DCIT 5(1)(1), MUMBAI, MUMBAI vs. HARI KRISHNA EXPORTS PVT LTD, MUMBAI

आयकर अपील�य अ�धकरण, मुंबई पीठ�, मुंबई INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI BENCH: I BEFORE SMT. BEENA PILLAI, HON’BLE JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, HON’BLE ACCOUNTANT MEMBER

ITA 2360, 2362 & 2359/MUM/2026 िनधा�रण वष�/Assessment Years: 2012-13, 2015-16 & 2019-20) ITO IT 222 HARI KRISHNA EXPORTS PRIVATE LIMITED 630-B, KAUTILYA BHAWAN, BKC , MUMBAI-400051, 1701-B, 17TH FLOOR, THE MAHARASHTRA CAPITAL BANDRA KURLA Vs. COMPLEX, MUMBAI-400051, MAHARASHTRA अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of AACCH8430N Assessee: ITA 3864/MUM/2026 िनधा�रण वष�/Assessment Years:2018-19) DCIT – 5(1)(1), Mumbai HARI KRISHNA EXPORTS ROOM NO. 568, 5TH FLOOR, PRIVATE LIMITED AYAKAR BHAVAN, 1701-B, 17TH FLOOR, THE CHURCHGATE CAPITAL BANDRA KURLA MUMBAI - 400020 Vs. COMPLEX, MUMBAI-400051, MAHARASHTRA अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of AACCH8430N Assessee:

Shri Kamlesh Makwana-CIT अपीलाथ� �ारा/Appellant represented DR & Shri Sridhar G. Menon- by: Sr. DR ��थ� �ारा/Respondent represented Shri Nitesh Joshi a/w Ashwin by: Kashinath, ARs

सुनवाई की तारीख / Date of conclusion of hearing: 27-Jul-2026 घोषणा की तारीख / Date of pronouncement: 31/08/2026

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED आदेश / ORDER PER BENCH:

Present appeals filed by the revenue arise out of the following orders:- First Appellate Authority Date of appellate order AY Ld.CIT(A)-56, Mumbai 29/11/2025 2012-13 Ld.CIT(A)-56, Mumbai 29/11/2025 2015-16 NFAC, Delhi 27/03/2025 2018-19 Ld.CIT(A)-56, Mumbai 02/12/2025 2019-20

Accordingly, the delay is condoned and the appeals filed by the Revenue are admitted for adjudication on merits.

The assessee is engaged in the business of importing, manufacturing, trading and exporting diamonds and manufacturing and exporting jewellery. During the relevant previous years, the assessee made payments to various non- resident entities towards diamond grading and certification

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED charges without deducting tax at source u/s 195 of the Act. The Ld.AO treated the aforesaid payments as being in the nature of fees for technical services (FTS) chargeable to tax in India and, accordingly, treated the assessee as an assessee in default u/s 201(1) and levied consequential interest u/s 201(1A) of the Act.

3.1. The payments involved in the four appeals are to grading/certification entities situated in different countries. In AY 2012-13, the payments were made to entities situated in Hong Kong, South Africa and Botswana; in AY 2015-16, to an entity situated in Thailand; in AY 2018-19, to entities situated in USA, UK, Belgium, Hong Kong, Botswana and South Africa; and in AY 2019-20, to entities situated in USA, UK, Belgium, Botswana and South Africa. The controversy in all the appeals, however, centres around the same nature of payment, namely, consideration paid for obtaining diamond grading/certification reports.

3.2. The Ld.CIT(A), after considering the nature of the grading activity and the material placed on record, held that the impugned payments did not constitute FTS and that the same were not chargeable to tax in India. Accordingly, the demand raised u/s 201(1) and 201(1A) was deleted.

Aggrieved by the order passed by the Ld.CIT(A), the Revenue is in appeal before us for all the years under consideration.

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED from those involved in the aforesaid order, the nature of services rendered remains identical.

