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Auditor Report of ITI Ltd.

Mar 31, 2016

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

Management''s Responsibility for the Standalone 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 and presentation of these standalone financial statements that give a true and fair view of the
financial position, financial performance and cash fows of the Company in accordance with the 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 also includes maintenance of adequate accounting records in accordance with the
provisions of the Act for safeguarding 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 design, implementation and maintenance of adequate internal financial controls, 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 fair view and are free from 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 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 the 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 the 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 a basis for our qualified audit
opinion on the standalone financial statements.

Basis for Qualified Opinion

Qualifications not quantifiable

(a) In view of Company''s own production activities having come down substantially and slow movement in the inventory, there is a
need for systematic age wise segregation and analysis of the items comprised in the inventory to assess their usefulness/
usability in the production & servicing activities, period over which they could be used as also whether the inventory items are
capable of being sold /disposed off as standalone items. Pending such an exercise, we are unable to express an opinion as to the
adequacy of the provision held towards non-moving and obsolete inventories and the eventual realizable amount in respect of the
inventories, as also the possible effect on the financial statements. Aggregate Inventories as at March 31, 2016 were Rs,
13715.15 lakhs against which provision of Rs, 3332.13 lakhs has been made towards non-moving and obsolescence.

(b) The Company does not have an adequate mechanism in place to review the balances in trade receivables and in our opinion,
there is a need for systematic age wise segregation and analysis including timely adjustment of advances received from customers.
In the absence of such reviews and systematic age- wise analysis, we are unable to comment on the adequacy of provision held for
doubtful debts and also on the shortfall, if any, on the amount that would be ultimately realizable from the customers. Total
Trade Receivables as on March 31, 2016 were Rs, 280824.29 lakhs against which a sum of Rs, 4378.03 lakhs has been provided for
doubtful debts.

(c) No provision for the permanent diminution in the value of the Investment of Rs 40.55 lakhs in the unquoted equity shares of a
Joint Venture(JV) Company has been ascertained as required by Accounting Standard 13 on ''Accounting for Investments'' read with in
the Significant Accounting Policy No.5, in view of the negative net worth and Statutory Auditors of the JV in their Report for
the year ended 31.03.2015 have expressed their inability to comment on the going concern concept adopted by the said JV.

(d) Pending approval from the Government of India on the finalization of the lease terms & agreement, rental income on the land
leased out to the Bangalore Metropolitan Transport Corporation(BMTC)(to an extent of the 12.15 acres proposed to be leased out to
BMTC is already in the possession of BMTC), has not been recognized as income. A sum of Rs, 285.00 lakhs received earlier from
the BMTC under an agreement to sell is held under deposits (Refer Note 40.17);

(e) Non provisioning of interest payable on royalty due to C-DoT in lieu of arrears of rent from the same agency for the premises
taken on lease from the Company which is being more than the royalty amount (Refer Note No. 40.23);

(f) Adequacy of the provisions made towards interest and penalty, if any, livable for non remittance of statutory dues on sales
accounted on provisional basis (tax incidence on such sales not recognized) and delayed/ short remittance of other statutory dues
including Provident Fund, Employees State Insurance and Tax deducted at source as per the provisions of Income Tax Act, 1961
could not be ascertained;

(g) Rental income on the land leased out to the Karnataka Power Transmission Corporation Limited (KPTC) (to an extent of the 5
acres proposed to be leased out to KPTC is already in the possession of KPTC), has not been recognized as income pending
finalization of lease agreement. (Refer Note No. 40.19)

(h) No impairment assessment has been carried out by the Company by reviewing the carrying amount of assets as at the Balance
Sheet date as required by Accounting Standard 28 on ''Impairment of Assets'' read with Significant Accounting Policy No. 16 of the
Company and hence identification of impairment loss and provision thereof, if any, has not been made.

(i) Our comments on the non-maintenance of proper fixed assets register and no physical verification of fixed assets has been
carried out by the Company in a few units as stated in para i(a) and i(b) in the annexure A to this Report containing a statement
on the matters specified in paragraphs 3 and 4 of the Companies (Auditor''s Report) Order, 2016.

(j) During the year, as referred to in Note No

40.25, the company has adopted the estimated useful life of the assets as prescribed under Part C of Schedule II to the Companies
Act, 2013 as against the old estimate as assessed by the management. However in the absence of adequate information available on
the used life of the assets and detailed workings supporting the amount of the depreciation charged, we are unable to verify and
confirm the correctness of the amount of depreciation charged for the year. Further, in the absence of proper workings, the
transitional provision as mentioned in Note 7(b) to Schedule II has not been adopted by the company a sum of Rs, Nil has been
adjusted against the retained earnings for the assets whose useful life is expired as on 01 April 2015. Had the company adopted
Schedule II in the previous year the effect on the depreciation charge and on the transitional adjustment could not be quantified
Our opinion is modified in respect of these matters.

Qualifications quantifiable

(a) Non provision of Rs, 8853.64 lakhs towards claims doubtful of recovery comprising of

(i) rent receivable of Rs, 5847.90 lakhs on a premises leased out up to the period ended 31.3.2011 and no rental income for the
period subsequent to 31.03.2011 for the same premises has been recognized on accrual basis due to uncertainty of realization
(Refer Note No.40.23);

(ii) Liquidated Damages (LD) of Rs,1049.41 lakhs on a supplier claimed by Bangalore Plant, rejected by the Arbitral Tribunal and
the matter is pending before High Court of Delhi. However in the absence of adequate information to support that the claims are
sustainable, we are unable to comment on the carrying value of this claim and the shortfall, if any, on the amount that would be
ultimately realized by the Company;

(iii) LD claimed by Mankapur Unit from MTNL Delhi and MTNL Mumbai for Rs,183.23 lakhs and Rs,82.90 lakhs respectively;

(iv) Amount recoverable to an extent of Rs, 1690.20 lakhs from HCL Info Systems Limited by Mankapur Unit towards conditional
reimbursement as per the agreement between Company and HCL Info Systems Limited.

(b) Reversal of provisions created for certain items of expenditure amounting to Rs, 2007.86 lakhs have been made in the books of

Mankapur Unit. In the absence of adequate information and reconciliation supporting that provisions are no longer required, the
auditors of the said unit have issued a modified opinion.

Our opinion is modified in respect of these matters.

Qualified Opinion

Subject to the above qualifications, in our opinion and to the best of our information and according to the explanations given to
us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a
true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the
Company as at 31 March 2016 and its profit and its cash fows for the year ended on that date.

Emphasis of matter

We draw attention to the following matters in the Notes to the Financial Statements:

(a) Cumulative Redeemable Preference Shares amounting to Rs, 30000.00 lakhs overdue for redemption continued to be shown under
Share Capital since the redemption is part of the BIFR package envisaged for the Company(Refer Note No. 1);

(b) Formal conveyance/lease deeds in respect of lands, excepting part of lands at Bangalore and Mankapur, are yet to be executed
by the respective State Governments (Refer Note No. 13);

(c) Necessary accounting adjustments for acquisition of 1.375 acres of land by the National Highway Authority of India (NHAI) for
public purposes to be made on receipt of compensation, with proportionate cost of the acquired land having been withdrawn from
the fixed assets and held as claims recoverable(Refer Note No. 40.18);

(d) Balances in the accounts of trade payables, advances from customers, trade receivables, claims recoverable, loans & advances,
materials with fabricators, sub contractors/ others, material in transit, deposits, loans and other payables/receivables such as
Sales Tax, VAT, Excise Duty, CENVAT, Service Tax, TDS etc., being under confirmation/ reconciliation. Adjustments, if any will be
made on completion of such reconciliation / receipt of confirmation. (Refer Note 40.4);

