SSRS - “The item '.rdl' cannot be found. ---> Microsoft.ReportingServices.Diagnostics.Utilities.ItemNotFoundException: The item '.rsds' cannot be found” in multi server SharePoint farm

I came across above exception when modifying the data source of SSRS reports using reporting services SOAP web service. Following is the detailed exception I received.

“System.ApplicationException: Failure in ActivateFeature for feature “<Feature>” on site: “<Site>” ---> System.Web.Services.Protocols.SoapException: The item 'http://sp13/Reports/TestReport.rdl' cannot be found. ---> Microsoft.ReportingServices.Diagnostics.Utilities.ItemNotFoundException: The item 'http://sp13/Reports/TestReport.rdl' ' cannot be found.   
at System.Web.Services.Protocols.SoapHttpClientProtocol.ReadResponse(SoapClientMessage message, WebResponse response, Stream responseStream, Boolean asyncCall)”

To resolve the issue I had to follow the steps given below

1. Check if you have installed SSRS Service and Proxy in all SharePoint Servers   

I found out above services were installed only in my application server. So I had to configure it in all WFE servers

1. Install-SPRSService
2. Install-SPRSServiceProxy

2. Recreate the SSRS Service application

above actions solved my issue :)