4.1. The Ld.AR submitted that the grading entities merely examine the diamonds submitted by the assessee and issue an independent grading report setting out the physical characteristics of the diamonds, such as cut, colour, clarity and carat weight. The grading report is essentially a certification of the characteristics of the particular diamond examined and does not involve rendering of managerial, technical or consultancy services to the assessee.

4.2. It was submitted that there is no transfer of any technical knowledge, experience, skill, know-how or process to the assessee. The assessee does not acquire any capability to undertake the grading or certification independently merely by receiving the grading report. For every subsequent certification, the assessee is required to approach the grading entity afresh. Thus, the service culminates in issuance of an independent certification and not in transmission of technical knowledge or skill.

4.3. The Ld. AR further submitted that, in respect of payments to entities situated in the USA and UK, the relevant DTAAs contain the requirement of “make available”. Since no technical knowledge, experience, skill, know-how or process is made available to the assessee, the payments cannot be regarded as FTS/fees for included services even under the respective treaty provisions.

4.4. In respect of the payments to entities situated in Botswana, South Africa and Belgium, the Ld. AR submitted that the services do not fall within the ambit of managerial, technical or consultancy services even under the respective treaty provisions. Reliance was

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED placed, inter alia, on judicial precedents dealing with inspection, testing, certification and quality examination services.

4.5. The Ld. AR also submitted that, in the case of payments made to GIA through its laboratories situated in Hong Kong and Thailand, the actual recipient was GIA, USA and the laboratories merely functioned as facilities through which the grading activity was undertaken. Reliance was placed on the decision of the Hon'ble Surat Bench of this Tribunal in ITO v. Star Rays reported in [2022] 139 taxmann.com 437, affirmed by the Hon'ble Gujarat High Court in CIT(IT) v. Star Rays reported in [2023] 153 taxmann.com 226.

4.6. It was, accordingly, submitted that the payments were not sums chargeable to tax in India and, consequently, no obligation to deduct tax u/s.195 arose. The Ld.AR therefore prayed for dismissal of the appeals filed by the Revenue.

5.1. The Ld.DR submitted that the fact that the grading activity was undertaken outside India or that the assessee itself possessed knowledge of diamonds would not alter the character of the services rendered by the foreign entities. According to the Ld. DR, the payments were made precisely because of the specialised technical expertise and internationally recognised certification

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED standards of the grading entities and, therefore, the same constituted FTS taxable in India.

5.2. The Ld. DR relied upon the judicial precedents referred to by the Ld. AO and supported the action of the Ld. AO in treating the assessee as an assessee in default u/s 201(1) and in levying interest u/s 201(1A).

We have perused the submissions advanced by both sides in light of the record placed before us.

6.1. At the outset, we note that the identical nature of services has already been examined by the co-ordinate Bench in the assessee's own case for AYs 2013-14 and 2014-15 in ITA Nos. 2474 & 2412/Mum/2026 vide order dated 30/07/2026. In the said decision, the Tribunal, after examining the material placed on record, noted that GIA merely examines the diamonds submitted by the assessee and issues an independent grading report describing their physical characteristics such as cut, colour, clarity and carat weight. It was further observed that there was nothing on record to suggest that GIA imparted its grading methodology, scientific process, technical standards or specialised know-how to the assessee.

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED 6.2. The co-ordinate Bench further held that merely because the service provider uses specialised knowledge, scientific equipment or technically qualified personnel while rendering a service, every payment made for such service would not, by itself, constitute FTS. The true test is the nature of the service actually rendered to the recipient. On the facts before it, the Tribunal found that no advice was rendered, no technical solution was offered, no consultancy was provided and no managerial function was performed.

6.3. We find the aforesaid reasoning to be directly applicable to the present appeals. The fact that the grading entities in the present appeals are situated in different countries does not, by itself, alter the nature of the services rendered. What is relevant for determining the character of the payment is the nature and substance of the service actually provided to the assessee. In the present case, the grading activity culminates in an independent report certifying the characteristics of the particular diamond examined. The assessee does not receive any technical methodology, process, know-how or skill which enables it to undertake such grading independently in future.

