Bharat Heavy Electricals

We have audited the attached Balance Sheet of Bharat Heavy Electricals
 Limited as at 31 st March, 2009 and also the Profit and Loss Account
 and the Cash Flow Statement for the year ended on that date annexed
 thereto. These financial statements are the responsibility of the
 Companys management. Our responsibility is to express an opinion on
 these financial statements based on our audit.
 
 We conducted our audit in accordance with the Auditing Standards
 generally accepted in India. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatements. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by the management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 In accordance with the provisions of section 227 of the Companies Act,
 1956, we report that:
 
 I.  As required by the Companies (Auditors Report) Order, 2003, issued
 by the Central Government of India under sub- section (4A) of section
 227 of the Companies Act, 1956 and on the basis of such checks of the
 books and records of the company as we considered appropriate and
 according to the information and explanations given to us, we enclose
 in the Annexure a statement on the matters specified in paragraphs 4
 and 5 of the said Order.
 
 II.  Further to our comments in the Annexure referred to in paragraph I
 above, we report that:
 
 (a) We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purpose of our
 audit.
 
 (b) In our opinion, proper books of account as required by law have
 been kept by the company so far as appears from our examination of the
 books and proper returns adequate for the purposes of our audit have
 been received from the branches not visited by us.
 
 (c) The Branch Auditors Reports have been furnished to us and have
 been appropriately dealt with while preparing our report.
 
 (d) The Balance Sheet and Profit and Loss Account and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account and with the audited returns received from the branches.
 
 (e) In our opinion, the Balance Sheet and Profit and Loss Account and
 Cash Flow Statement dealt with by this report comply with the
 Accounting Standards referred to in sub Section (3C) of Section 211 of
 the Companies Act, 1956.
 
 (f) In terms of Notification No. GSR 829(E) dated 21.10.2003 issued by
 the Department of Company Affairs, Government of India, the provisions
 of Section 274(1 )(g) of the Companies Act, 1956 are not applicable to
 the Company.
 
 (g) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts read together with the
 Accounting Policies and Explanatory Notes in Schedule-19, give the
 information required by the Companies Act, 1956, in the manner so
 required and give a true and fair view in conformity with the
 accounting principles generally accepted in India:
 
 (i) In the case of the Balance Sheet, of the state of affairs of the
 Company as at March 31,2009; and
 
 (ii) In case of Profit & Loss Account of the profit for the year ended
 on that date; and
 
 (iii) In the case of cash flow statements of the cash flows for the
 year ended on that date.
 
 
 
 Annexure to the Auditors1 Report
 
 (Referred to in Para I of our report of even date)
 
 i) (a) The Company has generally maintained proper records showing full
 particulars including quantitative details and situation of its fixed
 assets.
 
 (b) We are informed that management has generally carried out the
 physical verification of a portion of  the fixed assets in accordance
 with their phased programme of physical verification, which is
 considered reasonable having regard to the size
 
 of the Company and nature of its business and no material discrepancies
 were noticed on such verification to the extent verification was made
 during the year. In respect of 65 locomotives given to Indian Railways
 on lease instead of physical verification a certificate confirming
 physical possession of these locomotives has been obtained from Indian
 Railways as per the lease agreement.
 
 (c) The company has not disposed off any substantial part of its fixed
 assets so as to affect its going concern status.
 
 ii) (a) As explained to us physical verification of inventory has been
 conducted by the management under Perpetual Inventory Programme at
 regular intervals during the year except for stock of work in progress
 and finished goods in iew units where these are verified at the year
 end with reference to the inspection reports and production reports of
 the Production Planning Department of such units. In regard to stocks
 lying with contractors/fabricators and other parties, confirmations
 were received in a few cases only.  In our opinion the frequency of
 verification is reasonable.
 
 (b) In our opinion procedures of physical verification of inventory,
 followed by the management are generally reasonable and adequate in
 relation to the size of the Company and the nature of its business.
 
 (c) The company has generally maintained proper records of inventory
 and the discrepancies noticed on physical verification of inventory
 with regard to the size and nature of operations of the company were
 not material and have been properly dealt with in the books of account
 of the Company.
 
 Hi) (a) According to the information given to us, the company has not
 granted any loans, secured or unsecured to companies, firms and other
 parties covered in the register maintained under section 301 of the
 Companies Act, 1956. Accordingly, clauses (iii)(b) to (iii)(d) of
 paragraph 4 of the Companies (Auditors Report) Order, 2003 are not
 applicable to the company for the current year.
 
 (b) According to the information given to us, the company has not taken
 any loans, secured or unsecured, from companies, firms or other parties
 covered in the register maintained under Section 301 of the Companies
 Act, 1956. Accordingly, clauses (iii) (f) and (iii) (g) of paragraph 4
 of the Companies (Auditors Report) Order, 2003 are not applicable to
 the company for the current year.
 
 iv) In our opinion and according to the information
 
 and explanation given to us, there are adequate internal control
 systems commensurate with the size of the company and the nature of its
 business with regard to purchase of inventory, fixed assets and sale of
 goods and services. Further on the basis of our examination of the
 books and records of the company, and according to the information and
 explanation given to us, we have neither come across nor have been
 informed of any continuing failure to correct major weaknesses in
 internal control systems.
 
 v) According to the information and explanation
 
 given to us, we are of the opinion that there are no contracts and
 arrangements referred to in Section 301 of the Act during the year that
 need to be entered in the register maintained under that Section.
 Accordingly, clause (v) (b) of paragraph 4 of the Companies (Auditors
 Report) Order, 2003 is not applicable to the company for the current
 year.
 
 vi) According to the information and explanation
 
 given to us, the company has not accepted any deposits from public
 during the year within the meaning of sections 58A and 58AA or any
 other relevant provisions of the Act and the Companies (Acceptance of
 Deposits) Rules 1975 framed thereunder.
 
