Clause wise discussion on form 3CD Clause 8 (a) and (b)

[gopalji]

Change in the nature of business or profession after the end of the previous year but before the signing of the audit report.

Even, a business may be completely revamped or changed like from trading of cloth to trading of motor vehicles but after the end of the previous year. Though such kind of changes may be relevant if we take into consideration the standards on auditing but so far as this clause is concerned, the change has no relevant for taxation purpose hence the changes after the end of the previous year but before the date of signing of report is not required to be resported.

A manufacturer and exporter of garments until last financial year does business of high sea sales in current financial year and high sea sales not material in relation to existing business- no need to report since change is not a material change.

[gopalji]

This might be the background of this clause that in case of change in the nature of business or profession, the various accounting and profitability ratios may differ as each business or profession has its own trends of profit and ratios so the change may be brought to the knowledge of taxmen before hand and without approaching to the assessee.

Ideally, the genesis of the tax audit report was to help the AO for ascertaining the total income of the assessee and a kind of assurance to the Taxmen that the facts given is form 3 CD are true and correct and the financial statements are also free from material omissions and misstatements but practically tax audit report is never considered by AO (of course it need not be submitted with return of income except remarks for few clause in the return form itself) before taking the case into regular assessment.