6.4. We, therefore, find no merit in the contention of the Revenue that the mere application of specialised expertise or technical equipment by the grading entity would convert the consideration paid for the resultant certification into FTS. The fact that the grading report may commercially enhance the credibility or marketability of the assessee's diamonds cannot, in our view, alter the essential character of the service rendered.

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED 6.5. We also note that the co-ordinate Bench, while considering the payments made to GIA, has held that the grading and certification services do not fall within the ambit of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. The Tribunal further observed that the identity or location of the non-resident recipient does not alter the character of a payment which is otherwise not in the nature of FTS under the Act.

6.6. Accordingly, so far as the payments made to entities situated in countries where the applicable DTAA contains the “make available” condition, the aforesaid conclusion is further fortified by the fact that no technical knowledge, experience, skill, know-how or process is made available to the assessee. The receipt, therefore, would not fall within the relevant treaty provision dealing with fees for technical services/fees for included services. The co-ordinate Bench has also reached the same conclusion in respect of the India-USA and India-UK DTAAs.

6.7. As regards the payments made to entities situated in the other countries, we have already held, on examination of the nature of the services, that the consideration does not constitute FTS under the domestic provisions of the Act. The Revenue has not brought on record any material to demonstrate that the impugned receipts are otherwise chargeable to tax in India under any other provision of the Act. Therefore, merely because the grading entities are situated in different jurisdictions, the character of the payment cannot undergo a change.

6.8. We also find that the decision of the co-ordinate Bench in the assessee's own case specifically considered the Revenue's reliance

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED upon decisions concerning consultancy, technical advisory and professional services and distinguished the same on the ground that such decisions did not deal with certification or grading services of the nature involved before the Tribunal.

6.9. In the present appeals also, the Revenue has not brought any material on record to demonstrate that the grading entities imparted any technical knowledge, skill, know-how or process to the assessee. The services rendered remained confined to examination of the diamonds and issuance of independent grading/certification reports. Therefore, respectfully following the decision of the co-ordinate Bench in the assessee's own case for AYs 2013-14 and 2014-15, and having regard to the nature of the services rendered in the present appeals, we hold that the impugned payments towards diamond grading and certification charges do not constitute fees for technical services chargeable to tax in India.

6.10. Once the impugned payments are held not to be sums chargeable to tax in India, the assessee cannot be fastened with an obligation to deduct tax at source u/s 195 of the Act. The Hon'ble Supreme Court in GE India Technology Centre (P.) Ltd. v. CIT reported in [2010] 327 ITR 456 (SC) has held that the obligation to deduct tax at source u/s 195 arises only when the sum payable to the non-resident is chargeable to tax under the provisions of the Act. The co-ordinate Bench, applying the aforesaid principle, has accordingly held that no obligation to deduct tax u/s 195 arose in respect of the grading and certification payments.

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED 6.11. In view of the above discussion, we find no infirmity in the orders of the Ld. CIT(A) deleting the demand raised u/s 201(1) and consequential interest charged u/s 201(1A) of the Act. Accordingly, the grounds raised by the Revenue in all the four appeals are dismissed.

In the result, the appeals filed by the Revenue for AYs 2012- 13, 2015-16, 2018-19 and 2019-20 stand dismissed.

Order pronounced in the open court on 31/08/2026.

Sd/- Sd/- BIJAYANANDA PRUSETH BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 31/08/2026 SC, Sr. P.S.

ITA 2360, 2362 & 2359/MUM/2026 ITA 3864/MUM/2026 HARI KRISHNA EXPORTS PRIVATE LIMITED Copy to: ITO IT 222, 630-B, KAUTILYA BHAWAN, BKC , 1 MUMBAI, MUMBAI-400051, MAHARASHTRA HARI KRISHNA EXPORTS PRIVATE LIMITED, 2 1701-B, 17TH FLOOR, THE CAPITAL BANDRA KURLA COMPLEX, ,MUMBAI, MUMBAI-400051, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE