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Titagarh Wagons

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Auditor's Report (Titagarh Wagons) Year End : Mar '16

To

The Members of Titograd Wagons Limited

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of TITAGARH WAGONS LIMITED (the Company), which comprise the Balance Sheet as at March 31,2016, the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (the Act) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial control that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and Fairview and are freeform material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India, as specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide basis for our qualified audit opinion on the standalone financial statements.

Basis for qualified opinion

We draw attention to Note 10(e) regarding non-provision against investment in equity shares, 0.1% optionally fully convertible debentures and loans given amounting to Rs. 455.06 lacs, Rs. 3,166.50 lacs and Rs. 890.93 lacs respectively to Titagarh Marine Limited (TML), a wholly owned subsidiary Company, as at March 31,2016, based on reasons mentioned therein, though the net worth as per the consolidated financial statements of the subsidiary is fully eroded. We are unable to comment on the carrying value/ recoverability of such investments and loan including consequential adjustments that may be required in these financial statements.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, the standalone financial statements give the information required by the Act in the manner so required and give a true and Fairview in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31,2016, its profit and its cash flows for the year ended on that date.

Emphasis of Matter

We draw attention to Note 40 to the financial statements in respect of Scheme of Amalgamation to merge the business of Titograd Marine Limited, Times Marine Enterprises Private Limited, Corporate Shipyard Private Limited and Cimco Equity Holdings Private Limited with the Company with effect from 1st April, 2015subject to necessary approvals more fully described therein. Pending completion of necessary approvals, no adjustment has been made in these accounts. Our opinion is not qualified in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2016 (the Order) issued by the Central Government of India in terms of sub-section (11) of Section 143 of the Act, we give in the Annexure 1,a statement on the matters specified in paragraphs 3 and 4 of the Order.

2. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and except for the matter described in the Basis for Qualified Opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belie fewer necessary for the purpose of our audit;

(b) Except for the effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

(c) The Balance Sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this Report are in agreement with the books of account;

(d) Except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

(e) The matters described in the Basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company;

(f) On the basis of written representations received from the directors as on March 31,2016, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2016,from being appointed as a director in terms of Section 164 (2) of the Act;

(g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.

(h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report dated May 26,2016in Annexure 2 to this report;

(i) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 5(b)(i) and Note 32(A) to the financial statements;

ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.

iii. There are no amounts which were required to be transferred, during the year to the Investor Education and Protection Fund by the Company.

Annexure-1 to the Independent Auditor’s Report

Annexure referred to in paragraph 1 of the section on Report on other legal and regulatory requirements of our report of even date

To the Members of Titograd Wagons Limited

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) Fixed assets were physically verified by the management during the year in accordance with the planned programme of verifying all assets once in three years which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No discrepancies were noticed on such verification.

(c) According to information and explanations given by the management, the title deeds of immovable properties included in fixed assets are held in the name of the Company except for following:

- 9 number of immovable properties aggregating to gross block of Rs. 310.68 lacs and net block of Rs. 275.68 lacs as at March 31,2016 for which original registered sale deed/conveyance deed/transfer deed/assignment deed were not available with the Company and we have been provided with the scan/xerox copies of the same. Hence, were unable to comment on the same. Also refer note9(a) of the financial statements.

- 4 number of immovable properties aggregating to gross block of Rs. 1,677.77 lacs and net block of Rs. 1,413.43 lacs as at March 31, 2016 for which the sale deed / conveyance deed / transfer deed / assignment deed are not registered with the relevant government / regulatory authority. Above immovable property also include freehold land aggregating to Rs. 108.38 lacs, for which the title is in dispute and pending resolution in the Civil Court of Kolkata as at March 31,2016. Also refer note9(b) of the financial statements.

(ii) The management has conducted physical verification of inventory at reasonable intervals during the year and discrepancies noted on physical verification of inventories were material and have been properly dealt with in the books of account.

(iii) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured, to companies, firms, limited liability partnerships or other parties covered in the register maintained under Section 189 of the Companies Act, 2013. Accordingly, the provisions ofclause3(iii)(a), (b) and (c) of the Order are not applicable to the Company and hence not commented upon.

(iv) In our opinion and according to the information and explanations given to us, the Company has not advanced loans to directors / to a company in which the Director is interested to which provisions of Section 185 of the Companies Act 2013 apply and hence not commented upon. Provisions of Section 186 of the Companies Act 2013 in respect of loans and advances given, investments made and, guarantees and securities given have been complied with by the Company.

(v) The Company has not accepted any deposits from the public.

(vi) We have broadly reviewed the books of account maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under Section 148(1) of the Companies Act, 2013, related to the manufacture of wagons, coaches and engineering products, and are of the opinion that prima facie, the specified accounts and records have been made and maintained. We have not, however, made a detailed examination of the same.

(vii) (a) The Company is generally regular in depositing with appropriate authorities undisputed statutory dues including provident fund, employees'' state insurance, income-tax, sales-tax, service tax, customs duty, excise duty, value added tax, cess and other material statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees ‘state insurance, income-tax, service tax, sales-tax, customs duty, excise duty, value added tax, cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.

(c) According to the records of the Company, the dues outstanding of income-tax, sales-tax, service tax, customs duty, excise duty, value added tax and cess on account of any dispute, are as follows:

Name of the

statute

Nature of dues

Amount (Rs. in lacs)

Period to which the amount relates

Forum where dispute is pending

The Income Tax Act, 1961

Disallowance under various sections

24.58

2002-2003 to 2012-2013

Deputy Commissioner / Commissioner of Income Tax

The West Bengal Sales Tax Act, 1944

Short payment of sales tax

5.24

2004-2005

West Bengal Taxation Tribunal

The Value Added Tax Act, 2003

Demand of additional Sales tax under various sections, disallowance of input tax credit, levy of purchase tax etc.