(e) Penalty of Rs, 2685 Lakhs for nonpayment of guarantee fee to the Government of India, having not been provided for, since the
Ministry of Communications and IT has agreed in principle to waive the same as part of Company revival package (Refer Note No.
40.9);

(f) The Company is Sick Company as per provisions of Sick Industrial Companies Act (SICA), 1985. CCEA has approved a financial
assistance of Rs, 4156.79 Crores in February, 2014, for Revival of ITI under Rehabilitation Scheme (Refer Note No. 40.16)

(g) No lease agreement has been entered with ESIC for the additional land occupied by the Corporation to an extent of 229 sqmt.
(Refer Note 40.20)

(h) Land measuring 77 Acres have been resumed by the Govt of Kerala and is under adjudication of the Apex Court. The value of
land as shown in the balance sheet includes the value of land resumed by the Govt Of Kerala (Refer Note 40.21)

(i) Validity of Claims recoverable from DoT towards loss incurred by Srinagar Unit. A sum of Rs, 393.87 lakhs and a sum of Rs,
266.99 lakhs is pending from DoT for the loss incurred by the said units in FY 2013-14 and for FY 2014- 15 respectively.

Our opinion is not modified in respect of these matters.

Other Matters

a) We did not audit the financial statements of

five Units whose financial statements reflect total assets of Rs, 464290.89 Lakhs as at March 31, 2016, total revenues of Rs,
78502.78 Lakhs and Loss after tax of Rs, 22910.44 Lakhs for the year ended on that date. These financial statements are audited
by the respective Unit Auditors appointed by the Comptroller & Auditor General of India whose reports have been furnished to us
and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on
the report of such other auditors.

b) We have relied on the unaudited financial

statements of certain Regional Offices whose financial statements reflect total assets of Rs, 15633.88 Lakhs as at March 31,
2016, total revenues of Rs, 7960.69 Lakhs and Loss after tax of Rs, 410.33 Lakhs for the year ended on that date. These unaudited
financial statements of ROs have been certified by the Management and furnished to us and our report is based solely on such
unaudited financial statements.

Our opinion is not modified in respect of these other matters.

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 A, a statement on the matters specified in the paragraph 3
and 4 of the Order.

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

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary
for the purposes of our audit.

b) 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 and proper returns adequate for the purpose of our audit have been received from the Units not visited
by us.

c) The reports on the accounts of those Units of the Company audited under Section 143 (8) of the Act by the Unit auditors have
been sent to us and have been properly dealt with by us in preparing this report.

d) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement
with the books of account and with the returns received from the units not visited by us.

e) Except for the effects of the matter described in the Basis for Qualified opinion under the caption qualifications not
quantifiable, 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;

f) Being a Government Company, Section 164(2) of the Companies Act, 2013 regarding ''whether any director is disqualified from
being appointed as a director'' is not applicable to the Company in view of Notification No. G S R 463(E) dated June 05, 2015;

g) 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 in "Annexure B"; and

h) 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
40.12(b) 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 were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company

3. As required by Section 143(5) of the Act,

we have considered the directions issued by the Comptroller and Auditor General of India, the action taken thereon and its impact
on the accounts and financial statements of the Company – Reference Annexure C attached.


The Annexure referred to in Independent Auditors'' Report to the members of the Company on the standalone financial statements for
the year ended 31 March 2016, we report that:

i.

(a) The Company has maintained proper records showing full particulars including quantitative details and location of fixed
assets on the basis of available information except for the assets located at Bangalore Plant, Bangalore NS Unit, Mankapur Unit
and Corporate Office where the records are to be updated in relation to location and adjust for revaluation and be reconciled
with the Books of Account.

(b) According to the information and explanations given to us and on the basis of the Report of the Other Auditors, except for
the fixed assets located at the Bangalore Plant, Bangalore NS Unit, Rae Bareli, Palakkad Unit and Corporate Office, fixed assets
at all other locations have been physically verified by the management and no material discrepancies were noticed on such
verification. Pending physical verification of fixed assets at the above referred locations, discrepancies, if any, cannot be
ascertained and accounted for.

(c) We are unable to comment on whether the title deeds of immovable properties are held in the name of the Company as sufficient
information and appropriate evidence supporting the same in the units where we have audited are not made available to us and in
the absence of the Specific comment on the same by the other Auditors in their Report.

ii. According to the information and explanations given to us, inventories (excluding those with third parties) have been
physically verified by the management at reasonable intervals other than at

- Bangalore Plant where perpetual inventory system verification has been followed. However, documentation does not support the
assessment of the reasonableness of the intervals of verification;

- NSU Unit &

- Raebareli Unit

According to the information and explanations given to us and based on the Report of the Other Auditors, no material
discrepancies were noticed on physical verification of the inventories at the locations where Management had carried out physical
verification. However, at Bangalore Plant since documents supporting the comparison of physical stocks with book records are not
made available, we are unable to comment on the discrepancies.

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. Therefore paragraph 3(iii) of the Order is not applicable to the Company.

iv. The Company has not granted any loans or provided any guarantees or security to the parties covered under Section 185 of the
Act. The Company has complied with the provisions of section 186 of the Act in respect of investments made or loans provided to
the parties covered under Section 186.

v. The Company has not accepted deposits from public in accordance with the provisions of sections 73 to 76 of the Act and the
rules framed there under.

vi. We have broadly reviewed the cost records maintained by the Company as specified by the Central Government under section
148(1) of the Act, and are of the opinion that, prima facie, the prescribed cost records have been made and maintained. We have,
however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

vii. (a) According to the information and explanations given to us and the records of the company examined by us, in our opinion,
the Company is not regular in depositing undisputed statutory dues including Provident Fund employees'' state insurance,
income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues to the
appropriate authorities and a sum of Rs, 1578.60 lakhs and Rs, 8525.76 lakhs and Rs, 4327.65 lakhs and Rs, 721.49 lakhs pending
as arrears pertaining to Provident Fund in the books of Naini, Raebareli, Mankapur and Bangalore Plant units respectively, and
further a sum of Rs,1.23 lakhs pending as arrears towards Employees State Insurance pertaining to Bangalore NS Unit and further a
sum of Rs, 117.72 lakhs pending as arrears towards U.P Trade Tax on Sales in the books of Raebareli which are not disputed and
are outstanding for a period of more than six months from the date they became payable. We have been informed that Sales Tax &
Service Tax liabilities on sales set up on provisional basis are not recognized & accounted.

(b) According to the information and explanations given to us and based on the Report of the Other Auditors, statutory dues that
have not been deposited with the appropriate authorities on account of any dispute are as follows:

Amount
Sl. Name of the statute Nature of dues in Rs,
No. Lakhs


1 Central Excise Act, 1944 ED demanded on
insurance, 71.55
freight and amount
of credit notes.

2 Central Excise Act, 1944 CENVAT credit
availed on 16.75
scrap and write off
cases disallowed

3 Central Excise Act, 1944 Nil rate of duty
availed on
Software disputed by
CE dept 637.00
(Net of Pre deposit
Rs, 200.00 lakhs)

4 Central Excise Act, 1944 ED Demanded on R&D 299.00
prototype modules for
field trail. Stay
extended ( net of pre
deposit Rs, 30.00 lakhs)

5 Central Excise Act, 1944 Duty Short paid 0.99

6 Central Excise Act 1944 Nil Rate of Duty
availed on 496.76
software disputed by
Central excise dept (Net
of Pre deposit Rs, 14.00)

