We have audited the attached Balance Sheet of Gitanjali Gems Limited
 having their registered office at 801/802, Prasad Chambers, Opera
 House, Mumbai – 400 004 as at 31st March, 2011 and the Profit and Loss
 Account and the Cash Flow Statement of the Company for the year ended
 on that date annexed thereto. Tese financial Statements are the
 responsibility of the Company''s 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. Tose standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free from material misstatements. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the 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.
 
 I.  As required by the Companies (Auditor''s report) Order, 2003 (as
 amended ) issued by the Central Government in terms of Section 227(4A)
 of the Companies Act, 1956 (the Act), and on the basis of such checks
 as we considered appropriate and according to the information and
 explanations given to us during the course of the audit, we annex
 hereto 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 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 accounts as required by Law have
 been kept by the Company so far as appears from our examination of
 those books of the Company.
 
 c) The Balance Sheet, Profit and Loss Account and the Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account of the Company.
 
 d) In our opinion, the Balance Sheet, Profit and Loss Account and the
 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.
 
 e) On the basis of the written representations received from the
 directors of the Company as on 31st March, 2011, and taken on record by
 the Board of Directors of the Company, we report that none of the
 directors is disqualified as on 31st March, 2011 from being appointed
 as a director in terms of clause (g) of sub-section (1) of Section 274
 of the Companies Act, 1956.
 
 f) In our opinion and to the best of our information and according to
 the explanations given to us, the said Balance Sheet and the Profit and
 Loss Account read together with notes thereon appearing in schedule 17
 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 the affairs of
 the Company as at 31st March, 2011,
 
 (ii) in the case of the Profit and Loss Account, of the profit of the
 Company for the year ended on that date and
 
 (iii) in the case of the Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 Annexure to the Auditors'' Report
 (Referred to in paragraph I of our report of even date)
 
 1 (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of its fixed
 assets.
 
 (b) The fixed assets of the Company have been physically verified by the
 management at reasonable intervals during the year which, in our
 opinion is reasonable having regard to the size of the Company and the
 nature of its assets and no material discrepancies were noticed on such
 verification.
 
 (c) During the year, the Company has not disposed off any substantial
 part of fixed assets.
 
 2 (a) The inventory has been physically verified by the management
 during the year and also at the year end.
 
 (b) The procedures of physical verification of inventory followed by the
 management is reasonable and adequate in relation to the size of the
 Company and the nature of its business.
 
 (c) The Company is maintaining proper records of inventory. No material
 discrepancies were noticed on physical verification.
 
 3 (a) The Company has granted unsecured loans / advances to its
 companies, firms or other parties covered in the register maintained
 under section 301 of the Act. The number of parties are Twenty Four and
 amount outstanding as at 31st March, 2011 is Rs. 6,129.21 millions
 (Previous year Rs. 4,112.64 millions and Number of Parties : Twenty
 Six)
 
 (b) The above loan is interest free except in respect of one of the
 wholly owned subsidiary companies. In respect of the said wholly owned
 subsidiary company, the loan amount carries interest and the repayment
 is regular.
 
 (c) In respect of other companies, as no installments of repayment of
 principal amount have been stipulated the question of repayment being
 regular does not arise.
 
 (d) The Company has taken unsecured loans from Companies, firms and
 other parties covered under section 301 of the Act. The number of party
 is One and the amounts outstanding as at 31st March, 2011 is Rs. 15.90
 millions (Previous Year Rs. 0.62 millions and Numbers of parties :
 Two). The said loan is interest free and there are no stipulations as to
 repayment.
 
 4 (a) In our opinion and according to the information and explanations
 given to us, there are adequathe internal control procedures
 commensurate with the size of the Company and the nature of its
 business, for the purchase of inventory, fixed assets and for the sale
 of goods and services.
 
 (b) During the course of our audit, no major weakness has been noticed
 in the internal control system in respect of these areas.
 
 5.  According to the information and explanations provided by the
 management, we are of the opinion that the particulars of contracts or
 arrangements referred to in Section 301 of the Act that need to be
 entered into the register maintained under Section 301 have been so
 entered.
 