128.90

2005-06 and 2010-11

West Bengal Appellate & Provisional Board

Demand of additional Sales tax under various sections, disallowance of input tax credit, levy of purchase tax etc.

727.28

2011-12and

2012-13

Additional Commissioner Commercial Taxes

The Central Sales Tax Act, 1956

Non submission of C Forms

55.85

2005-07 to 2010-11

West Bengal Appellate & Provisional Board

Demand of additional sales tax under various sections and non-submission of Forms

326.89

2011-12

Additional Commissioner Commercial Taxes

Non submission of C&H Forms

11.76

2012-13

Additional Commissioner Commercial Taxes

The Central Excise Act, 1944

Incorrect a ailment of CENVAT credits, short payment of duty including interest etc.

12,022.35

November 2006 to March 2014

Commissioner of Central Excise and Service Tax (LTU)

57.27

2009-2014

Additional Commissioner of Central Excise & Service Tax (LTU)

403.45

1995-97,2003-04, 2006-07 to 2012-13

Commissioner of Central Excise (Appeal)

1,403.73

April 2012toJune 2012,2006-07 to 2008-09

CESTAT, Kolkata

The Customs Act, 1962

Non-fulfillment of Export Obligation

1280.61

2006-07 and 2012-13

CESTAT, Kolkata

Foreign Trade Development and Regulation Act, 1992

Terminal excise duty for sale of wagons under EPCG scheme, earlier refunded

693.20

2008-10

DGFT, Kolkata

(viii)In our opinion and according to information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of loans or borrowings to banks. The Company did not have any outstanding loans or borrowings in respect of a financial institution or Government or dues to debenture holders during the year.

(ix) In our opinion and according to the information and explanations given by the management, the Company has not raised any money by way of initial public offer/further public offer/debt instruments and term loans hence, reporting under clause (ix) is not applicable to the Company and hence not commented upon.

(x) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and according to the information and explanations given by the management, we report that no fraud by the Company or no fraud on the Company by the officers and employees of the Company has been noticed or reported during the year.

(xi) According to the information and explanations given by the management, the managerial remuneration has been paid / provided in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule Vto the Companies Act, 2013.

(xii) In our opinion, the Company is not a nidhi company. Therefore, the provisions of clause 3(xii) of the order are not applicable to the Company and hence not commented upon.

(xiii) According to the information and explanations given by the management, transactions with the related parties are in compliance with Sections 177 and 188 of the Companies Act, 2013where applicable and the details have been disclosed in the notes to the financial statements, as required by the applicable accounting standards.

(xiv)According to the information and explanations given by the management, the Company has complied with the provisions of Section 42 of the Companies Act, 2013 in respect of the private placement of shares during the year. According to the information and explanations given by the management, we report that the amounts raised have been used for the purposes for which the funds were raised except for idle/surplus funds amounting to Rs. 3,292.25 lacs, which have been invested in fixed deposit with banks. The maximum amount of idle/surplus funds invested during the year was Rs. 15,000 lacs, of which Rs. 3,292.25 lacs was outstanding at the end of the year.

(xv) According to the information and explanations given by the management, the Company has not entered into any non-cash transactions with directors or persons connected with him as referred to in Section 192 of Companies Act, 2013.

(xvi)According to the information and explanations given to us, the provisions of Section 45-IA of the Reserve Bank of India Act, 1934 are not applicable to the Company.

Annexure-2 to the Independent Auditor''s Report

Of Even Date on the Standalone Financial Statements of Titograd Wagons Limited Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (the Act)

We have audited the internal financial controls over financial reporting of TITAGARH WAGONS LIMITED (the Company) as of March 31, 2016, in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management''s Responsibility for Internal Financial Controls

The Company''s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to the Company''s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditor''s Responsibility

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the Guidance Note) and the Standards on Auditing as specified under Section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

An audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the internal financial controls over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit, the following material weakness has been identified as at March 31,2016: Attention is drawn to Basis for qualified opinion paragraph of Auditors ‘Report on Standalone Financial Statements more fully described therein, resulting to non-provision against investments in equity shares and debentures and loan given into Titograd Marines Limited, a wholly owned subsidiary Company, which could potentially result in misstatement of Company’s investment and loans and advances.

A ‘material weakness’s a deficiency, recombination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, the Company has, in all material respects, maintained adequate internal financial controls over financial reporting as of March 31,2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India, and except for the possible effects of the material weakness described above on the achievement of the objectives of the control criteria, the Company’s internal financial controls over financial reporting were operating effectively as of March 31,2016.

We also have audited, in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India ,as specified under Section 143(10) of the Act, the standalone financial statements of Titograd Wagons Limited, which comprise the Balance Sheet as at March 31, 2016, and the related Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Material weakness as described above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the March 31, 2016 standalone financial statements of Titagarh Wagons Limited and this report does not affect our report dated May 26, 2016, which expressed a qualified opinion on those financial statements.

For S. R. Batliboi & Co. LLP

Chartered Accountants ICAI Firm Registration No.: 301003E/E300005

per Kamal Agarwal

Partner

place: Kolkata MembershipNo.58652

Dated : May 26, 2016

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