7 Central Excise Act 1944 CENVAT Credit availed 376.00

8 Central Excise Act 1944 110%/115% demanded on 108.28
transfer of purchased
items to sister units

9 UP VAT Sales Tax 264.89

10 UP VAT Sales Tax 15.32

11 UP VAT Sales Tax 158.12

12 UP VAT Sales Tax 429.96

13 Service Tax (Finance Service Tax 3.52
Act, 1994)

14 Income Tax Act, 1961 Penalty/Additional
fees For 96.31
TDS

15 Central Sales Tax, 1956 Demand of
Additional Tax 1013.98
against Form C –
Naini

16 Central Sales Tax, 1956 Demand of Additional
Tax 5.30
against Form C

17 Central Sales Tax, 1956 Demand of additional
Tax 9.23
Aginst Form C/F

18 Central Sales Tax, 1956 Addl. Commissioner
Appeals 36.61
Commercial Tax
Allahabad

19 Central Sales Tax, 1956 Demand of Additional Tax 44.43
Against Form C/F

20 Central Sales Tax, 1956 Demand of Additional Tax 10.96
against Form C/F

21 Central Sales Tax, 1956 Demand of Additional Tax 96.17
against Form C

22 Central Sales Tax, 1956 Sales Tax 97.72

23 Central Sales Tax, 1956 Sales Tax 0.88

24 Central Excise Act, 1944 Excise duty 91.65

25 Central Excise Act, 1944 Excise duty 68.07

26 Central Excise Act, 1944 Excise duty 5.15

27 Service Tax (Finance Service Tax 109.44
Act, 1994)

28 Central Excise Act, 1944 Provision for
obsolescence 52.28

29 Service Tax (Finance Service Tax 140.34
Act, 1994)

30 Service Tax (Finance
Denial of service Tax Credit 161.27
Act, 1994)
on Input Services

31 Service Tax (Finance CENVAT Credit on
Manpower 2.76
Act, 1994)
supply

32 Service Tax (Finance CENVAT Credit on
Manpower 2.69
Act, 1994) supply

33 Sales Tax Act Sales Tax 280.86

34 Sales Tax & Entry Tax Sales Tax 234.05
Act


35 Sales Tax Act Sales Tax 0.93

36 Sales Tax Sales Tax 423.57

37 Karnataka
Municipalities Demand for higher
rate of 1360.90
Act, 1964 property tax

Total 7125.97


Period to Forum where
Name of the which the
Statute the dispute is dispute
pending relates

Central Excise Act 1944 2007 Custom Excise&
Service Tax
Appellate Tribunal

Central Excise Act 1944 2005 Custom Excise &
Service Tax
Appellate Tribunal

Central Excise Act 1944 2003-2005 Custom Excise &
Service Tax
Appellate Tribunal
Central Excise Act 1944
2006-07 Custom Excise
& Service Tax
Appellate Tribunal

Central Excise Act 1944 1998-99 Custom Excise
& Service Tax
Appellate Tribunal

Central Excise Act 1944 2001-2002
2002-2003 & Service
Tax Appellate
Tribunal
Central Excise Act 1944
2007-2008 Custom Excise
& Service Tax
Appellate Tribunal


Central Excise Act 1944 2007-2008 Custom Excise
& Service Tax
Appellate Tribunal

UP VAT 1986-1989 UP Government

UP VAT 1989-1996 UP Government

UP VAT 1987-1989 UP Government

UP VAT 1996-1998

UP VAT 2000-2002

UP VAT 1987-1989 Member

UP VAT 1996-1998 Tribunal
2000-2002

Service Tax Act 1994 2012-2013 Commissioner
(Appeals)
Allahabad

Income Tax Act 1961 2007-2016 CPC (TDS)

Central sales Tax 1956 2005-06 Addl

Commissioner,
Appeals
Commercial Tax,
Allahabad

Central sales Tax 1956 2007-08 Dy.

Commissioner
sector 14,
Commercial Tax,
Allahabad

Central sales Tax 1956 2008-09 Addl

Commissioner,
Appeals Commercial
Tax, Allahabad

Central sales Tax 1956 2009-10 Joint

Commissioner,
Commercial Tax,
Allahabad

Central sales Tax 1956 2010-11 Dy.

Commissioner
sector 14,
Commercial Tax,
Allahabad

Central sales Tax 1956 2011-12 Commissioner,
Appeals Commercial
Tax, Allahabad

Central sales Tax 1956 2012-13 Commissioner
sector 14, C
ommercial Tax,
Allahabad

Central sales Tax 1956 2006-2007 DC (Appeals)
Ernakulam

Central sales Tax 2009-2010 DC (Appeals)
Ernakulam

Central Excise Act 1944 2003-2004 commissioner
(Appeals), Kochi

2001-2002 Commissioner
(Appeals), Kochi

2002-2003 Commissioner
(Appeals), Kochi

Service tax 2010-2011 Commissioner of
Central Excise,
Calicut

Central exsice Act 1944 2011-2012 Commissioner of
Central Excise,
Calicut

Service tax Act 1994 2011-2012 Commissioner of
Central Excise,
Calicut

Service tax Act 1994 2011-2012 Commissioner
of Central
Excise,
Calicut

Service tax Act 1994 2012-2013 Commissioner
of Central Excise,
Calicut

2012-2013 Commissioner

Calicut

Sales tax 2000-2021 Trade Tax
2003-2004 Tribunal,
2005-2006 Luck now

1998-1999 Additional
sales Tax Act 2000-2005 Commissioner
2006-2009 (TradeTax )
Luck now


Sales tax Act 2000-2001 Dy.

Commissioner
(Trade Tax)
RBL

Sales tax 2009-2013 Additional

Commissioner
(TradeTax)
Luck now

karnataka 2008-09 High Court of
Municipalities
to Karnataka
2015-16

viii. According to the records of the Company examined by us and information and explanation given to us, the Company has not
defaulted in repayment of loans or borrowings to any bank or Government.

ix. The Company did not raise any money by way of initial public offer or further public offer (including debt instruments) and
term loans during the year. Accordingly, paragraph 3 (ix) of the Order is not applicable.

x. According to the information and explanations given to us and based on the Report of the Other Auditors, no material fraud by
the Company or on the Company by its officers or employees has been noticed or reported during the course of our audit.

xi. Being a Government Company, paragraph 3(xi) of the Order with regard to Section 197 of the Companies Act, 2013 relating to
Managerial Remuneration is not applicable to the Company in view of Notification No.G S R 463(E) dated June 05, 2015.

xii. In our opinion and according to the information and explanations given to us, the Company is not a nidhi company.
Accordingly, paragraph 3(xii) of the Order is not applicable.

xiii. According to the information and explanations given to us and based on our examination of the records of the Company,
transactions with the related parties are in compliance with sections 177 and 188 of the Act where applicable and details of such
related party transactions have been disclosed in the financial statements as required under Accounting standard (AS) 18, Related
Party Disclosures specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

xiv. According to the information and explanations give to us and based on our examination of the records of the Company, the
Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during
the year.

xv. According to the information and explanations given to us and based on our examination of the records of the Company, the
Company has not entered into non-cash transactions with directors or persons connected with him. Accordingly, paragraph 3(xv) of
the Order is not applicable.

xvi. The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act 1934. Accordingly,
paragraph 3(xvi) of the Order is not applicable. Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of
Section 143 of the Companies Act, 2013 ("the Act")

We were engaged to audit the internal financial controls over financial reporting of ITI Limited ("the Company") as of 31 March
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 (''ICAI''). 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 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.

Auditors'' Responsibility

Our responsibility is to express an opinion on the Company''s internal financial controls over financial reporting based on our
audit conducted in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the
"Guidance Note") issued by ICAI and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10)
of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both issued by the Institute of
Chartered Accountants of India.

Because of the matter described in Disclaimer of Opinion paragraph below, we were not able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion on internal financial controls system over financial reporting of the Company.

