KPMG ASSURANCE AND CONSULTING SERVICES LLP,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX -8, MUMBAI

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-8 ['PCIT'] erred in invoking the provisions 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

On the facts and circumstances of the case and in law, the PCIT has erred in assuming juri iction 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 juri iction, bad in law and prayed to be quashed

1 On the facts and circumstances of the case and in law, the learned PCTT has erred in invoking the provisions of Section 263 of the Act without appreciating that the learned AO, in the reassessment proceedings, allowed the said payments by following the Juri ictional High Court and Juri ictional Tribunal rulings. Accordingly, the order under Section 263 of the Act, dated February 13, 2025 is bad in law and prayed to be quashed.

2 On the facts and circumstances of the case and in law, the learned PCIT has exceeded his juri iction 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.

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 20, 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 13, 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 PCIT 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

On the facts and circumstances of the case, and in law, the learned PCIT erred in concluding 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

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 20, 2023 which in itself is bad in law since the Notice under Section 148 of the Act, was issued by Juri ictional Assessing Officer and the reassessment order was passed by Faceless Assessing Officer.

On the facts and circumstances of the case and in law, the learned Juri ictional PCIT had no juri iction to invoke the provisions of Section 263 of the Act, against the reassessment order dated March 20, 2023 which was passed by Faceless Assessing Officer ('FAO'). Accordingly, the order under Section 263 dated February 13, 2025 is bad in law and prayed to be quashed.

On the facts and circumstances of the case and in law, the learned PCIT has erred in not passing the order u/s 263 within the time limit as prescribed under the said section qua the payments to non residents which have been considered in the original assessment order dated 29 September 2021 Accordingly, the order u/s 263 is time barred to that extent."

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 paid professional fees (foreign remittances) to the extent of Rs.13,80,01,423/- on which TDS was not done. According to it, in this regard, the Assessing Officer has issued and served various notices including show cause notice dated 09.01.2023 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.

1. In para 2.2, he observed that in view of consistency followed in similar nature of transaction and disallowed by Assessing Officer, while passing the order for Assessment Year 2016-17 and Assessment Year 2018-19, such disallowance to the extent of Rs.5,80,85,833/- (13,80,01,423 – 7,99,15,590), omission in this regard has resulted in incorrect allowance of expenditure thus, under-assessment of income

2. He thus, drew his consideration that the assessment order dated 20.03.2023 passed u/s.147 r.w.s. 144B is erroneous within the meaning of section 263 of the Act. Show cause notice u/s.263 was issued on 10.12.2024 for which assessee made a detailed submission vide its letter dated 16.12.2024 which is reproduced in the impugned order. After taking into consideration the submissions made by the assessee, it was concluded to set aside the assessment order passed u/s.147 r.w.s. 144B on the issue of disallowance of professional fees as expenses for non-deduction of tax at source on payments made under the head fees for technical services. He thus, directed the Assessing Officer to pass fresh order in accordance with law and after making necessary enquiries, after providing sufficient opportunity to the assessee.

Before we delve on the issue raised by the assessee, it is important to take note of proceedings which took place for the year under consideration, i.e. Assessment Year 2018-19 before different authorities, before whom the issue raised by the ld. PCIT has been tested under various provisions of the Act.

Facts as culled out from records are that assessee is a limited liability partnership firm of Chartered Accountants engaged primarily in providing business advisory, management consulting and quality assurance and training, social accountability certification services and taxation and audit related services to its clients. Assessee follows mercantile system of accounting. Case of the assessee for Assessment Year 2018-19 was subjected to scrutiny assessment u/s.143(3). In the 5 KPMG Assurance and Consulting Services LLP AY 2018-19

1. From the perusal of the impugned assessment order passed u/s. 143(3) r.w.s. 144B, dated 29.09.2021, we take note of the issue raised by ld. PCIT has been dealt by the ld. Assessing Officer in para-3.0, onwards. Ld. Assessing Officer completed the assessment by making disallowance of Rs.7,99,15,590/- instead of correct amount of Rs.11,89,86,331/- u/s.40(a)(i) for professional fees on which TDS was not done, which should have been done u/s.195 of the Act.

