Inspection of provident fund accounts under Rule 74. - Income Tax - 1357/CBDT

INSTRUCTION NO. 1357/CBDT Dated: September 17, 1980 Attention is invited to the following Instructions issued by the Board on the above subject:- i) F.No.215/28/70-ITA.II DATED 12-2-71 II)Instruction No.581 vide F.NO.215/12/72-ITA(II), DATED 2-8-73. III)INSTRUCTION NO.1188 VIDE F.NO.215/11/78-ITA(II), DATED 22-6-78. 2. The Board had in its letter dated 12-2-71 desired that Income-tax returns should be called for from the recognised provident funds and the same should be gone through to see that the rules have not been violated. Such verifications of accounts of the recognised provident funds were to be done every alternate year in Bombay and Calcutta charges and once in every four years in other charges. 3. As per Instruction No.581 dated 2-8-73 the Board desired that the following steps may be taken immediately so that the problem of infringement of rules is tackled effectively:- i) A list of recognised provident funds, approved superannuation funds and approved gratuity funds may be prepared immediately and a copy forwarded to the board by 15th August 73. ii) All these cases may be assigned u/s.127 by the Commissioner to the ITO. If one ITO is not able to deal with these cases another ward or wards may be created. iii) Assessment proceedings may be initiated by the ITO by issuing notice u/s.139(2) for the current assessment year. If in any of the cases it is found on the basis of the current scrutiny that there has been infringement of the provisions in any assessment year appropriate proceedings may be taken. 4. Instruction No.1188 dated 22nd June 1978, while reiterating the administrative arrangements for the assessments of recognised funds, directed that the work of verifying whether a fund continues to observe the conditions for obtaining recognition should be attended to in the Commissioners office as the verification on the basis of which the fund was granted exemption was also done in the offices of the Commissioners. This instruction outlines five steps to be followed so as to tackle this problem effectively. These are as under:- a) A letter as per Annexure I should be issued to the trustees of all recognised provident funds within 3 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 to the trustees of either the employer's or employee's 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. 5. The PAC in their 110th Report (1978-79) have, however observed in para 126 as under: The committee regret that though under rule 74(4) of the I.T.Rules, the accounts of a recognised provident fund are required to be prepared at intervals of not more than 12 months and are open to inspection by the I.T.Authorities no such inspection has ever been conducted. The committee recommend that accounts of recognised provident funds should be inspected at fixed intervals to see that such funds are not put to any misuse by unscrupulous employers. 6. These observations of the Public Accounts Committee (PAC) were examined and the Board has reviewed the position. The instructions already issued on the subject cover all the requirements set out by the PAC in the recommendation referred to above. 7. In spite of clear instructions on the subject the Board find that no worthwhile action is being taken to ensure that accounts of the recognised provident funds comply with the statutory requirements. The Board therefore desire that the instructions already issued on the subject should be strictly followed and steps taken for considering withdrawal of provident funds wherever necessary. 8.As a feed-back on the subject the Board desire to have a report on the action taken for inspection of provident fund accounts during the financial year 1979-80 as per annexure by 15-10-80. A report on the same lines is to be forwarded in future for every completed financial year which should reach by 15th of May of every year. The reports should be sent to the DI who will monitor them and report to the Board. 9. Similar reports should be sent for approved super-annuation funds and approved gratuity funds also.