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 refect 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.

Disclaimer of Opinion

The system of internal financial controls over financial reporting with regard to the Company were not made available to us to
enable us to determine if the Company has established adequate internal financial control over financial reporting and whether
such internal financial controls were operating effectively as at March 31, 2016

The system of internal financial controls over financial reporting with regard to the Units of the Company have not been audited
by the respective statutory auditors of the Units and we are unable to determine if the Units have established adequate internal
financial control over financial reporting and whether such internal financial controls were operating effectively as at March
31, 2016

We have considered the disclaimer reported above in determining the nature, timing, and extent of audit tests applied in our
audit of the standalone financial statements of the Company, and the disclaimer has affected our opinion on the financial
statements of the standalone Company and we have issued a qualified opinion on the financial statements.

For Sundar Srini & Sridhar Chartered Accountants

Firm Registration No: 004201S

R. Jayasankar

Partner

Membership No: 026298

Place : Bangalore

Date : May 30, 2016


Mar 31, 2015

We have audited the accompanying financial statements of ITI Limited ("the Company"), which comprise the Balance Sheet as at 31 March 2015, the Statement of Profit and Loss, the Cash fow Statement for the year then ended and a summary of the significant accounting policies and other explanatory information.

The Board of directors amended the accounts approved by them on May 29th, 2015 based on the Comptroller & Auditor General's audit observations during the course of audit under Section 143(6)(a) of the Companies Act, 2013 by amending Note No.40 serial number 23 and incorporating serial no.19, 20 & 21 in Significant Accounting Policies. This amendment has no impact on the reported figure in the financial statements. The amended accounts have been approved by the Directors in their Board Meeting held on August 11th, 2015.

Management's responsibility for the financial statements

The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation and presentation of these financial statements that give a true and fair view of the financial position, financial performance and cash fows of the Company in accordance with the 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 also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding 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 design, implementation and maintenance of adequate internal financial controls, 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 fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these 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 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 the 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 these financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the 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 a basis for our audit opinion on these financial statements.

Qualifications' not quantifiable

(a) Our comments on the adequacy of provision on non-moving and slow moving inventories and on trade receivables in paras 4(ii) & (iii) in the Annexure to this report containing a statement on the matters specified in paragraphs 3 and 4 of the Companies(Auditor's Report) Order, 2015;

(b) Investment of Rs 40.55 lakhs in the unquoted equity shares of a Joint Venture(JV) Company being continued to be shown at cost, considering net worth the JV is totally eroded and Statutory Auditors of the JV have expressed their inability to comment on the going concern concept adopted by the said JV and no impairment loss has been ascertained and provided for(Refer Significant Accounting Policies 5.00 and Note No.17);

(c) Pending approval from the Government of India on the finalization of the lease terms & agreement, rental income on the land leased out to the Bangalore Metropolitan Transport Corporation(BMTC)(to an extent of the 12.15 acres proposed to be leased out is already in possession of the BMTC), has not been recognized as income. Rs 285.00 lakhs received earlier from the BMTC under an agreement to sell is held under deposits(Refer Note 40.17);

(d) Non provision for the interest payable on royalty due to C-DoT(Refer Note No. 35) in view of rental dues from the same agency for the premises taken on rent from the Company being more than the royalty amount (Refer Note No. 40.23);

(e) Interest and penalty, if any, leviable for non remittance of statutory dues on sales accounted on provisional basis (tax incidence on such sales not recognized) and delayed/short remittance of other statutory dues as also non deduction of TDS as per the provisions of Income Tax Act, 1961;

(f) No lease agreement has been entered with Karnataka Power Transmission Corporation Limited (KPTCL) for the land occupied by KPTCL to an extent of 5 Acres (Refer Note No. 40.19);

(g) Our comments on the non-maintenance of proper fixed assets register and no physical verification of fixed assets has been carried out by the company in a few units as stated in para 1(a) in the Annexure to this report containing a statement on the matters specified in paragraphs 3 and 4 of the Companies(Auditor's Report) Order, 2015;

Our opinion is modified in respect of these matters.

Qualifications' quantifiable

(a) Non provision of Rs 6897.31 lakhs towards claims doubtful of recovery comprising of (i) rent receivable of Rs 5847.90 lakhs on a premises leased out up to the period ended 31.3.2011, rent from 1.4.2011 for the same premises being deferred for recognition on accrual basis due to uncertainty of realization (Refer Note No.40.23); (ii) liquidated damages of Rs 1049.41 lakhs on a supplier, rejected by the Arbitral Tribunal. Had the said amounts been provided in the accounts, loss for the year would have been higher by Rs 6897.31 lakhs and consequently reserves & surplus and current assets would be lower by similar amount,

(b) Provision of Rs.315.97 Lakhs for work in progress Inventories in respect of the items pertaining to phased out projects and also not usable, has not been made which has resulted in the understatement of the Loss by Rs.315.97 lacs and overstatement of current assets to a same extent,

(c) Amount spent for the creation and maintenance of data enrolment centre for MORD for NPR project totaling to Rs. 1171 lakhs is treated as revenue expenditure and no depreciation is provided as expenditure is not capitalized resulting in overstatement of loss to that extent (Net) Our opinion is modified in respect of these matters.

Opinion

Subject to the above qualifications, in our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act 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 Balance Sheet, of the state of affairs of the Company as at 31 March 2015;

b) In the case of Statement of Profit and Loss, of the loss for the year ended on that date;

c) In the case of Cash fow Statement, of its cash fows for the year ended on that date.

Emphasis of matters

We draw attention to the following matters in the Notes to the financial statements:

(a) Cumulative Redeemable Preference Shares amounting to Rs 30,000.00 lakhs overdue for redemption continued to be shown under Share Capital since the redemption is part of the BIFR package envisaged for the Company(Refer Note No. 1);

(b) Formal conveyance/lease deeds in respect of lands, excepting part of lands at Bangalore and Mankapur, are yet to be executed by the respective State Governments (Refer Note No. 13);

(c) Necessary accounting adjustments for acquisition of 1.375 acres of land by the National Highway Authority of India (NHAI) for public purposes to be made on receipt of compensation, with proportionate cost of the acquired land having been withdrawn from the fixed assets and held as claims recoverable (Refer Note No. 40.18);

(d) Balances in the accounts of trade payables, advances from customers, trade receivables, claims recoverable, loans & advances, materials with fabricators, sub contractors/ others, material in transit, deposits, loans and other payables/receivables such as Sales Tax, VAT, Excise Duty, CENVAT, Service Tax, TDS etc., being under confirmation/reconciliation. Adjustments, if any will be made on completion of such reconciliation /receipt of confirmation. (Refer Note 40.4);

(e) Penalty of Rs 2,685 Lakhs for nonpayment of guarantee fee to the Government of India, having not been provided for, since the Ministry of Communications and IT has agreed in principle to waive the same as part of Company revival package (Refer Note No. 40.9);

(f) Validity of Claims recoverable from MTNL Delhi & MTNL Mumbai Against LD Damages for Rs. 183.23 lakhs and Rs.82.90 lakhs respectively;

(g) The Company is Sick Company as per provisions of Sick Industrial Companies Act (SICA), 1985. CCEA has approved a financial assistance of Rs. 4,156.79 Crores in February, 2014, for Revival of ITI under Rehabilitation Scheme (Refer Note No. 40.16)

(h) No lease agreement has been entered with ESIC for the additional land occupied by the Corporation to an extent of 229 sqmt. (Refer Note 40.20)

(i) Land measuring 77 Acres have been resumed by the Govt of Kerala and is under adjudication of the Apex Court. The value of land as shown in the Balance Sheet includes the value of land resumed by the Govt Of Kerala (Refer Note 40.21)

Our opinion is not modified in respect of these matters.

