a) Basis of preparation
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in India
(Indian GAAP). These financial statements have been prepared to comply
in all material aspect with the accounting standards notified under the
Companies (Accounting Standards) Rules, 2006 (as amended) and the other
relevant provisions of the Companies Act, 1956. The financial
statements have been prepared under the historical cost convention on
an accrual and going concern basis except for certain financial
instruments which are measured at fair value.
The accounting policies adopted in the preparation of the financial
statements are consistent with those of the previous year.
b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon management''s best
knowledge of current events and actions, actual results could differ
from these estimates.
c) Tangible fixed assets and capital work-in-progress
Fixed assets are stated at cost less accumulated depreciation and
impairment losses if any. Cost comprises the purchase price and
directly attributable cost of bringing the asset to its working
condition for its intended use. Any trade discounts and rebates are
deducted in arriving at the purchase price.
Subsequent expenditure related to an item of fixed assets is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard or period of
performance. All other expenses on existing fixed assets, including day
to day repair and maintenance expenditure and cost of replacing parts,
are charged to the statement of profit and loss for the period during
which such expenses are incurred.
Gains or losses arising from derecognition of fixed assets are measured
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is derecognized.
Fixed assets under construction and cost of assets not ready for use
before the year-end, are disclosed as capital work in progress.
d) Depreciation on tangible fixed assets
Depreciation on tangible fixed assets is provided on the straight-line
method over their estimated useful lives, as determined by the
management, at rates which are equal to or higher than the rates
prescribed under Schedule XIV of the Companies Act, 1956. Leasehold
land is depreciated over the period of lease and leasehold improvements
over the remaining period of lease or 4 years, whichever is lower.
Depreciation is charged on a pro-rata basis for assets purchased/sold
during the year. Assets costing less than Rs. 5,000 are fully depreciated
in the year of purchase.
e) Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Internally generated intangible assets,
excluding capitalized development costs, are not capitalized and
expenditure is reflected in the statement of profit and loss in the
year in which the expenditure is incurred.
Intangible assets are amortized on a straight line basis over the
estimated useful economic life. The Company uses a rebuttable
presumption that the useful life of an intangible asset will not exceed
ten years from the date when the asset is available for use. If
persuasive evidence exists to the affect that useful life of an
intangible asset exceed ten years, the Company amortizes that
intangible asset over the best estimate of its useful life.
The amortization period and the amortization method are reviewed at
least at each financial year end. If the expected useful life of the
asset is significantly different from the previous estimate, the
amortization period is changed accordingly. If there has been a
significant change in the expected pattern of economic benefit from the
asset, the amortization method is changed to reflect the changed
Gains or losses arising from derecognition of intangible assets are
measured as the difference between the net disposal proceeds and the
carrying amount of the assets and are recognized in the statement of
profit and loss when the asset is derecognized.
Goodwill arising out of amalgamation is amortized over its useful life
not exceeding 5 years unless a longer period can be justified .The
management''s estimates of the useful life of the Software is as
f) Research and development costs
Research costs are expensed as incurred. Development expenditure
incurred on an individual project is recognized as an intangible asset
when the Company can demonstrate all the following:
(i) The technical feasibility of completing the intangible asset so
that it will be available for use or sale;
(ii) Its intention to complete the asset;
(iii) its ability to use or sell the asset;
(iv) how the asset will generate future economic benefits;
(v) the availability of adequate resources to complete the development
and to use or sell the asset; and
(vi) the ability to measure reliably the expenditure attributable to
the intangible asset during development.
Any expenditure so capitalized is amortized over the period of expected
future sales from the related project.
The carrying value of development costs is reviewed for impairment
annually when the asset is not yet in use, and otherwise when events or
changes in circumstances indicate that the carrying value may not be
Where the Company is the lessee
Finance leases, which effectively transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased item,
are capitalized at the inception of the lease term at the lower of the
fair value and present value of the minimum lease payments. Lease
payments are apportioned between the finance charges and reduction of
the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognized as
finance cost in the statement of profit and loss. Lease management
fees, legal charges and other initial direct costs of the lease are
A leased asset is depreciated on a straight line basis over the useful
life of the asset or the useful life envisaged in Schedule XIV to the
Companies Act, 1956, whichever is lower. However, if there is no
reasonable certainty that the Company will obtain the ownership by the
end of lease term, the capitalized asset is depreciated on a straight
line basis over the shorter of the estimated useful life of the asset,
the lease term or the useful life envisaged in Schedule XIV to the
Companies Act, 1956.
Leases, where the lessor effectively retains substantially all the
risks and benefits of ownership of the leased items, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
Where the Company is the lessor
Leases in which the Company transfers substantially all the risk and
benefits of ownership of the asset are classified as finance leases.
Assets given under a finance lease are recognized as a receivable at an
amount equal to the net investment in the leases. After initial
recognition, the Company apportions lease rentals between the principal
repayment and interest income so as to achieve a constant periodic rate
of return on the net investment outstanding in respect of the finance
leases. The interest income is recognized in the statement of profit
and loss. Initial direct cost such as legal cost, brokerage cost etc
are recognized immediately in the statement of profit and loss.
Leases in which the Company does not transfer substantially all the
risk and benefits of ownership of the asset are classified as operating
leases. Assets subject to operating leases are included in fixed
assets. Lease income on an operating lease is recognized in the
statement of profit and loss on a straight line basis over the lease
term. Costs, including depreciation, are recognized as an expense in
the statement of profit and loss. Initial direct cost such as legal
cost, brokerage cost etc are recognized immediately in the statement of
profit and loss.
h) Borrowing cost
Borrowing costs include interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
Borrowing costs directly attributable to the acquisition, construction
or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale are capitalized as
part of the cost of the respective asset. All other borrowing costs
are expensed in the period they occur.
i) Impairment of tangible and intangible assets
An assessment is done at each balance sheet date as to whether there is
any indication that an asset (tangible or intangible) may be impaired.
For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows from other assets or groups
of assets, is considered as a cash generating unit. If any such
indication exists, an estimate of the recoverable amount of the asset/
cash generating unit is made. Assets whose carrying value exceeds their
recoverable amount are written down to the recoverable amount.
Recoverable amount is higher of an asset''s or cash generating unit''s
net selling price and its value in use. Value in use is the present
value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and
risks specific to the asset.
Investments, which are readily realizable and intended to be held for
not more than one year from the date on which such investments are
made, are classified as current investments. All other investments are
classified as long-term investments.
On initial recognition, all investments are measured at cost. The cost
comprises the purchase price and directly attributable acquisition
charges such as brokerage, fees and duties. If an investment is
acquired, or partly acquired by the issue of shares or the other
securities, the acquisition cost is the fair value of securities
issued. If an investment is acquired in exchange for another asset, the
acquisition is determined by reference to the fair value of the asset
given up or by reference to the fair value of the investment acquired,
whichever is more clearly evident.
Current investments are carried at the lower of cost and fair value
determined on an individual investment basis. Long- term investments
are carried at cost. However, provision for diminution in value is made
to recognize a decline other than temporary in the value of the long
On disposal of an investment, the difference between its carrying
amount and net disposal proceeds is charged or credited to the
statement of profit and loss.
Stock in trade, stores and spares are valued at the lower of the cost
or net realizable value. Net realizable value is the estimated selling
price in the ordinary course of business, less estimated costs of
completion and estimated costs necessary to make the sale.
Cost of stock in trade procured for specific projects is assigned by
specific identification of individual costs of each item. Costs of
stock in trade, that are interchangeable and not specific to any
project is determined using the weighted average cost formula. Cost of
stores and spare parts is determined using weighted average cost.
l) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue from sale of goods and rendering of services
is recognized when risk and reward of ownership have been transferred
to the customer, the sale price is fixed or determinable and
collectability is reasonably assured. The Company derives revenues
- Software services;
- Infrastructure services; and
- Business process outsourcing services.
i) Software services
Revenue from software services comprises income from time and material
and fixed price contracts. Revenue with respect to time and material
contracts is recognized as related services are performed. Revenue from
fixed price contracts is recognized in accordance with the percentage
completion method under which the revenue is recognized on the basis of
cost incurred in respect of each contract as a proportion of total cost
expected to be incurred. The cumulative impact of any revision in
estimates of the percentage of work completed is reflected in the year
in which the change becomes known. Provision for estimated losses is
made during the year in which a loss becomes probable based on current
cost estimates. Revenue from sale of licenses for the use of software
applications is recognized on transfer of title in the user license.
Revenue from annual technical service contracts is recognized on a pro
rata basis over the period in which such services are rendered. Income
from revenue sharing agreements is recognized when the right to receive
ii) Infrastructure services
Revenue from sale of products is recognized when risk and reward of
ownership have been transferred to the customer, the sales price is
fixed or determinable and collectability is reasonably assured. Revenue
related to products with installation services that are critical to the
products is recognized when installation of networking equipment at
customer site is completed and accepted by the customer. Revenue from
bandwidth services is recognized upon actual usage of such services by
customers based on either the time for which these services are
provided or volume of data transferred or both and excludes service
tax. Revenue from maintenance services is recognized ratably over the
period of the contract. Revenue from infrastructure management services
comprise income from time-and-material, and fixed price contracts.
Revenue with respect to time-and-material contracts is recognized as
related services are performed. Revenue with respect to fixed price
contracts is recognized in accordance with the percentage of completion
Unearned income arising in respect of bandwidth services and
maintenance services is calculated on the basis of the unutilized
period of service at the balance sheet date and represents revenue
which is expected to be earned in future periods in respect of these
In case of multi-deliverable contracts where revenue cannot be
allocated to various deliverables in a contract, the entire contract is
accounted for as one deliverable and accordingly the revenue is
recognized on a proportionate completion method following the
performance pattern of predominant services in the contract or is
deferred until the last deliverable is delivered.
iii) Business process outsourcing services
Revenue from business process outsourcing services is derived from both
time based and unit-price contracts. Revenue is recognized as the
related services are performed in accordance with the specific terms of
the contracts with the customers.
Earnings in excess of billing are classified as unbilled revenue, while
billing in excess of earnings are classified as unearned revenue.
Incremental revenue from existing contracts arising on future sales of
the customers'' products will be recognized when it is earned. Revenue
and related direct costs from transition services in outsourcing
arrangements are deferred and recognized over the period of the
arrangement. Certain upfront non-recurring costs incurred in the
initial phases of outsourcing contracts and contract acquisition costs,
are deferred and amortized usually on a straight line basis over the
term of the contract. The Company periodically estimates the
undiscounted cash flows from the arrangement and compares it with the
unamortized costs. If the unamortized costs exceed the undiscounted
cash flow, a loss is recognized.
The Company gives volume discounts and pricing incentives to customers.
The discount terms in the Company''s arrangements with customers
generally entitle the customer to discounts, if the customer completes
a specified level of revenue transactions. In some arrangements, the
level of discount varies with increases in the levels of revenue
transactions. The Company recognizes discount obligations as a
reduction of revenue based on the rateable allocation of the discount
to each of the underlying revenue transactions that result in progress
by the customer toward earning the discount.
Revenues are shown net of sales tax, value added tax, service tax and
applicable discounts and allowances.
Revenue from sales-type leases is recognized when risk of loss has
transferred to the client and there are no unfulfilled obligations that
affect the client''s final acceptance of the arrangement. Interest
attributable to sales-type leases and direct financing leases included
therein is recognized on the accrual basis using the effective interest
Interest on the deployment of surplus funds is recognized using the
time-proportion method, based on interest rates implicit in the
transaction. Brokerage, commission and rent are recognized once the
same are earned and accrued to the Company and dividend income is
recognized when the right to receive the dividend is established.
m) Foreign currency translation
(i) Initial Recognition
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
Foreign currency monetary items are reported using the closing rate.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction.
(iii) Exchange Differences
Exchange differences arising on the settlement of monetary items, or on
reporting such monetary items of Company at rates different from those
at which they were initially recorded during the year, or reported in
previous financial statements, are recognized as income or as expenses
in the statement of profit and loss in the year in which they arise.