 vii) According to the information and explanation
 
 given to us, in our opinion, the Internal Audit System of the Company
 is largely commensurate with the size and nature of its business.
 
 viii) We have broadly reviewed the books of accounts and records
 maintained by the company pursuant to the rules prescribed by the
 Central Government for the maintenance of cost records under section
 209 (I) (d) of the Companies Act, 1956 in respect of manufacture of
 Electric Motors, Seamless Steel Tubes, Electric Generator, Power
 Transformers, Power driven Pumps, Power Generation through wind mills,
 control instrumentation and automation equipment and are of the opinion
 that prima facie the prescribed accounts and records have been made and
 maintained. The contents of these accounts and records have not been
 examined by us.
 
 ix) (a) According to the information and explanation given to us, in
 our opinion, the company is generally regular in depositing undisputed
 statutory dues including Provident Fund, Investor Education and
 Protection Fund, Employees State Insurance, Income Tax, Sales Tax,
 Wealth Tax, Service Tax, Excise Duty, Customs Duty, Cess and any other
 material statutory dues as applicable with appropriate authorities.
 There were no undisputed amounts payable in respect of Provident Fund,
 Investor Education and Protection Fund, Employees State Insurance,
 Income Tax, Sales Tax, Wealth Tax, Service Tax, Excise Duty, Customs
 Duty, Cess and other statutory dues outstanding as at 31 st March, 2009
 for a period of more than six months from the date they become payable.
 
 (b) According to the information and explanation given to us, the
 particulars of Sales Tax, Income Tax, Excise Duty, Service Tax, Custom
 Duty and Cess which have not been deposited on account of dispute are
 as under:
 
 SI.  Name of        Nature of     Amount         Forum where
 No.  the Statute    the Dues      (Rs. In        dispute is
                                   Crore)         pending
 
 1     Central Sales     Sales Tax, 31.66        Assessing
       Tax Act, Work    Entry Tax                     Officer
       Contract Tax      & Work
       Act, Lease Tax, Contract    108.31        Commissioner/
       Entry Tax Act     Tax                       Dy.
       and Sales Tax                             Commissioner
       Act of various
       States                       25.25         Appellate
                                                 Tribunal
                                    86.54        High Court/
                                                  Supreme court
                                     3.07          Various
                                                   Appellate
                                                   Authorities_
 2     Income Tax         Income    16.57       Commissioner/
       Act, 1961            Tax                      Dy,
                                                 Commissioner
                                     9.92        Appellate
                                                 Tribunal
                                     2.07        High Court
 
 3     Central Excise   Excise       31.41       Commissioner
       Act, 1944         Duty                    (Appeals)
                                    132.64       Appellate
                                                 Tribunal      
 4     Service Tax      Service       7.13       Commissioner
       under the          Tax                    (Appeals)
       Finance Act,
       1994                          63.10        Appellate
                                                  Tribunal
 
 5     Custom Act,      Custom        0.15        Commissioner
 1962                   Duty                      (Appeals)
 
 Total                              517.82
 
 x) The company has no accumulated losses as at
 
 March 31, 2009 and it has not incurred any cash losses in the financial
 year ended on that date or in the immediately preceding financial year.
 
 xi) According to the records of the company
 
 examined by us and the information and explanations given to us, the
 company has not defaulted in repayment of dues to financial
 institutions, banks or debenture holders.
 
 xii) The company has not granted any loans and
 
 advances on the basis of security by way of pledge of shares,
 debentures and other securities.
 
 xiii) The provisions of any special statute applicable to
 
 Chit fund/ Nidhi / Mutual benefit fund/Societies are not applicable to
 the company.
 
 xiv) In our opinion, the company is not dealing in or
 
 trading in shares, securities, debentures and other investments.
 Accordingly, the provisions of clause 4(xiv) of the Companies
 (Auditors Report) Order, 2003 are not applicable to the company.
 
 xv) In our opinion and according to the information
 
 and explanations given to us, the company has not given any guarantee
 for loans taken by others from banks or financial institutions during
 the year.
 
 xvi) As per information and explanations given to us, the company has
 not obtained any term loan during the year.
 
 xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the company, we report
 that no funds raised on short-term basis have been used for long-term
 investment.
 
 xviii) The company has not made any preferential allotment of shares to
 parties and companies covered in the register maintained under section
 301 of the Companies Act, 1956 during the year.
 
 xix) In our opinion, the company has not issued any
 
 debentures during the year.
 
 xx) The company has not raised any money by public
 
 issue during the year.
 
 xxi) During the course of our examination of the books
 
 and records of the company, carried out in accordance with the
 generally accepted auditing practices in India, and according to the
 information and explanations given to us, we have neither come across
 any instance of fraud on or by the company noticed or reported during
 the year except in case of HPEP - Hyderabad where a Q0n
 
 fraud / irregularity in respect of one of the stores has been noticed.
 As the documents such as material issue vouchers and material
 requisition slips etc., were manipulated and some documents such as bin
 cards, stores issue vouchers were destroyed, to ascertain the impact of
 fraud/misappropriation on the unit, the matter needs more detailed
 investigation. As per the information made available to us, the quantum
 of fraud / misappropriation in respect of stores may be approximately
 Rs. 6 Crore. The amount to the extent of fraud has been booked in the
 consumption during earlier years as such has no bearing in the current
 years consumption.  According to the explanations given to us by the
 management, appropriate action has been taken by the company in this
 regard.
 
                                                  For M.L Puri & Co.  
                                              Chartered Accountants
                                                      (Navin Bansal)
 Date: May 27, 2009                                         Partner
 Place: New Delhi                                     M. No. 091922