Other Matters

a) We did not audit the financial statements of five Units whose financial statements reflect total assets of Rs. 3,75,636 Lakhs as at March 31,

2015, total revenues of Rs. 19,679 Lakhs and Loss after tax of Rs. 28,348 Lakhs for the year ended on that date. These financial statements are audited by the respective Unit Auditors appointed by the Comptroller & Auditor General of India whose reports have been furnished to us and our opinion is based solely on the reports of the other auditors.

b) We have relied on the unaudited financial statements of certain Regional Offices whose financial statements reflect total assets of Rs. 28,548 Lakhs as at March 31, 2015, total revenues of Rs. 14,379 Lakhs and Loss after tax of Rs. 483 Lakhs for the year ended on that date. These unaudited financial statements of ROs have been certified by the Management and furnished to us and our report is based solely on such unaudited financial statements.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order,2015 ("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 a statement on the matters specified in the paragraph 3 and 4 of the Order, to the extent applicable.

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

a) We have sought and 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 account as required by law have been kept by the Company so far as appears from our examination of those books;

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

d) In our opinion, the aforesaid 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) On the basis of the written representations received from the directors as on 31 March 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March2015 from being appointed as a director in terms of Section164 (2) of the Act and

f) With respect to the other matters to be included in the Auditor's Report in accordance with Rule11 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 40.12 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 were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company

ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT:

The Annexure referred to in our Independent Auditor's Report to the members of ITI Limited ('the Company') on the financial statements for the year ended 31st March, 2015.

We report that:

1.(a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets on the basis of available information except for the assets located at Bangalore Plant, Bangalore NS Unit, Bangalore RO and Corporate Office where the records are to be updated in relation to situation and adjustment for revaluation.

(b) According to the information and explanations given to us, fixed assets have been physically verified by the management except for the assets located at the Bangalore Plant, Bangalore NS Unit, Bangalore RO and Corporate Office and no material discrepancies were noticed on such verification. Pending physical verification of fixed assets in the above units, discrepancies, if any, could not be ascertained and accounted for;

2.

(a) According to the information and explanations given to us, inventories (excluding those with third parties) have been physically verified by the management at reasonable intervals other than at Bangalore Plant where perpetual inventory system verification has been followed. However, documentation does not support assessment of the reasonableness of the intervals of verification.

(b) In our opinion and according to information and explanations given to us, the procedure for physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business other than at Bangalore Plant wherein documentation does not support comparison of the extent of physical verification to the total inventory as also examination of the adequacy of the system of verification followed.

(c) In our opinion and according to the information and explanations given to us, the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification of the inventory other than at Bangalore Plant wherein documentation does not support comparison of physical balance with book balance resulting in inability to comment on the materiality of discrepancies, if any and whether the same has been dealt with appropriately in the books.

3. According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to Companies, forms or other parties covered in the register maintained under Section 189 of the Companies Act, 2013.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business for purchase of inventory, fixed assets and for sale of goods & services except for the following areas, wherein internal control systems need to be considerably strengthened, to address weaknesses, continuing or otherwise, therein:

(i) Inadequacies in relation to maintenance of fixed asset records, systems of physical verification of fixed assets & inventory, ascertaining discrepancies as also their materiality and proper treatment of the discrepancies as observed in paras 1 & 2 above;

(ii) Aggregate inventories as at 31.3.2015 were Rs 12,676.66 lakhs against which provision of Rs 3,342.38 lakhs is held towards non-moving and obsolescence (net inventory Rs 9,334.28 lakhs). In view of Company's production activities having come down substantially and slow movement in the inventory, there is a need for systematic age wise segregation and analysis of the items comprised in the inventory to assess their usefulness/ usability in the production & servicing activities, period over which they could be used as also whether the inventory items are capable of being sold/disposed off as standalone items. Pending such an exercise, we are unable to express an opinion as to the adequacy of the provision held towards non moving and obsolete inventories and the eventual realizable amount in respect of the inventories, as also the possible effect on the financial statements

(iii) In relation to sale of goods & services, scope for improvement in the accounting for contract revenues as also monitoring and recovery of the high level of trade receivables of Rs 2,28,661.03 lakhs as at 31.3.2015 in relation to gross sales turnover (including taxes) of Rs 62,095.21 lakhs in 2014-15), including timely adjustment of the advances received from the customers, in the absence of which correct position of trade receivables is not arrived at. Against aggregate receivables of Rs 2,28,661.03 lakhs (of which Rs 41,129.81 lakhs are long term), provision held towards doubtful receivables is Rs 6,789.57 lakhs (of which Rs 3,339.06 lakhs is for long term receivables) and Company follows the practice of making provision for doubtful receivables on a case to case basis (Refer Significant Accounting Policies 18.00). There is a need for systematic age wise segregation, analysis, adjustment of advances received from the customers and reconciliation of the trade receivable accounts. Pending such an exercise, we are unable to express an opinion as to the adequacy of the provision held towards doubtful debts and the eventual realizable amount in respect of the trade receivables, as also the possible effect on the financial statements.

5. According to the information and explanations given to us, the Company has not accepted any deposits from the public within the meaning of Sections 73 or any other relevant provisions of the Companies Act, 2013 and Rules framed there under. In respect of deposits accepted in the past while the deposit scheme was in, repayment of matured deposits aggregating Rs 23.79 lakhs to the depositors is pending on account of orders/directions of the Judicial Authority for non refund and consequently money is not deposited in the Investors Education & Protection Fund.

6. Maintenance of cost records by the Company has been prescribed by the Central Government under Section 148 of the Companies Act, 2013 and on a broad review of the books/records, we are of the opinion that prima facie, the prescribed cost records have been maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate and complete.

7.

(a) The Company has generally been regular in depositing undisputed statutory dues including Provident Fund other than Rs 1,599.54 lakhs and 9,450.93 lakhs and Rs.2,486.20 lakhs and Rs. 713.59 Lakhs pertaining to Naini and Rae Bareli, Mankapur and Bangalore Plant units respectively, Employees State Insurance other than Rs. 0.65 lakhs pertaining to Bangalore NS Unit , Sales Tax & Service Tax other than on sales set up on provisional basis in respect of which tax incidence is not recognized & accounted, Customs Duty, Excise Duty, Cess and other statutory dues. According to the information and explanations given to us, other than to the extent indicated above, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31.3.2015 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, disputed statutory dues aggregating Rs 7,079.16 lakhs have not been deposited on account of disputed matters pending before the appropriate authorities as under:

Period to Forum where Sl. Amount in which the the dispute Name of the Rs, Lakhs dispute is pending statute Nature of dues relates

1 Central Excise Act, 1944 ED demanded on insurance, 71.55 2007 freight and amount of credit notes.

2 Central Excise Act, 1944 CENVAT credit availed on 16.75 2005 scrap and write off cases disal- lowed

3 Central Excise Act, 1944 Nil rate of duty availed 637.00 2003-05 on Software disputed by CE dept (Net of Pre depo- sit Rs. Rs. 200.00)

4 Central Excise Act, 1944 ED Demanded on R&D 299.00 2006-07 Custom Excise prototype modules for feld trail & Service is correct or not Stay extension Tax Appellate ( net of pre deposit Rs.30.00) Tribunal

5 Central Excise Act, 1944 Duty Short paid 0.99 1998-99

6 Central Excise Act, 1944 Nil Rate of Duty availed 496.76 2001-2002 software disputed by Central 2002-2003 excise dept (Net of Pre deposit Rs. Rs.14.00)

