Verification of provident fund. - Income Tax - 1241/CBDT

INSTRUCTION NO. 1241/CBDT Dated : March 28, 1979 Attention is drawn to Instruction No.1188 dated 22nd June, 1978 laying down a new procedure to be followed in each Commissioner's office for verifying that the provident funds which have been recognised continue to observe the conditions for retaining recognition. It is desired by the Board that if as a result of such verification it is considered necessary to withdraw recognition in any case a copy of the order passed in this regard should also be sent to the ITOs having jurisdiction in respect of the company the provident fund and the ITO Salary Circle assessing the employees. 2. Instances have also come to the notice of the Board where deductions have been allowed u/s.36(1)(iv) of the I.T.Act 1961 in respect of Employers contributions to the provident fund while the applications for grant of recognition to the funds were still pending before the Commissioners. Deductions have also been allowed by the ITO assessing employees contributing to such provident funds. This is a serious lapse and could have been avoided if the ITOs had applied their mind properly before allowing the said deductions. Further there may also be cases where as a result of subsequent verification referred to in para 1 recognition granted earlier to the fund may have been withdrawn by the Commissioner. 3. It is therefore necessary that whenever the ITOs come across any claim of deduction on account of the contribution to a fund by the employer they should satisfy themselves on the following points and keep a record thereof in the file: i. Whether the fund has been granted recognition and if so the date of the order. ii. Whether the recognition granted earlier continues to remain in force and has not been withdrawn by any subsequent order. 4. Where in respect of a fresh application for grant of recognition in finalising the matter the ITOs holding jurisdiction in respect of the company(Employer), fund and the employees should be suitably informed by him so that they can deal with the claim of deduction/exemption with a proper knowledge of the factual position.