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Income Tax Appellate Tribunal, “E” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the revisionary order of Ld. Principal Commissioner of Income Tax, Mumbai-8, vide order no. ITBA/REV/F/REV5/2024-25/1073235246(1), dated 13.02.2025 passed u/s. 263 of the Income-tax Act (hereinafter referred to as the “Act”) against the assessment order by Assessment Unit, u/s. 147 r.w.s. 143(3) dated 20.03.2023, for Assessment Year 2018- 19.
"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 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 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 Jurisdictional High Court and Jurisdictional Tribunal rulings. Accordingly, the order under Section 263 of the Act, dated February 13, 2025 is bad in law and prayed to be quashed.
2.2 On the facts and circumstances of the case and in law, the learned PCIT 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 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.
4. 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
5. 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
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 20, 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 Faceless Assessing Officer.
KPMG Assurance and Consulting Services LLP AY 2018-19 Accordingly, the order under Section 263 of the Act, dated February 13, 2025 is bad in law and prayed to be quashed.
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 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.
8. 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."
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 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.
3.1. 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 3.2. 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 KPMG Assurance and Consulting Services LLP AY 2018-19 said assessment proceedings, specific enquiry was made by ld. Assessing Officer regarding professional fees outside India without deduction of tax at source to ensure compliance of section 40(A)(i). Assessee explained its case that the professional fees to non-residents was not income chargeable to tax in India in the hands of the overseas entities and therefore, TDS was not required to be done u/s.195 of the Act.
5.1. 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.
5.2. Assessee has furnished correct factual position in respect of the disallowance made by the ld. Assessing Officer which is tabulated below:
KPMG Assurance and Consulting Services LLP AY 2018-19 5.3. 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 Jurisdictional 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:
5.4. 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 & 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)
KPMG Assurance and Consulting Services LLP AY 2018-19 5. 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 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)
5.5. Details of judgment by Hon'ble Jurisdictional 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 jurisdictional 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.
The issues of company mentioned above are found to be directly covered in favour of the appellant except one case mentioned at serial no. 5 in the case of KPMG Auditores & Consultores S.A., which required for further verification. All the relevant decisions pointed out are discussed in Para 3 above. The appellant gets relief in respect of all these additions. In the case of KPMG Auditores & Consultores S.A., Mozambique, the nature of services rendered are Tax Advisory Services. As per note 2 furnished by the appellant, has submitted that services are in the nature of business profits under Article 7 of the respective Tax treaties and are not taxable in India in the absence of a permanent establishment of the non-residents in India. The Assessing Officer is directed to verify the facts in the light of decisions given in Para 3 above and after considering the decision of P.T. McKinsey Indonesia [2013] 141 ITD 357. Relief will be provided to the appellant if the income is not found to be taxable in India. No TDS is also required to be deducted in respect of foreign exchange fluctuation, where the TDS is not required to be deducted in respect of payments. This issue is consequential in nature and relief shall be provide to the appellant accordingly In view of discussion above, ground of appeal no. 2 is partly allowed.
6. Aggrieved, Revenue went in appeal before the Tribunal in 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 jurisdiction 1.e. outside India where no taxes been deducted.
KPMG Assurance and Consulting Services LLP AY 2018-19 b. Assessee submitted that the services do not 'make available' technical knowledge, experience, skill, know-how and thus do not fall under the ambit of the term 'fees for technical services' under article 12/12 A/13 of the DTAA of India with Singapore, Portugal, USA, Netherlands, Spain, Australia, UK France and Malaysia. c. The Double Taxation Avoidance Agreement of India with Greece, Mauritius, Saudi Arabia, Philippines, Egypts, Thailand, Indonesia, Kenya, Bangladesh and Saudi Arabia do not have article dealing with the fees for technical services. Therefore the services falls under the ambit of article 14/15 of The Double Taxation Avoidance Agreement dealing with Independent Personal Services or article 5 and 7 of the Double Taxation Avoidance Agreement dealing with business profits and as the services of been rendered outside India and as the non-resident do not have a fixed base/permanent establishment in India, there is по income chargeable to tax in the remittances outside India and therefore no taxes required to be deducted. d. The learned assessing officer rejected the contention of the assessee and held that services rendered by the parties are in the areas of application of high skill as well as technical knowledge, those entities have actually caused the imparting and creating of specialized documents requiring use of high skills and technical knowledge and these entities have provided services which do give any benefits to the assessee and assessee is enabled to use the knowledge shared by the entities during the course of provision of services in various assignments handled by assessee for its clients. Therefore, these entities 'make available" technical knowledge experience and skill etc to the assessee. Thus it is chargeable under FTS agreement of respective DTAA. e. Where there