(a) Cash flow hedging
The Company uses derivative financial instruments (foreign currency
forward and option contracts) to hedge its risks associated with
foreign currency fluctuations relating to certain highly probable
The use of foreign currency forward and options contracts is governed
by the Company''s policies, which provide written principles on the use
of such financial derivatives consistent with the Company''s risk
management strategy. The Company does not use derivative financial
instruments for speculative purposes.
The derivative instruments are initially measured at fair value, and
are re-measured at subsequent reporting dates
In respect of derivatives designated as hedges, the Company formally
documents all relationships between hedging instruments and hedged
items, as well as its risk management objective and strategy for
undertaking various hedge transactions. The Company also formally
assesses both at the inception of the hedge and on an ongoing basis,
whether each derivative is highly effective in offsetting changes in
fair values or cash flows of the hedged item. Changes in the fair value
of these derivatives (net of tax) that are designated and effective as
hedges of future cash flows are recognized directly in the hedging
reserve account under shareholders'' funds and the ineffective portion
is recognized immediately in the statement of profit and loss. Changes
in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognized in the statement of profit
and loss as they arise.
Hedge accounting is discontinued from the last testing date when the
hedging instrument expires or is sold, terminated, or exercised, or no
longer qualifies for hedge accounting. Cumulative gain or loss on such
hedging instrument recognized in shareholders'' funds is retained there
until the forecast transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognized in
shareholders'' funds is transferred to the statement of profit and loss
for the year.
(b) Hedging of monetary assets and liabilities
Exchange differences on such contracts are recognized in the statement
of profit and loss in the period in which the exchange rates change.
Any profit or loss arising on cancellation or renewal of a forward
exchange contract is recognized as income or as expense for the year.
(v) Translation of Integral and Non-integral foreign operation
The financial statements of an integral foreign operation are
translated as if the transactions of the foreign operation had been
those of the Company itself.
In translating the financial statements of a non-integral foreign
operation for incorporation in the financial statements, the assets and
liabilities, both monetary and non-monetary, of the non-integral
foreign operation are translated at the closing rate; income and
expense items of the non-integral foreign operation are translated at
monthly weighted average rates ,which approximate the actual exchange
rates; and all resulting exchange differences are accumulated in a
foreign currency translation reserve until the disposal of the net
On the disposal of a non-integral foreign operation, the cumulative
amount of the exchange differences which had been deferred and which
relate to that operation are recognized as income or as expenses in the
same period in which the gain or loss on disposal is recognized.
n) Retirement and other employee benefits
i. Contributions to provident fund, a defined benefit plan, are
deposited with the Recognized Provident Fund Trusts, set up by the
Company. The Company''s liability is actuarially determined at the end
of the year. Actuarial losses/ gains are recognized in the statement of
profit and loss in the year in which they arise. The interest rate
payable by the Trust to the beneficiaries every year is notified by the
government and the Company has an obligation to make good the
shortfall, if any, between the return from the investments of the Trust
and the notified interest rate.
ii. The Company contributes to a scheme administered on its behalf by
an insurance company in respect of superannuation, a defined
contribution plan for applicable employees and such contributions are
charged to the statement of profit and loss for each period of service
rendered by the employees. The Company has no further obligations to
the superannuation plan beyond its contributions.
iii. Gratuity liability: The Company provides for gratuity, a defined
benefit plan (the Gratuity Plan) covering eligible employees. The
Gratuity Plan provides a lump sum payment to vested employees at
retirement, death, incapacitation or termination of employment, of an
amount based on the respective employee''s salary and the tenure of
employment. The Company''s liability is actuarially determined (using
the Projected Unit Credit method) at the end of each year.
iv. Compensated absences: The employees of the Company are entitled to
compensated absences which are both accumulating and non-accumulating
in nature. The expected cost of accumulating compensated absences is
determined by actuarial valuation (using the Projected Unit Credit
method) based on the additional amount expected to be paid as a result
of the unused entitlement that has accumulated at the balance sheet
date. Accumulated leave, which is expected to be utilized within the
next 12 months, is treated as a short-term employee benefit and
accumulated leave expected to be carried forward beyond twelve months
is treated as a long-term employee benefit for measurement purposes.
