Sethi Hospital Pvt. Ltd., based in Gurgaon, faced legal challenges concerning the delayed deposits of Provident Fund (PF) and Employee State Insurance (ESI) for the assessment year 2018-19. This case provides a significant precedent on the treatment of delayed statutory payments under Indian tax law.
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, reviewed an appeal by Sethi Hospital against the decision of the National Faceless Appeal Centre (NFAC) which had confirmed the tax additions for non-compliance with the statutory deadlines for depositing employees’ contributions to PF and ESI.
The core issue revolved around whether the late payment of employee contributions could be disallowed as an expense. Sethi Hospital argued that despite the delay, all contributions were made before the filing of the tax return, which should allow them to claim these payments as deductions.
The tribunal referenced the decision in PCIT vs Pro Interactive Service (India) Pvt.Ltd, where it was established that for expenditures to be allowed as deductions, actual payment suffices irrespective of the timing. This aligned with the intent of the legislation to penalize non-compliance without treating delayed payments as an employer’s income.
The tribunal’s decision to allow Sethi Hospital’s appeal emphasizes the critical nature of legislative intent behind tax provisions, especially those related to employee welfare schemes such as PF and ESI. This case highlights the judiciary’s stance on interpreting statutory provisions related to delayed payments and the conditions under which penalties apply.
Businesses must take note of this ruling as it underscores the importance of compliance with statutory deadlines while also offering a relief pathway for genuine delays in depositing employee contributions.
The decision also sets a precedent for similar cases, providing clarity and guidance on handling delays in statutory fund deposits under the Income Tax Act, 1961.
Sethi Hospital Pvt. Ltd. vs ITO: A Case of Delayed PF and ESI Contributions for AY 2018-19
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