Motivated by the interest in topological quantum paramagnets in candidate spin-$1$ magnets, we investigate the diamond lattice compound NiRh$_2$O$_4$ using {it ab initio} theory and model Hamiltonian approaches. Our density functional study, taking into account the unquenched orbital degrees of freedom, shows stabilization of $S=1$ and $L=1$ state. We highlight the importance of spin-orbit coupling, in addition to Coulomb correlations, in driving the insulating gap, and uncover frustrating large second-neighbor exchange mediated by Ni-Rh covalency. A single-site model Hamiltonian incorporating the large tetragonal distortion is shown to give rise to a spin-orbit entangled non-magnetic ground state, largely accounting for the entropy, magnetic susceptibility, and inelastic neutron scattering results. Incorporating inter-site exchange within a slave-boson theory, we show that exchange frustration can suppress exciton condensation. We capture the dispersive gapped magnetic modes, uncover `dark states invisible to neutrons, and make predictions for future experiments.
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