7 Central Excise Act, 1944 CENVAT Credit availed 376 2007-08

8 Central Excise Act, 1944 Demand 110/115 % Transfer 108.28 2007-08 of purchase item Sister unit

9 UP VAT Sales Tax Mankapur Unit 264.89 1986-89 UP Government

10 UP VAT Sales Tax 15.32 1989-95 UP Government

11 UP VAT Sales Tax 158.12 1987-89 Lucknow

1991-93 Bench of

2000-02 Allahabad High Court

12 UP VAT Sales Tax 452.89 1987-88 Member

1988-89 Tribunal

1994-95

2003-04

2006-07

13 UP VAT Service Tax 3.52 2012-13 Commissioner (Appeals ) Allahabad

14 Central Sales Tax, 1956 Demand of Additional Tax 1013.98 2005-06 against Form C – Naini

15 Central Sales Tax, 1956 Demand of Additional Tax 50.26 2007-08 against Form C Addl

16 Central Sales Tax, 1956 Demand of addi- tional Tax 9.23 2008-09 Commissioner, Aginst Form C/F Appeals

17 Central Sales Tax, 1956 Addl. Commiss- ioner Appeals 36.61 2009-10 Commercial Commercial Tax Allahabad Tax, Allahabad

18 Central Sales Tax, 1956 Demand of Addi- tional Tax 46.83 2010-11 Against Form C/F

19 Central Sales Tax, 1956 Demand of Addi- tional Tax 10.96 2011-12 against Form C/F

20 Central Sales Tax, 1956 Sales Tax Palakkad 97.7 2006-07 DC (Appeals) Ernakulam

21 Central Excise, 1944 Excise duty 91.65 2004-05 Central Excise & Service Tax Appellate Tribunal

22 Central Excise, 1944 Excise duty 68.07 2001-02 Commissioner

23 Central Excise, 1944 Excise duty 5.15 2002-03 (Appeals), Kochi

24 Central Excise, 1944 Service Tax 109.44 2010-11 Show cause notice by CCE, Calicut

25 Central Excise, 1944 Provision for obsolescence 52.28 2011-12 Show cause notice by CCE, Calicut

26 Central Excise, 1944 Service Tax 140.34 2011-12 Show cause notice by CCE, Calicut

27 Central Excise, 1944 Interest on ED 1.61 2003-04 Commissioner (appeals) Kochi

28 Service Tax Denial of service Tax Credit on 161.27 2011-12 Commissioner Input Services Calicut

29 Service Tax CENVAT Credit on Manpower 2.76 2012-13 Commissioner supply Calicut

30 Service Tax CENVAT Credit on Manpower 2.69 2012-13 Commissioner supply (appeals Kochi

31 Sales Tax Sales Tax Raebareli 291.62 2000-01 Trade Tax

2001-02 Tribunal

2003-04 Lucknow

2005-06

32 Sales Tax & Entry Tax Sales Tax 234.05 1998-99 Additional

2000-01 Commissioner

2001-02 (Trade Tax )

2002-03 Lucknow

2003-04

2004-05

2006-07

2007-08

2008-09

33 Sales Tax Sales Tax 0.93 2000-01 Dy. Commissioner (Trade Tax) RBL

34 Sales Tax Sales Tax 123.08 2009-10 Dy. Commissioner (Trade Tax) RBL

35 Sales Tax Sales Tax 427.68 2010-11 Addl. Commissioner Trade Tax, Lucknow

36 Karnataka Municipalities Demand for higher rate of 1199.90 2008-09 High Court of Act, 1964 property tax to Karnataka

2014-15

Total 7079.16

(c) According to the information and explanations given to us there were no amounts of unclaimed dividend which were required to be transferred to the Investor Education and Protection Fund by the Company.

8. The accumulated loss of the Company as at 31.03.2015 has exceeded fifty percent of its net worth. The Company has incurred cash loss in the financial year under audit and also in the immediately preceding financial year.

9. According to the information and explanation given to us, the company has not defaulted in repayment of dues to Banks.

10. According to the information and explanation given to us, the Company has not guaranteed for loans taken by others from bank or financial institutions.

11. According to information and explanations given to us, the Company has not availed any term loan from banks or financial institutions during the year.

12. According to the information and explanations given to us, no material fraud on or by the company has been noticed or reported during the year under audit.

For Sundar Srini & Sridhar

Chartered Accountants

Firm Registration No: 004201S

S. Sridhar

Partner

Membership No: 025504

Place : Bangalore

Date : 11th August 2015


Mar 31, 2014

We have audited the accompanying financial statements of ITI Limited ("the Company") which comprise the Balance Sheet as at 31 March 2014, the Statement of Profit & Loss and the Cash fow Statement for the year then ended and a summary of significant accounting policies and other explanatory information.

Management''s responsibility for the financial statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act") read with the General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. 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 control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, subject to:

qualifications not quantifable

(i) Our comments on the adequacy of provision on non-moving and slow moving inventories and on trade receivables in paras 4.(ii) & (iii) in the Annexure to this report containing a statement on the matters specified in paragraphs 4 and 5 of the Companies(Auditor''s Report) Order, 2003;

(ii) Pending approval from the Government of India on the finalization of the lease terms 6 agreement, rental income on the land leased out to the Bangalore Metropolitan Transport Corporation(BMTC)(of the 12.15 acres to be leased, 8.22 acres of land is already in possession of the BMTC), has not been recognised as income. Rs. 285.00 lakhs received earlier from the BMTC is held under deposits (Refer Note 40.16);

(iii) Non provision for the interest payable on royalty due to C-DoT(Refer Note No. 35) in view of rental dues from the same agency for the premises taken on rent from the Company being more than the royalty amount (Refer Note No. 40.21);

(iv) Interest and penalty, if any, leviable for non remittance of statutory dues on sales accounted on provisional basis(tax incidence on such sales not recognized) and delayed/short remittance of other statutory dues as also non deduction of TDS as per the provisions of Income Tax Act, 1961;

qualifications quantifable

(i) Non provision of Rs. 6897.31 lakhs towards claims doubtful of recovery comprising of (i) rent receivable of Rs. 5847.90 lakhs on a premises leased out upto the period ended 31.3.2011, rent from 1.4.2011 for the same premises being deferred for recognition on accrual basis due to uncertainty of realization (Refer Note No.40.21); (ii) liquidated damages of Rs. 1049.41 lakhs on a supplier, rejected by the Arbitral Tribunal. Had the said amounts been provided in the accounts, loss for the year would have been higher by Rs. 6897.31 lakhs and consequently reserves & surplus and current assets would be lower by similar amount,

(ii) Provision of Rs.176.61 Lakhs for work in progress Inventories in respect of the items pertaining to phased out projects and also not usable, has not been made which has resulted in the understatement of the Loss by Rs. 176.61 lacs and overstatement of current assets to the same extent,

a) In the case of Balance Sheet, of the state of affairs of the Company as at 31 March 2014;

b) In the case of Statement of Profit and Loss, of the loss for the year ended on that date;

c) In the case of Cash fow Statement, of cash flows for the year ended on that date.