 In our opinion and according to the information and explanations given
 to us, all the transactions made in pursuance of such contracts or
 arrangements exceeding value of Rupees Five Lakhs have been entered
 into during the financial year at prices which are reasonable having
 regard to the prevailing market price at the relevant time, except that
 in respect of purchases and sales of some of the products, no
 comparison of prices could be made because of unique and specialised
 nature of items involved and absence of any comparable prices. We are
 unable to comment whether these transactions were made at prevailing
 market prices at the relevant time.
 
 6.  The Company has not accepted any deposits from the public.
 
 7.  The Company has engaged an independent Chartered Accountant firm to
 carry out the internal audit of the Company. In our opinion, the
 internal audit system is commensurate with its size and nature of its
 business.
 
 8.  The Central Government has not prescribed maintenance of cost
 records under Section 209(1) (d) of the Companies Act, 1956 for any of
 the products of the Company.
 
 9 (a) Undisputed statutory dues including provident fund, investor
 education and protection fund, employees'' state insurance, income tax,
 sales tax, service tax, custom duty, cess and other statutory dues have
 generally been regularly deposited with the appropriate authorities.
 According to the information and explanations given to us, no
 undisputed amounts payable in respect of provident fund, investor
 education and protection fund, employees'' state insurance, income tax,
 sales tax, service tax, custom duty, cess and other statutory dues were
 outstanding at the year end for a period of more than six months from
 the date they became payable.
 
 (b) According to the information and explanations given to us by the
 Management and as per records of the Company examined by us there were
 no disputed dues in respect of Custom Duty, Wealth-tax, Excise Duty and
 Cess not deposited as at 31st March, 2011 except in respect of income
 tax and service tax dues as under :
 
 1.  Disputed Income tax dues of Rs.47.44 millions for A.Y. 2006-2007
 and Rs. 125.61 millions for A.Y.2007-08. Appeal filed with CIT(A).
 
 2.  Disputed Service tax dues of Rs.43.63 millions for period 2005 to
 2008 Showcause cum Demand notice reply filed with Service T a x
 Authorities.
 
 10.  The Company has no accumulated losses at the end of the financial
 year and it has not incurred any cash losses in the current and
 immediately preceding financial year.
 
 11.  Based on our audit procedures and as per the information and
 explanations given to us by the management, we are of the opinion that
 the Company has not defaulted in repayment of its dues to any financial
 institution or bank during the year.
 
 12.  The Company has not granted loans and advances on the basis of
 security of pledge of shares, debentures and other securities.
 
 13.  The provisions of Clause 4 (xiii) of the Order (as amended) are not
 applicable as the Company is not a chit fund company or nidhi/mutual
 benefit fund/society.
 
 14.  The Company has not dealt or traded in shares, securities,
 debentures or other investments during the year. Hence provisions of
 Clause 4 (xiv) of the Order (as amended) are not applicable.
 
 15.  According to the information given to us and managements''
 representation, the Company has given guarantees of Rs.18,478.70
 millions for the loans taken by its wholly owned subsidiary companies
 from banks/ financial institutions.
 
 16.  The Company did not avail any term loans during the year.
 
 17.  According to the information and explanations given to us and
 overall examination of the Balance Sheet and Cash Flow Statement of the
 Company we report that no funds raised on short term basis have been
 used for long term investments.
 
 18.  During the year, the Company has not made any preferential
 allotment of shares to parties and companies covered in the Register
 maintained under section 301 of the Act.
 
 19.  The Company has not issued any debenture during the year.
 
 20.  The Company has not raised any money by public issues during the
 year. However the Company had issued 6,01,598 Equity Shares of Rs.10
 each for premium of Rs. 210 each on conversion of FCCBs.
 
 21.  Based upon the audit procedure performed for the purpose of
 reporting the true and fair view of the financial statements and as per
 the information and explanations given by the management, we report
 that no fraud on or by the Company has been noticed or reported during
 the course of our audit.
 
 
                                         For Ford, Rhodes, Parks & Co.
  
                                                Chartered Accountants
 
                                         Firm Registration No.102860W
 
                                                           A.D.Shenoy
 
                                                              Partner
 
                                                  Membership No.11549
 
 Place : Mumbai
 
 Dated : 27th May, 2011