2. Assessee has furnished correct factual position in respect of the disallowance made by the ld. Assessing Officer which is tabulated below:

3. Aggrieved, assessee went in appeal before the ld. CIT(A) wherein the disallowance made by the ld. Assessing Officer was deleted holding that none of the payments made to the non-residents who are taxable in India, either under the provisions of Article 7 (business profits) for Article 14/15 (independent personal services) of the applicable tax treaties in absence of permanent establishment (PE) or a fixed base in India. While dealing with the issue, ld. CIT(A) elaborately referred to the orders of Coordinate Bench of ITAT, orders of ld. CIT(A) for other years and the decision of Hon'ble Juri ictional High Court of Bombay in assessee’s own case as well as in the case of member firms. The details of orders in assessee’s own case is tabulated below:

4. List of decisions of the Coordinate Bench of ITAT, Mumbai in assessee’s own case as well as in case of member firms is listed below: 1. ITAT Mumbai order in Appellant's own matter for AY 2004-05 (ITA No. 1820/Mum/2009) 2. ITAT Mumbai order in Appellant's own matter for AY 2007/ 2008 -09 (ITA No.6694/Mum/2012 & ITA No.1918/Mum/2013) 3. ITAT Mumbai order in the matter of BSR & Co LLP for AY 2008- 09 (ITA No. 2843/Mum/2014) 4. ITAT Mumbai order in the matter of BSR & Co LLP for AY 2009- 10 (ITA No. 1917/MUM/2013)

ITAT Mumbai order in the matter of BSR & Co LLP for AY 2010- 11 and 2011-12 (combined order) (ITA No. 4533/Mum/2016 to ITA No. 4536/Mum/2016) 6. ITAT Mumbai order in the matter of BSR & Co LLP for AY 2012- 13 (ITA No. 361/MUM/2017) 7. ITAT Mumbai order in the matter of BSR & Co LLP for AY 2013- 14 (ITA No. 2549/Mum/2018)

5. Details of judgment by Hon'ble Juri ictional High Court of Bombay in assessee's own case vide appeal No. 690 of 2017, dated 24.09.2019, relating to Assessment Year 2008-09 was considered wherein revenue challenged that professional fees payment outside India without realizing that the tax was required to be deducted thereon, the disallowance was rightly made. Hon’ble Bombay High Court held that there was no challenge to the applicability of DTAA by revenue and therefore, there is no infirmity found in the order of the Coordinate Bench. Thus, after considering the factual matrix of the case backed by long line of judicial precedents, including that of Hon'ble juri ictional High Court of Bombay in assessee’s own case as well as decisions of Coordinate Bench in assessee’s own case and member firms, ld. CIT(A) gave his findings, deleting the additions so made by ld. Assessing Officer. Relevant paragraphs in this respect from the order of ld. CIT(A) are extracted below.

Aggrieved, Revenue went in appeal before the Tribunal in ITA No. 1974/Mum/2023 for which order was pronounced on 30.10.2023, whereby the appeal of the Revenue was dismissed. The factual matrix discussed by the Coordinate Bench in this appeal in Para 5 and Para 6 are extracted below. “05. With respect to the first issue of disallowance of claim of professional fees, a. The learned assessing officer has disallowed professional fees paid of ₹79,915,590/- to 21 parties in different juri iction 1.e. outside India where no taxes been deducted.

With respect to the remittance made to KPMG International cooperative, Switzerland without deduction of tax at source:- a. Assessee has remitted₹ 434,019,511 to KPMG International cooperative, Switzerland without deduction of tax at source. It was stated that 424,745,561/- is a membership contribution and 9,273,950/- is reimbursement of expenses. It was further stated that KPMG International cooperative is a mutual Association of which the assessee is a member therefore, contribution paid to it are not subject to tax. Further the recipient is a resident of Switzerland and the contribution constitutes the business income of the recipient which is not taxable in India under article 7 in absence of any permanent establishment under article 5 of the Double Taxation Avoidance Agreement.

Matter travelled before the Coordinate Bench wherein references were made to the afore-stated long line of judicial precedents and it was submitted that the issue is no longer res integra, squarely covered in favour of the assessee and therefore, the disallowance deleted by ld. CIT(A) ought to be upheld. The findings given by the Coordinate Bench on both the issues as contained in Para 12 and 13 are extracted below, whereby the relief granted by ld. CIT(A) was upheld. “12. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that ground number 1 - 4 of the appeal of learned assessing officer is with respect to the deduction of tax at source on professional fees paid to various outside consultants outside India amounting to 79,915,590/-on which the tax has not been deducted by the assessee and therefore same has been disallowed. While deciding the issue the learned CIT has referred to the several judicial precedent of BSR and Co LLP on identical issue wherein it has been held that no tax is required to be deducted at source on various payments to the foreign consultant because of the reason that the services do not 'make available' those services to the assessee. Wherever the Double Taxation Avoidance Agreement did not contain the article of Fees For Technical Services, we are of the opinion that it cannot go to the article of 'other income' only because of the reason that FTS article is not there in the Double Taxation Avoidance Agreement. To bring it under article" other Income", it has to be established first that Income stream does not fall in any other article of DTAA. Undisputedly, all the recipient are in the business of the services. Therefore there Income first classify under article of Business income. In absence of permanent Establishment, it cannot be taxed in source country [India]. Therefore it goes out of the residuary article of 'Other income'. Revenue could not point out that those entities income is not business income. Revenue also could not show that why those decisions do not apply to the facts of the case of the assessee wherein the identical juri iction and identical services are involved. In view of this ground number 14 of the appeal of learned AO is allowed.

