Assessments of recognised provident funds. - Income Tax - 1188/CBDT

INSTRUCTION NO. 1188/CBDT Dated : June 22, 1978 Section(s) Referred: Rule 76 to 81 Statute: Income - Tax Act, 1961 Attention is invited to the Board's letter No.215/28/70-ITA.II dated 12th December, 1971 wherein the board instructed that a proper check of the accounts of recognised Provident funds subsequent to the granting of recognition should be carried out at regular intervals. It was desired that returns should be called for from provident funds and they should be gone through to see that the rules as laid down in the I.T.Act, 1961 and I.T.Rules, 1962 are not violated. Such verification was to be done in every alternate year in the Bombay and Calcutta charges and once every four years in other charges. 2. In Board's instruction No. * 581 (F.No. 215/12/72-ITA.II) dated 2nd August, 1973 it was laid down that the cases of all recognised provident funds, approved superannuation funds and approved gratuity funds should be transferred to Trust Circles and that notices under section 139(2) should be issued in all cases and if it is noticed that the rules under which the funds were recognised have been infringed, appropriate proceedings should be taken to withdraw the recognition granted to such funds. 3. Recently, the Revenue Audit has pointed out a number of instances where employers failed to transfer to the trustees of recognised provident funds, a part of their contributions and/or the employees contributions. The Board is advised that recognition given to a provident fund can be withdrawn for nonpayment of the employer's or employees contributions to the fund. 4. Information received by the Board from various field formation shows that in very few cases action has been taken to withdraw recognition for infringement of the rules. The reasons for this have been examined by the Board and the Board is of the view that its earlier instructions on this subject call for certain modification. 5. While the assessments of recognised provident funds, approved superannuation funds and approved gratuity funds should continue to be dealt within the Trust Circles, the work of verifying whether a fund continues to observe the conditions for retaining recognition should be attended to in the Commissioner's office as the verification on the basis of which the fund was granted exemption was also done in the office of the Commissioner of Income-tax. 6. With a view to tackle the problem effectively, the Board desires that the following procedure should be adopted for this purpose : (a) A letter as per Annexure-I should be issued to the trustees of all recognised provident funds within three months of the end of each financial year; (b) The information received should be examined so as to find out whether the conditions under which the fund has been recognised continue to be fulfilled. In particular it should be seen whether the employer is in default of any payment of the trustees of either the employer's or employees contribution or both; (c) If it is found that any of the conditions is not fulfilled and/or the employer is in default of payment, notice as to why recognition be not withdrawn as provided in the rules should be issued to the employer and the trustees of the fund; (d) If the requisite particulars are not furnished even after affording sufficient time for the purpose, a show cause notice should be issued; (e) On receipt of the reply, or after giving adequate opportunity to furnish the reply, the issue should be examined on merits and if it is found that the recognition granted should be withdrawn an order to that effect should be passed. 7. Any order withdrawing the recognition will be effective from the date on which the order is passed. Thereafter, the fund will cease to have recognition and all legal consequences (i.e. liability to tax, non-availability of deduction u/s 80C to the employees and u/s 36(1)(iv) to the employers) will follow.