Kirloskar Ferrous Industries

1.  We have audited the attached Balance Sheet of KIRLOSKAR FERROUS
 INDUSTRIES LIMITED (the Company) as at 31st March, 2009, the Profit
 and Loss Account and also the Cash Flow Statement of the Company 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.
 
 2.  We conducted our audit in accordance with 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 misstatement. 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 management, as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for
 our opinion.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 [as
 amended by Companies (Auditors Report) (Amendment) Order, 2004] issued
 by the Central Government of India in terms of sub-section (4A) of
 Section 227 of the Companies Act, 1956, we enclose in the Annexure a
 statement on the matters specified in paragraph 4 and 5 of the said
 Order.
 
 4.  Furtherto ourcomments in the Annexure referred to in paragraph 3
 above, we report that:
 
 (i) We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purpose of
 ouraudit;
 
 (ii) 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 such
 books;
 
 (iii) The Balance Sheet, the Profit and Loss Account and Cash Flow
 Statement dealt with by this report are in agreement with the Books of
 Account;
 
 (iv) In our opinion, the Balance Sheet, 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;
 
 (v) On the basis of the written representations received from the
 Directors as on 31st March, 2009, and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 31st March, 2009 from being appointed as a Director in terms of clause
 (g) of sub-section (1) of Section 274 of the Companies Act, 1956 on the
 said date;
 
 (vi) In our opinion and to the best of our information and according to
 the explanations given to us, the Accounts, read together with the
 notes thereon, 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:
 
 (a) In the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2009;
 
 (b) In the case of the Profit and Loss Account of the profit for the
 year ended on that date; and
 
 (c) In the case of the Cash Flow Statement, of the Cash Flows for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITORSREPORT
 
 STATEMENT REFERRED TO IN PARAGRAPH 3 OF THE AUDITORS REPORT OF EVEN
 DATE TO THE MEMBERS OF KIRLOSKAR FERROUS INDUSTRIES LIMITED ON THE
 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 st MARCH, 2009
 
 (i) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) As informed to us, the fixed assets have been physically verified
 by the Management at reasonable intervals. The discrepancies noticed on
 such verification were not material and have been properly dealt with
 in the Books of Account.
 
 (c) According to the information and explanation given to us, the
 Company has not disposed off substantial part of fixed assets during
 the year.
 
 (ii) (a) The inventory was physically verified during the year by the
 Management. In our opinion, the frequency of verification is
 reasonable.
 
 (b) The procedures of physical verification of inventory followed by
 the management are 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. The
 discrepancies noticed on verification between the physical stocks and
 the book records were not material.
 
 (iii) The Company has neither granted, nor taken any loans, secured or
 unsecured, to or from companies, firms or other parties covered in the
 register maintained as per Section 301 of the Companies Act, 1956.
 Accordingly, paragraphs 4(iii)(a),(b),(c),(d),(e),(f) & (g) of the
 Order are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there were adequate internal control system commensurate
 with the size of the Company and the nature of its business with regard
 to purchase of inventory and fixed assets and for the sale of goods and
 services. During the course of audit, we have not observed any
 continuing failure to correct major weaknesses in internal control
 system.
 
 (v) (a) In our opinion and according to the information and
 explanations given to us, there are no transactions that need to be
 entered in the register maintained under Section 301 of the Companies
 Act, 1956.
 
 (b) As there are no transactions that need to be entered in to the
 register maintained under Section 301 of the Act, paragraph 4(v)(b)of
 the order is not applicable.
 
 (vi) The Company has not accepted deposits from public and hence the
 provisions of Clause vi are not applicable.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the books of account relating to
 materials, labour and other items of cost maintained by the Company
 pursuant to the rules made by the Central Government for the
 maintenance of cost records under Section 209 (1) (d) of the Companies
 Act, 1956 and we are of the opinion that prima facie the prescribed
 accounts and records have been made and maintained. We have not,
 however, made a detailed examination of records with a view to
 determine whether they are accurate or complete.
 
 (ix) (a) The Company is regular in depositing with appropriate
 authorities undisputed statutory dues including provident fund,
 investor education and protection fund, income tax, sales tax, wealth
 tax, service tax, custom duty excise duty, cess and other material
 statutory dues applicable to it.  As informed to us, Employees State
 insurance Act is not applicable to the Company.
 
 (b) According to information and explanation given to us, no undisputed
 amounts payable in respect of statutory dues were in arrears, as at 31
 st March, 2009 for a period of more than six months from the date they
 became payable,except the following
 
 Name of the statute                Nature of the dues      Amount(Rs.)
 