Emphasis of matter

On the following Notes on financial statements, without qualifying our opinion, we draw attention of members:

(a) Cumulative Redeemable Preference Shares amounting to Rs. 30000.00 lakhs overdue for redemption continued to be shown under Share Capital since the redemption is part of the BIFR package envisaged for the Company(Refer Note No. 1);

(b) Dues to micro, small and medium enterprises being disclosed to the extent to which such enterprises are identified by the Company (Refer Note No. 10)

(c) Formal conveyance/lease deeds in respect of lands, excepting part of lands at Bangalore and Mankapur, are yet to be executed by the respective State Governments (Refer Note No. 13);

(d) Necessary accounting adjustments for acquisition of 1.375 acres of land by the National Highway Authority of India (NHAI) for public purposes to be made on receipt of compensation, with proportionate cost of the acquired land having been withdrawn from the fixed assets and held as claims recoverable(Refer Note No. 40.17);

(e) Wage arrears of Rs. 16500.00 lakhs to the employees arising as per the Presidential directives and Tripartite agreement on wage settlement with the employees for the period 1.1.1997 to 31.3.2000 having not been provided in view of the same having to be paid by the Company in a phased manner on the improvement of Profitability position and on declaration of the Company by the BIFR as a Sick Company and conditions for payment of arrears being not prevalent (Refer Note No. 40.3);

(f) Balances in the accounts of trade payables, advances from customers, trade receivables, claims recoverable, loans & advances, materials with fabricators, sub contractors/ others, material in transit, deposits, loans and other payables/receivables such as Sales Tax, VAT, Excise Duty, CENVAT, Service Tax, TDS etc., being under confirmation/reconciliation. Adjustments, if any will be made on completion of such reconciliation /receipt of confirmation. (Refer Note 40.4);

(g) Penalty of Rs. 2685 Lakhs for non payment of guarantee fee to the Government of India, having not been provided for, since the Ministry of Communications and IT has agreed in principle to waive the same as part of Company revival package (Refer Note No. 40.9);

(h) Land measuring 5 acres being used by Karnataka Power Transmission Corporation Limited (KPTCL) has not been revalued (Refer Note 40.18);

(i) Validity of Claims recoverable from MTNL Delhi & MTNL Mumbai Against LD Damages for Rs. 183.23 lakhs and Rs. 82.90 lakhs respectively;

(j) Land measuring 77 Acres have been resumed by the Govt of Kerala and is under adjudication of the Apex Court. The value of land as shown in the balance sheet includes the value of land resumed by the Govt Of Kerala (Refer Note 40.19)

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order"), as amended, issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by Section 227 (3) of the Act, 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 account as required by law have been kept by the Company so far as appears from our examination of those books;

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

d) In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the Accounting Standards referred to in Section 211(3C) of the Companies Act,

1956 read with the General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013

e) Provisions of Section 274(1)(g) of the Companies Act, 1956 is not applicable to a Government Company. Hence, reporting on any Director being disqualified under Section 274(1)(g) of the Companies Act, 1956 to get appointed as a Director does not arise.

Other Matters

a) We did not audit the financial statements of five Units whose financial statements refect total assets of Rs. 2,30,518 Lakhs as at March 31, 2014, total revenues of Rs. 45,430 Lakhs and Loss after tax of Rs. 33,941 Lakhs for the year ended on that date. These financial statements are audited by the respective Unit Auditors appointed by the Comptroller & Auditor General of India whose reports have been furnished to us and our opinion is based solely on the reports of the other auditors.

b) We have relied on the unaudited financial statements of certain Regional offices whose financial statements refect total assets of Rs. 11,266 Lakhs as at March 31, 2014, total revenues of Rs. 6,748 Lakhs and Loss after tax of Rs. 356 Lakhs for the year ended on that date. These unaudited financial statements of ROs have been furnished to us by the Management and our report is based solely on such unaudited financial statements.

Our opinion is not qualified in respect of other matters.

ANNEXURE TO THE INDEPENDENT AUDITORS'' REPORT:

The Annexure referred to in our report to the members of ITI Limited (''the company'') for the year ended 31st March, 2014. We report that:

1. a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets on the basis of available information other than at Bangalore Plant where the records are to be updated in relation to situation and adjustment for revaluation.

(b) According to the information and explanations given to us, fixed assets have been physically verifed by the management other than at the Bangalore Plant and no material discrepancies were noticed on such verifcation. At the Bangalore Plant, continuous verifcation system is said to have been followed. However, documentation does not support comparison of the extent of verifcation to the total assets and book balance to physical balance, resulting in inability to comment on the reasonableness of the intervals of verifcation, materiality of discrepancies, if any, and whether the same has been dealt with appropriately in the books.

(c) In our opinion and according to the information and explanations given to us, the Company has not disposed off a substantial part of its fixed assets during the year to affect the going concern status.

2.

(a) According to the information and explanations given to us, inventories (excluding those with third parties) have been physically verifed by the management at reasonable intervals other than at Bangalore Plant where perpetual inventory system verifcation has been followed. However, documentation does not support assessment of the reasonableness of the intervals of verifcation.

(b) In our opinion and according to information and explanations given to us, the procedure for physical verifcation of inventory followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business other than at Bangalore Plant wherein documentation does not support comparison of the extent of physical verifcation to the total inventory as also examination of the adequacy of the system of verifcation followed.

(c) In our opinion and according to the information and explanations given to us, the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verifcation of the inventory other than at Bangalore Plant wherein documentation does not support comparison of physical balance with book balance resulting in inability to comment on the materiality of discrepancies, if any and whether the same has been dealt with appropriately in the books.

3. According to the information and explanations given to us, the Company has neither granted nor taken any loans, secured/unsecured to/ from Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Consequently, comments on clauses (iii)(b) to (d) and (f) to (g) of paragraph 4 of the of the Order do not arise.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business for purchase of inventory, fixed assets and for sale of goods & services except for the following areas, wherein internal control systems need to be considerably strengthened, to address weaknesses, continuing or otherwise, therein:

(i) Inadequacies in relation to maintenance of fixed asset records, systems of physical verifcation of fixed assets & inventory, ascertaining discrepancies as also their materiality and proper treatment of the discrepancies as observed in paras 1 & 2 above;

(ii) Aggregate inventories as at 31.3.2014 were Rs. 12960.51 lakhs against which provision of Rs. 3339.95 lakhs is held towards non-moving and obsolescence (net inventory Rs. 9620.56 lakhs). In view of Company''s production activities having come down substantially and slow movement in the inventory, there is a need for systematic age wise segregation and analysis of the items comprised in the inventory to assess their usefulness/ usability in the production & servicing activities, period over which they could be used as also whether the inventory items are capable of being sold/disposed off as standalone items. Pending such an exercise, we are unable to express an opinion as to the adequacy of the provision held towards non moving and obsolete inventories and the eventual realizable amount in respect of the inventories, as also the possible effect on the financial statements

(iii) In relation to sale of goods & services, scope for improvement in the accounting for contact revenues as also monitoring and recovery of the high level of trade receivables of Rs. 221947.36 lakhs as at 31.3.2014 in relation to gross sales turnover (including taxes) of Rs. 77315.67 lakhs in 2013-14), including timely adjustment of the advances received from the customers, in the absence of which correct position of trade receivables is not arrived at. Against net aggregate receivables of Rs. 215164.05 lakhs(of which Rs. 20811.67 lakhs are long term), provision held towards doubtful receivables is Rs. 6783.31 lakhs (of which Rs. 3339.06 lakhs is for long term receivables) and Company follows the practice of making provision for doubtful receivables on a case to case basis (Refer significant Accounting Policies 17.00). There is a need for systematic age wise segregation, analysis, adjustment of advances received from the customers and reconciliation of the trade receivable accounts. Pending such an exercise, we are unable to express an opinion as to the adequacy of the provision held towards doubtful debts and the eventual realizable amount in respect of the trade receivables, as also the possible effect on the financial statements.

5. According to the information and explanations given to us, the Company has no transactions that need to be entered in the register to be maintained as per Section 301 of the Companies Act, 1956. Consequently, need for comment on clause (v)(b) of paragraph 4 of the of the Order does not arise.

