High Court Holds AO Cannot Disregard Binding ITAT Ruling on Permanent Establishment :

The Bombay High Court has quashed an order passed under Section 201 of the Income Tax Act, 1961, whereby GIA India Laboratory Pvt. Ltd. was treated as an assessee in default for failing to deduct tax at source on payments made to its parent company, Gemological Institute of America, Inc. (GIA US). The dispute arose in relation to Assessment Year 2020-21, for which the AO had raised a demand of Rs 67.56 crore against GIA India. 

The question whether GIA India constituted a PE of GIA US had earlier arisen in the assessment proceedings of GIA US. The ITAT had held that GIA India did not constitute a PE of GIA US and, consequently, the grading and management fees received by GIA US were not taxable in India. The Bombay High Court, while considering the Department's appeals for A.Ys. 2010-11 to 2017-18, also upheld the Tribunal's factual findings that GIA India did not constitute a PE of GIA US.

Despite the consistent ITAT rulings, Section 201 proceedings were initiated against GIA India for A.Ys. 2014-15 and 2016-17. The Bombay High Court had quashed those orders, and the Supreme Court later upheld the quashing while remitting the matter to the TDS AO at the stage of issuance of the show-cause notice. Similar proceedings for A.Ys. 2018-19 and 2019-20 were also quashed by the Bombay High Court, with the matters being remitted in accordance with the Supreme Court's earlier directions.

Accordingly, the Bombay High Court quashed and set aside the order dated 20 March 2026 passed under Section 201 of the Income Tax Act for A.Y. 2020-21, which had treated GIA India as an assessee in default and raised a demand of Rs.67.56 crore.