the case of assessee has been contested in appeal filed by the department in the assessee's case for Assessment Year 2009- 10, 2010-11 and 2011-12 which is pending adjudication before the Hon'ble Bombay High Court. Hence the issue has not reached its fonality, till date. He has mode an observation on the decision of Hon'ble Jurisdictional High Court of Bombay for Assessment Year 2008-09 in assessee's own case to distinguish it. Further, in paragraph 5.7 he observes that Id. Assessing Officer ought to have examined that the services rendered by the entities are in the areas of application of high end technical knowledge. According to him, services provided by entities make available technical knowledge, experience, common skill to the assessee and accordingly, Fall in his opinion, under the ambit of fees for technical services 8.1. Despite huge volume of records furnished by the assexsee at every stage of proceedings which ha been elaborately listed and stated in the relevant orders placed on record, Id. PCIT mentions that no cogent documentary evidence has been brought on record by the assexsee nor examined by the Assessing Officer for requisitioned breakup of the types of services provided to arrive at the consideration that it is not fees for technical services. It is important to take note of the definition of record as stated in section 263, which probably Id. PCTT has failed to consider while taking up this revisionary proceeding. We find it appropriate to reproduce the meaning of record mentioned in explanation 1 to section 263 in clause (b), according to which, "It shall include and shall be deemed always to have included all records relating to any proceeding under this Act, available at the time of examination by the PCCIT or CC or PC or CIT" Thus, when ld. PCIT took up this revisionary proceeding, the entire record of assessment completed ws/143 which travelled up to appellate stage before the Coordinate Bench and the reassessment records completed ws. 147 formed part of the definition of 'record' as contemplated explanation 1 clause(h) to section 263. It seems, there is an utter failure on the part of ld. PCIT to take cognizance of all these proceedings and material, forming part of the 'record' and observed that no cogent documentary evidence has been brought on record by the assessee, requiring the Id. Assessing Officer to inquire and make detailed verification which has not been done by him.
B S R & Associates LLP AY 2018-19 8.2. Without prejudice, even if the impugned revisionary order is upheld and the order giving effect is passed, whereby the additions as contemplated by Id. PCIT are made by the ld. Assessing Officer, the same would still get covered by the long line of judicial precedents already listed above, resulting into a wasteful exercise of adding one more proceeding under the Act.
Considering the elaborate discussion made in the above paragraphs including the multiplicity of proceedings through which assessee has gone through, judicial precedents referred and position of law, we hold that on the issue considered by the Ld. PCIT in the impugned order, no action u/s 263 of the Act is justifiable which cannot be sustained under the facts and circumstances of the present case. We, therefore, quash the impugned order u/s 263 of the Act and allow the grounds raised
by the assessee.
6. The factual and legal matrix in the present case is the same as dealt by the Coordinate Bench of ITAT, Mumbai in the above case. Respectfully, following the same, the order passed under Section 263 of the Act by the learned PCIT is hereby quashed. Grounds raised by the assessee in this respect are allowed.
In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 31st October, 2025