We have audited the attached Balance Sheet of Bharat Heavy Electricals
Limited as at 31st March, 2007 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
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. 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 :
(1) The balances of Sundry Debtors, Creditors, Contractors Advances,
Deposits and Stocks/materials lying with Sub-contractors/Fabricators
are subject to confirmation and reconciliation. The consequential
impact thereof, if any, on the accounts could not be ascertained.
(2) Provision for Contractual obligations is made @ 2.5% of contract
value as in previous years in accordance with the Accounting Policy No.
14. Accounting Standard (AS) 29 of the Institute of Chartered
Accountants of India requires inter-alia that the provision should
reflect the current best estimate of expenditure to be incurred on this
account and that the expected timing of any resulting outflow of
economic benefits is to be disclosed. In the
(1) Requests for confirmations are sent and reconciliations with the
parties are carried out as an ongoing process and the management does
not envisage any significant impact on the accounts due to this.
(2) The Company's policy of providing for contractual obligation @ 2.5%
of contract value is consistent over the years and is on a conservative
basis. The Company reviewed the Policy and decided to continue the same
for the years 2005-06 and 2006-07 and, in the meantime, to review the
actual expenditure and take a view thereafter. absence of sufficient
data regarding the appropriateness of the above provision, we are
unable to express an opinion as to whether the provision made is in
line with the above Accounting Standard.
(3) Attention is drawn to:
(i) Note No.18(a) (i) & (ii) of Schedule 19 regarding change in
accounting practice relating to leave liability & LTC/LTA Encashment
resulting in increase in profit for the year by Rs. 40.53 Crores & Rs.
28.10 Crores respectively.
(ii) Note No 18(b) of Schedule 19 regarding change in accounting
practice relating to encashment of Half Pay Leave (HPL) resulting in
decrease in profit for the year by Rs. 70.18 Crores.
(4) We further report that overall impact of the adjustments to be
carried out as per our remarks as given in Paras 11(1) to ll(2) above
could not be determined.
Subject to the foregoing and consequential effect thereof:
(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
(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 Auditor's 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
(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. 2007: 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.
For M.L. Puri & Co.
Membership No. 091922
New Delhi, May 25, 2007
Annexure to the Auditors' 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
(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
(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 few 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. Subject to the above, 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.
iii) (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 (Auditor's 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 (Auditor's 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 (Auditor's 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 there under.
vii) 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(1) (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 windmills,
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, and
books and records as produced and examined by 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. According to the
information and explanation given to us, except Ground rent of Rs.3.39
Crores 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 31s'
March. 2007 for a period of more than six months from the date they
(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
Sl. Name of Nature of Amount Forum where
No. the Statute the Dues (Rs. in dispute is
1. Central Sales Sales Tax 14.22 Assessing
Tax Act, Work Entry Tax Officer
Contract Tax & Work 91.90 Commissioner/
Act, Lease Contract Dy.
Tax, Entry Tax Commissioner
Tax Act and 43.54 Appellate
Sales Tax Act Tribunal
of Various 46,84 High Court
States 43.22 Various
2. Income Tax Income 0.06 Assessing
Act, 1961 Tax Officer
1.76 High Court
3. Central Excise 1.01 Assessing
Excise Act, Duty Officer
1944 7.92 Commissioner
4. Service Tax Service 8.24 Assessing
under the Tax Officer
Finance Act, 5.70 Commissioner
5. Custom Act Custom 0.76 Various
The Company is continuously pursuing the case with DDA for early
x) The company has no accumulated losses as at March 31, 2007 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
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
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 (Auditor's 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
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
xx) The company has not raised any money by public issue during the
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 nor have
we been informed of any such case by the management.
Requests for confirmations are sent to contractors/fabricators and
other parties and reconciliations with them are carried out as an
ongoing process and the management does not envisage any significant
impact on the accounts due to this.
For M. L. Puri & Co,
Membership No, 091922
New Delhi, May 25, 2007