are no articles of Fees For Technical Services the learned assessing officer held that those services fall under the ambit of article 22/23 of the Double Taxation Avoidance Agreement such as other income' on income not expressly mentioned and therefore taxes required to be deducted at source on that. As assessee has failed to deduct tax at source is disallowed the same. f. On appeal before the learned CIT A noted in paragraph number [8] of his order at page number 56 that each of the entities covered in the above payment at serial number 1 to 16 is covered in favour of the appellant, all the relevant decision pointed out discussed in paragraph number [3] and therefore the appellant gets relief in respect of this disallowance. g. Further with respect to the 5 entities he held that the issue squarely covered in favour of the assessee by the decision of the coordinate bench in case of BSR and Co LLP for assessment year 2015 - 16 and KPMG Assurance and Consulting Services LLP AY 2018-19 2017 18 as the payments are similar. The sixth payment was with respect to the foreign exchange fluctuation on the above payment and therefore identical treatment was given by deleting the same. h. With respect to the payment made to KPMG auditors consultants is based out of Mozambique where the payment is of ₹ 419,869/- for the tax advisory services, the learned CIT A directed the learned assessing officer to make further verification whether the services are in the nature of business profits under article 7 of the respective tracks treaty is and are not taxable in India in the absence of permanent establishment of the non-resident in India. The AO was directed to verify the facts in the light of the decision given after considering the decision of PT McKinsey Indonesia (2013) 141 ITD 357 and relief is to be provided only if income is not found to be taxable in India. i. Accordingly he deleted the disallowance of 79,915,590/-.
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.
b. The learned AO considered the membership agreement dated 1/1/2007 and thereafter he held that the payment made by the assessee is primarily for the use of name as the assessee derives substantial benefits by being part of the KPMG group and using that name. Therefore, the payment is towards acquiring the right to use the name of KPMG which is certainly in the nature of royalty under article 12 of the agreement. Accordingly, this Income is chargeable to tax in India and assessee should have deducted tax at source. Accordingly the above sum is disallowable for non-deduction of tax at source under section 40 (a) (i) of the act. c. The learned CIT - A noted that the issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee's own case for assessment year 2001-02 vide order dated 7 April 2017 and further the orders of the learned CITA for subsequent years following that order of ITAT. It covered the issue.
KPMG Assurance and Consulting Services LLP AY 2018-19 He referred to the decision of the coordinate bench in assessee's own case for assessment year 2001 02 in para number 5.15 and 5.16 wherein it has been held that the KPMG and the assessee is having a relationship of mutual Association and its member respectively and no element of Income was embedded in the remittances received by the foreign entity.”
6. 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 jurisdiction 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 KPMG Assurance and Consulting Services LLP AY 2018-19 Association on its receipts would not constitute Income chargeable to tax. The learned departmental representative could not controvert the above decision of the coordinate bench in assessee's own case, therefore, respectfully following the decision of the coordinate bench in assessee's own case for assessment year 2001-02, which has been followed by the learned CITA, we do not find any infirmity in the order of the learned CIT (A) thus, the disallowance of ₹ 434,019,511/- for non-deduction of tax at source is correctly deleted. Accordingly the order of the 6 of the learned CITA is upheld and ground number 5 appeal is dismissed.
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.
7.1. 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 KPMG Assurance and Consulting Services LLP AY 2018-19 section 40(a)(i) for non-withholding of tax on professional fees paid to non-residents. Submissions were also made by referring to various judicial precedents in assessee’s own case as well as in the case of member firms, including the decision of Hon'ble Jurisdictional High Court of Bombay in assessee’s own case for Assessment Year 2008-09 (all supra).
7.2. 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.
7.3. 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 KPMG Assurance and Consulting Services LLP AY 2018-19 outward remittance made in the year under consideration, which includes the amount pertaining to earlier years. He thus, completed the reassessment by holding that the professional fees paid was not taxable in India in the hands of the recipients and that no tax was required to be deducted in India and thus, no variation in the income was proposed.
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 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 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 8.1. 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.
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 ld. PCIT are made by the ld. Assessing Officer, the KPMG Assurance and Consulting Services LLP AY 2018-19 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.
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 jurisdiction u/s 263 of the Act. In such matters, to remand KPMG Assurance and Consulting Services LLP AY 2018-19 the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the AO, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry himself. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed by the Hon’ble High Court that the material, which the CIT can rely up on includes not only the records as it stands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT. Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous.
9.1. 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 KPMG Assurance and Consulting Services LLP AY 2018-19 the file of the Assessing Officer to pass a fresh order in accordance with law and after making necessary enquiries and providing sufficient opportunity to the assessee.
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.