Clause wise discussion on form 3CD Clause 8 (a) and (b)
(a) Nature of business or profession (if more than one business or profession is carried on during the previous year, nature of every business or profession)
(b) If there is any change in the nature of business or profession, the particulars of such change.
[Clause 8 (a) and (b)]
In regard to the nature of business, the principal line of each business such as manufacturing of electronic goods, trading in chemicals, wholesale trade in foodgrains or a retail trade in grocery should be stated. In case of a person rendering services, the nature of each type of service should be broadly stated
In the case of a person rendering services, the nature of services should be broadly stated.
This information is similar to the information required in the return of income “Part IV, Information relevant to the business or profession”, where an assessee is required to state the nature of business or profession.
Any material change in the nature of business should be set out
Any material change in the nature of business should be precisely set out.
The change include
- change from manufacturer to trader, as well as,
- change in the principal line of business.
For example:
- an assessee switching over from wholesale business to retail business or
- an assessee switching over from manufacturing his own commodities to manufacturing goods on job basis for others.
Likewise,
any addition to or permanent discontinuance of, a particular line of business may also amount to change requiring reporting.
However, temporary suspension of the business may not amount to change and therefore need not be reported.
tax auditor to note the changes
The tax auditor in order to note the changes, if any should review the business report or the minutes of meetings.
On the basis of this, he may make necessary enquiries and seek information and determine whether any change has occurred or not.
If needed,
the tax auditor should get a declaration from the assessee regarding change in the nature of business, if any.
In the case of amalgamation
In the case of amalgamation
if there is a similar line of activity, no reference need be made.
However,
if a new line of activity emerges because of amalgamation, the same may be stated.
In the case of restructuring, if any line of activity is being hived off, the same may also be stated.
Part B
The information required under Part B regarding the nature of business or profession in respect of every business or profession carried on during the previous year is the same as required to be given under clause 8(a). However, under this clause code of the nature of business is to be selected from the list of various nature of businesses given in the Annexure itself. The relevant code numbers in respect of each class of business or profession is to be given. The tax auditor should further verify that there is no contradiction between the particulars given in clause 8(a) and this item.
Sl. No.
Parameters
Current year
Preceding year
1
Paid up share capital/ capital of partner/ proprietor
2
Share Application Money/ Current Account or Partner or Proprietor, if any
3
Reserves and Surplus/ Profit and Loss Account
4
Secured loans
5
Unsecured loans
6
Current liabilities and provisions
7
Total of Balance Sheet
8
Gross turnover/Gross receipts
9
Gross profit
10
Commission received
11
Commission paid
12
Interest received
13
Interest paid
14
Depreciation as per books of account
15
Net Profit (or loss) before tax as per Profit and Loss Account
16
Taxes on income paid/provided for the books
Parameters
The statement of particulars contains 16 parameters. This information is to be given by all assessees though the nomenclature of some of the parameters does not match with the nomenclature used in the case of non-corporate assessees. For such assessees, such information is to be given with suitable modification/ clarification by way of footnote. Information on these parameters has to be given both in respect of the current year as well as the preceding year. These parameters are discussed :
1. Paid-up share capital/capital of partner/proprietor
The Guidance Note on terms used in financial statements defines "paid-up share capital" as that part of the subscribed share capital for which consideration in cash or otherwise has been received. This includes bonus shares allotted by the corporate enterprises. There is no difficulty in giving information regarding "paidup share capital" for a corporate assessee. In respect of non-corporate assessees like sole proprietorship or partnership firm the term "capital" has to be understood in terms of the capital contribution made by the sole proprietor or the partners as the case may be. In practice assessees follow two types of accounting policies for maintaining capital account. One policy is to maintain the capital in a fixed manner and to make all the adjustments regarding share of profit or loss, drawings, interest, remuneration payable to the sole proprietor or the partners in the drawings/current account. In such a case the amount of fixed capital is to be stated as capital. Alternatively, where the floating capital concept is followed, i.e. all the above-mentioned adjustments are made in the capital account itself, then the net capital is to be stated.
2. Share application money/ current account of partner or proprietor, if any
The information regarding share applicable money is applicable for corporate assessees. Particulars about the amount received as share application money should be furnished under this clause.
Regarding partner or sole proprietor, the net balance in the current account is to be shown. The tax auditor should verify the amount received in regard to application and ensure proper disclosure under this clause. In regard to current account of partner or proprietor he has to verify the correctness of the particulars of the current account.
3. Reserves and surplus/ Profit and loss account
The Guidance Note on terms used in financial statements defines "reserves" as the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue) appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability. The reserves are primarily of two types: capital reserves and revenue reserves. Further, surplus is the credit balance in the profit and loss statement after providing for proposed appropriations, e.g., dividend or reserves. Part III of Schedule VI of the Companies Act, 1956 contains interpretation of the terms "provision", "reserve" and "capital reserve". The tax auditor should have due regard to these definitions and ensure that proper information is given in regard to reserves and surplus. In the case of non-corporate assessees besides reserves, surplus in the profit and loss account not appropriated to the capital accounts of partners or proprietor is to be disclosed under this item.
8. Gross turnover/gross receipts
The term sales, turnover or gross receipts has been explained before. The term "gross turnover" is a commercial term and it should be construed in accordance with the method of accounting regularly employed by the assessee. Further, the Guidance Note defines "sales turnover" as the aggregate amount for which sales are effected or services rendered by an enterprise. The terms "gross turnover" and "net turnover" (or gross sales and net sales) are sometimes used to distinguish the same aggregate before and after deduction of returns and trade discounts. The information to be provided under this item accordingly shall be the gross turnover/
gross receipts as per the method of accounting being followed by the assessee. The tax auditor should have due regard to the method of accounting while verifying the particulars regarding "gross turnover/ gross receipts".
15. Net profit (or loss) before tax as per profit and loss account
The net profit or loss as per the books of account before tax is to be furnished under this item. The Guidance Note defines net profit as the excess of revenue over expenses during a particular accounting period. When the result of this computation is negative it is referred to as net loss. The tax auditor should verify the figure of net profit or net loss with the profit and loss account and the balance sheet. The net profit to be stated here should be the same as considered for working out/turnover ratio under sub-clause (b) of clause 32.
Change in the nature of business
In regard to the nature of business or profession, Part 'B' of the annexure – I to Form 3CD needs to be referred to, which also requires to give nature of business. This Annexure provides details of various sector and sub-sector in which an assessee could be engaged. Information has to be furnished in respect of each business. An amendment similar to the one in sub-clause (b) of clause 8 has been carried out in Part B of Annexure I. Information provided under this clause should be in consonance with the information provided in Part B of Annexure – I.
Nature of services in form 3CD, change in the nature of services in form 3CD
The guidance note on tax audit issued by ICAI has not classified the naure of services or change thereof. The Tax Auditor may take the help of codes specified at the end of Part B of Annexure I to Form No. 3CD for the purpose of codes as a matter of suitable nature of business or the classes of various services specified under service tax law may also be helpful.
If a chartered accountant was doing auditing work in the past but left the attestation job and started the consultancy services, it would amount to change in the nature of services.
codes of business or profession
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