The expense on non-accumulating compensated absences is recognized in
the period in which the absences occur.
v. Actuarial gains/losses are immediately taken to the statement of
profit and loss and are not deferred.
vi. State Plans : The Company''s contribution to State Plans , a defined
contribution plan namely Employee State Insurance Fund and Employees
Pension Scheme are charged to the statement of profit and loss for each
period of service rendered by the employees.
Tax expense comprises current and deferred tax. Current income tax
expense comprises taxes on income from operations in India and in
foreign jurisdictions. Income tax payable in India is determined in
accordance with the provisions of the Income Tax Act, 1961 and tax
expense relating to overseas operations is determined in accordance
with tax laws applicable in countries where such operations are
Deferred tax expense or benefit is recognized on timing differences
being the difference between taxable income and accounting income that
originate in one period and are capable of reversal in one or more
Deferred tax assets and liabilities are measured using the tax rates
and tax laws that have been enacted or substantively enacted by the
balance sheet date. Deferred income tax relating to items recognized
directly in equity is recognized in equity and not in the statement of
profit and loss . Deferred tax assets and deferred tax liabilities are
offset, if a legally enforceable right exists to set off current tax
assets against current tax liabilities and the deferred tax assets and
deferred tax liabilities relate to the taxes on income levied by the
same governing taxation laws.
Deferred tax liabilities are recognized for all taxable timing
differences. Deferred tax assets are recognized only to the extent that
there is reasonable certainty that sufficient future taxable income
will be available against which such deferred tax assets can be
realized. In situations where the Company has unabsorbed depreciation
or carry forward tax losses, all deferred tax assets are recognized
only if there is virtual certainty supported by convincing evidence
that they can be realized against future taxable profits. In the
situations where the Company is entitled to a tax holiday under the
Income- tax Act, 1961 enacted in India, no deferred tax (asset or
liability) is recognized in respect of timing differences which reverse
during the tax holiday period, to the extent the Company''s gross total
income is subject to the deduction during the tax holiday period.
Deferred tax in respect of timing differences which reverse after the
tax holiday period is recognized in the year in which the timing
At each balance sheet date the Company re-assesses recognized and
unrecognized deferred tax assets. The Company writes-down the carrying
amount of a deferred tax asset to the extent that it is no longer
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which the
deferred tax asset can be realized. Any such write-down is reversed to
the extent that it becomes reasonably certain or virtually certain, as
the case may be, that sufficient future taxable income will be
available. The Company recognizes unrecognized deferred tax assets to
the extent that it has become reasonably certain or virtually certain,
as the case may be, that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
Minimum Alternative tax (MAT) credit is recognized as an asset only
when and to the extent there is convincing evidence that the Company
will pay normal income tax during the specified period. In the year in
which the MAT Credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in guidance note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the statement of profit and loss and
shown as MAT Credit Entitlement. The Company reviews the MAT Credit
Entitlement at each balance sheet date and writes down the carrying
amount of the MAT Credit Entitlement to the extent there is no longer
convincing evidence to the effect that Company will pay normal income
tax during the specified period.
p) Employee stock compensation cost
In accordance with the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments issued by the Institute of
Chartered Accountants of India, the Company calculates the compensation
cost of equity-settled transactions based on the intrinsic value method
wherein the excess of the market price of the underlying equity shares
on the date of the grant of the options over the exercise price of the
options given to the employees under the employee stock option schemes
of the Company, is recognized as deferred stock compensation cost and
is amortized on a graded vesting basis over the vesting period of the
q) Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
A provision is recognized when there exists a present obligation as a
result of past events and it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation,
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to present value and are determined based
on best estimates required to settle the obligation at the reporting
date. These estimates are reviewed at each reporting date and adjusted
to reflect the current best estimates.
s) Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed only by the occurrence or non
occurrence of one or more uncertain future events beyond the control of
the Company or a present obligation that is not recognized because it
is not probable that an outflow of resources will be required to settle
the obligation. A contingent liability also arises in extremely rare
cases where there is a liability that cannot be recognized because it
cannot be measured reliably, the Company does not recognize a
contingent liability but discloses its existence in the financial
t) Cash and cash equivalent
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short term deposits with banks
with an original maturity of three months or less.