 Government of Karnataka 
     (Electricity Board)	  Interest on delayed payment	     707,970
 
 According to information and explanation given to us, there are amounts
 of excise duty and saies tax, which have not been deposited on account
 of dispute as listed below:
 
 Name of the 
     statute   Nature of the dues   Amount(Rs.)   Forum where dispute is 
                                                  pending
 
 Central Excise 
      Act, 1944	Interest on refund     341,496	Assistant Commissioner 
                                                 of Central Excise
 
 Central Excise 
      Act, 1944  Duty on pattern 
                 development charges    342,068	Commissioner of Central 
                                                 Excise
 
 Central Excise 
      Act, 1944	Cenvat Credit 
                  utilised for 
                payment of Service 
                               tax    7,585,734	Commissioner of Central 
                                                 Excise
 Central Excise 
      Act, 1944	Penalty on excise 
                              duty      100,000	CESTAT, Bangalore
 
 Central Excise 
      Act, 1944  Interest /Penalty    3,127,237	CESTAT, Mumbai
 
 Maharashtra 
 Sales Tax Act   Interest on tax  
                            dues	     1,558,043	Sales Tax Appellate 
                                                 Tribunal
 Central Excise 
      Act, 1944	Cenvat Credit 
                       availed	       424,984	Assistant Commissioner,
                                                 Central Excise
 
 Central Excise 
      Act, 1944	Interest on Cenvat 
                 Credit reversal	        27,319	Assistant Commissioner, 
                                                 Central Excise
 
 Central Excise 
      Act, 1944	Cenvat Credit 
                 availed	              5,584,499	Additional Commissioner 
                                                 of Central Excise
 Karnataka Vat 
     Act, 2003	Interest on refund	211,311	Joint Commissioner of 
                                                 Commercial Taxes, 
                                                 Davangere
 
 The Karnataka 
 Sales Tax Act, 
          1957   Levy of Sales Tax     1,851,250	Joint Commissioner of 
                                                 Commercial Taxes, 
                                                 Davangere
 Income Tax
   Act, 1961	Minimum Alternate   
                              Tax     20,491,056	Additional Commissioner 
                                                 of Income Tax, Pune -
                                                disallowed.Appeal filed 
                                                in ITAT
 Income Tax 
   Act, 1961	Minimum Alternate
                              Tax     29,553,560	Commissioner of Income 
                                                 Tax (A), Pune
 The Bombay 
 Provincial 
 Muncipal 
 Corporation 
 Act, 1949	Octroi	              9,425,295	Commissioner of Solapur 
                                                 Municipal Corporation
 
 (x) The Company does not have accumulated losses as at the date of
 Balance Sheet. The Company has not incurred cash losses during the
 financial year and in the immediately preceding financial year.
 
 (xi) In our opinion and according to information and explanations given
 to us, the Company has not defaulted in repayment of dues to banks.
 Repayment to financial institutions / debentureholders is not
 applicable as the Company has not borrowed from financial institutions
 / issued debentures.
 
 (xii) According to information and explanation given to us, the Company
 has not granted loans and advances on the basis of security byway of
 pledge of shares, debentures and other securities.
 
 (xiii) The Company is not a chit fund or a nidhi/mutual benefit
 fund/society.
 
 (xiv) According to information and explanation given to us, the Company
 is not dealing in or trading in shares, securities, debentures.
 However, the Company had made investments in mutual funds, for which
 proper records have been maintained of the transactions and contracts
 and timely entries have been made therein.
 
 (xv) As informed to us, the Company has not given guarantees for loans
 taken by others from banks or financial institutions.
 
 (xvi) In our opinion, the term loans have been applied forthe purpose
 for which they were raised.
 
 (xvii) According to information and explanation given to us, we report
 that no funds raised on short-term basis have been used for long-term
 investment.
 
 (xviii) According to information and explanation given to us, the
 Company has not made any preferential allotment of any shares to
 parties and companies covered under Section 301 of the Companies Act,
 1956.
 
 (xix) Since the Company has not issued any debentures during the year,
 para 4(xix) of the order regarding creation of security is not
 applicable.
 
 (xx) According to information and explanation given to us, the Company
 has not made any public issue to raise money.
 
 (xxi) According to information and explanation given to us, no fraud on
 or by the Company has been noticed or reported during the course of our
 audit.
 
                                                   For M/s P. G. BHAGWAT 
                                                   Chartered Accountants
 
                                                             S. B. Pagad
                                                                 Partner
 Pune : 9th June, 2009                            Membership No.: 206124