With respect to ground number 56 of the appeal we find that the coordinate bench in assessee's own case for assessment year 2001-02 has already held that contribution paid by the assessee to KPMG cooperative, Switzerland is covered by Mutuality concept i.e. mutual

In the meanwhile, case of the assessee was re-opened by invoking provisions of section 148 r.w.s.147. Ld. Assessing Officer noted that certain information was flagged in accordance with the risk management strategy formulated by CBDT. For the purpose of issuing notice u/s.148, ld. Assessing Officer alleged that assessee had availed services from various overseas concerns and it had made foreign outward remittances amounting to Rs.13,80,01,423/- without tax withholding. According to the ld. Assessing Officer, these services were in the nature of fees for technical services and the make available clause was also satisfied. Hence, these payments were liable to tax withholding, which the assessee had not done, leading to escapement of income.

1. Assessee made its detailed submissions in response to notice issued u/s.148A(b). Assessee submitted that accrued amount of professional fees pertaining to Assessment Year 2018-19 is Rs.11,89,86,331/-, whereas the sum of Rs.13,80,01,423/- represents aggregate of total outward remittances made in Assessment Year 2018- 19, which also includes the amounts pertaining to earlier years. It was brought to the knowledge of ld. Assessing Officer that this is a recurring issue and similar disallowances were made in the earlier years and appellate authorities have held this issue in favour of the assessee. It was also submitted that on this issue, disallowance had already been made in the assessment completed u/s.143(3) by invoking provisions of 17 KPMG Assurance and Consulting Services LLP AY 2018-19

2. However, ld. Assessing Officer not accepting the contentions of the assessee passed an order u/s.148A(d) and issued notice u/s.148. In the course of reassessment proceedings, assessee furnished comprehensive set of documents including copy of income tax return, tax audit report, transfer pricing audit report, computation of income, audited financial statements and submissions filed in response to notice issued u/s.148 as well as all the details called for by ld. Assessing Officer in respect of payment of Rs.13,80,01,423/-. In respect of these payments, assessee furnished copies of invoices, agreements, letters of engagements, declaration, tax residency certificates and Form 15CA/15CB. It also explained the nature of services rendered by the non-resident entities to the assessee and gave party-wise details with the breakup of this amount.

3. Having perused all these detailed submissions and explanations along with corroborative documentary evidences, ld. Assessing Officer completed the reassessment by elaborately discussing the professional fees paid to non-residents with reference to provision of DTAA with each of the country and also making reference to long line of judicial precedents as already listed above. Ld. Assessing Officer noted the factual position of the amount of professional fees incurred by the assessee was of Rs.11,89,86,331/- for the year under consideration and the amount of Rs.13,80,01,423/- represents the aggregate of total

From the above history of proceedings under various sections of the Act before various authorities, it is evident that the issue raised by ld. 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 u/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 ld. PCIT require so as to hold the Assessing Officer who has not conducted adequate enquiries and detailed verification to invoke the proceedings u/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 finality, till date. He has made an observation on the decision of Hon’ble Juri ictional 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 ld. 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 19 KPMG Assurance and Consulting Services LLP AY 2018-19

1. Despite huge volume of records furnished by the assessee at every stage of proceedings which has been elaborately listed and stated in the relevant orders placed on record, ld. PCIT mentions that no cogent documentary evidence has been brought on record by the assessee 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 ld. PCIT 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 u/s.143 which travelled up to appellate stage before the Coordinate Bench and the reassessment records completed u/s.147 formed part of the definition of ‘record’ as contemplated explanation 1 clause(b) 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 ld. Assessing Officer to inquire and make detailed verification which has not been done by him.

2. Without prejudice, even if the impugned revisionary order is upheld and the order giving effect is passed, whereby the additions as contemplated by ld. PCIT are made by the ld. Assessing Officer, the 20 KPMG Assurance and Consulting Services LLP AY 2018-19

The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgment of ITO v. DG Housing Projects Ltd. (supra), which has been followed by various co-ordinate benches of the ITAT in various cases. Hon’ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the AO had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of juri iction u/s 263 of the Act. In such matters, to remand

1. We note that it is not a case where there was no enquiry at all by the Ld. Assessing Officer, as already elaborated in the above paragraphs. We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to 22 KPMG Assurance and Consulting Services LLP AY 2018-19

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.

In the result, appeal of the assessee is allowed.