6. According to the information and explanations given to us, the Company has not accepted any deposits from the public within the meaning of Sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and Rules framed there under. In respect of deposits accepted in the past while the deposit scheme was in vogue, repayment of matured deposits aggregating Rs. 28.04 lakhs to the depositors is pending on account of orders/directions of the Judicial Authority for non refund and consequently money is not deposited in the Investors Education & Protection Fund.

7. The Company has an Internal Audit System, implemented through the in-house Internal Audit Department, which in our opinion requires further strengthening with respect to personnel, scope of the audit, reporting and systematic follow up to make it commensurate with the nature of business and size of the Company.

8. Maintenance of cost records by the Company has been prescribed by the Central Government under section 209(1)(d) of the Companies Act, 1956 and on a broad review of the books/ records, we are of the opinion that prima facie, the prescribed cost records have been maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate and complete.

9. (a) The Company has generally been regular in depositing undisputed statutory dues including Provident Fund other than Rs. 1452.81 lakhs and 7557.22 lakhs pertaining to Naini and Rae Bareli units respectively, Employees State Insurance, Sales Tax & Service Tax other than on sales set up on provisional basis in respect of which tax incidence is not recognised & accounted, Customs Duty, Excise Duty, Cess and other statutory dues. According to the information and explanations given to us, other than to the extent indicated above, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31.3.2014 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, disputed statutory dues aggregating Rs. 9100.19 lakhs have not been deposited on account of disputed matters pending before the appropriate authorities as under:

(Rs. in lakhs) Sl. Name of the Nature of dues Amount Period to Forum where the No. statute which the dispute is pending dispute relates

1 Central Excise Act, ED demanded on R & D prototype 354 2006-07 1944 modules for feld trial is correct or not?

2 Nil rate of duty availed on software 529.09 2001-03 disputed by the CE Dept.

3 Dispatches of Software(CNMS & 7.4 2007-08 DCME)

4 CENVAT credit availed on import 564.21 2007 Central Excise of IFWT and Power S upply Units, & Service Tax denied by the CE Dept Appellate Tribunal

5 110/115% demanded on transfer 162.38 2007 of purchased items to sister units

6 ED demanded on insurance, 71.55 2007 freight and amount of credit notes.

7 CENVAT credit availed on scrap 16.75 2005 and write off cases disallowed

8 Nil rate of duty availed on Software 2003-05 disputed by CE dept 837.00

9 UP VAT Sales Tax – Mankapur Unit 264.89 1986-89 UP Government

10 Sales Tax 15.32 1989-95 Committee Formed by UP Govt as directed by the High Court

11 Sales Tax 158.12 1987-89 Lucknow Bench 1991-93 of Allahabad 2000-02 High Court

12 Sales Tax 81.91 1988-89 Additional 2003-04 Court 2005-06 (Appeals) Sales Tax, Gonda 2010-11

13 Sales Tax 429.96 1987-88 Member 1988-89 Tribunal 1994-95 2006-07

14 Service Tax 3.52 2012-13 Commissioner (Appeals ) Allahabad

15 Demand of Additional Tax against 1013.98 2005-06 Form C – Naini

Addl Commissioner, 16 Demand of Additional Tax against 50.26 2007-08 Appeals Commercial Form C Tax, Allahabad

17 Central Sales Demand of Additional Tax Tax against 298.1 2006-07 1956 Form C/F

18 142.72 2009-10 Joint, Commissioner Demand of Additional Tax against corporate Circle Form C/F Commercial Tax Allahabad

19 CST Sales Tax –Palakad 97.7 2006-07 DC (Appeals) Ernakulam

20 Central Excise, Excise duty 91.65 2004-05 Central Excise 1944 & Service Tax Appellate Tribunal

21 Excise duty 68.07 2001-02 Commissioner

22 Excise duty 5.15 2002-03 (Appeals),Kochi

23 Service Tax 109.44 2010-11 Show cause notice by CCE, Calicut

24 Provision for obsolescence 52.28 2011-12 Show cause notice by CCE, Calicut

25 Service Tax 140.34 2011-12 Show cause notice by CCE, Calicut

26 Central Excise Interest on ED 1.61 2003-04 Commissioner (appeals)Kochi

27 Service Tax Denial of service Tax Credit on 161.27 2011-12 Commissioner Input Services Calicut

28 Service Tax CENVAT Credit on Manpower 2.76 2012-13 Commissioner supply Calicut

29 Service Tax CENVAT Credit on Manpower 2.69 2012-13 Commissioner supply (appeals)Kochi

30 Sales Tax Sales Tax -Raebareli 291.62 2000-01 Trade Tax 2001-02 Tribunal 2003-04 Lucknow 2005-06

31 Sales Tax & Sales Tax 234.05 1998-99 Additional Entry Tax 2000-01 Commissioner 2001-02 (Trade Tax ) 2002-03 Lucknow 2003-04 2004-05 2006-07 2007-08 2008-09

32 Sales Tax Sales Tax 0.93 2000-01 Dy.Commissioner (Trade Tax) RBL

33 Sales Tax Sales Tax 574.12 2009-10 Dy.Commissioner (Trade Tax) RBL

34 UP VAT Sales Tax 160.06 1987-89 Additional 1994-95 Court(Appeals) 2006-07 Sales Tax, Gonda 2008-10

35 UP VAT Sales Tax 268.36 2000-02 Trade Tax Tribunal, 2003-04 Lucknow

36 UP VAT Sales Tax/Entry Tax 466.27 1998-99 Additional 2000-08 Commissioner Appeal,Lucknow

37 UP VAT Sales Tax 0.93 2000-01 Deputy Commissioner, Rae Bareli

Central Sales Tax, Demand of Additional Tax against 464.81 2006-07 Addl Commissioner, 1956 Form C Appeals Commercial Tax,Allahabad 38

Central Excise Service Tax 4.44 2011-12 Show cause notice by CCE, Calicut

39 Karnataka Demand for higher rate of 734 2008-09 High Court of Municipali -ties Act, property tax to 2011- Karnataka 1964 12

40 Service Tax Short Payment of service tax 166.48 2004 to Commissioner 2008 of Central Excise Chennai

Total 9100.19

10. The accumulated loss of the Company as at 31.03.2014 has exceeded fifty percent of its net worth, not considering the revaluation reserve. The Company has incurred cash loss in the financial year under audit and also in the immediately preceding financial year.

11. According to the information and explanations given to us, the Company has not defaulted in repayment of dues to Banks. There are no dues to financial institutions.

12. According to the information and explanation given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Consequently, comment on clause (xii) of paragraph 4 of the Order does not arise.

13. The Company is not a chit fund company, nidhi, mutual benefit fund/society. Consequently, need for comment on clauses (xiii)(a) to (d) of paragraph 4 of the Order do not arise.

14. The Company is not dealing or trading in shares, securities, debentures and other investments. Consequently, need for comment on clause (xiv) of paragraph 4 of the Order does not arise.

15. According to the information and explanation given to us, the Company has not given guarantees for loans taken by others from Banks or financial institutions. Consequently, need for comment on clause (xv) of paragraph 4 of the Order does not arise.

16. According to information and explanations given to us, the Company has not availed any term loan during the year. Consequently, need for comment on clause (xvi) of paragraph 4 of the Order does not arise.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we are of the opinion that no funds raised on short term basis have been used for long term investment and vice versa.

18. 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. Consequently, need for comment on clause (xviii) of paragraph 4 of the Order does not arise.

19. The Company has not issued any debentures during the year. Consequently, need for comment on clause (xviii) of paragraph 4 of the order does not arise.

20. The Company has not raised monies by way of public issue during the year. Consequently, need for comment on clause (xx) of paragraph 4 of the Order does not arise.

21. According to the information and explanations given to us, no material fraud on or by the company has been noticed or reported during the year under audit except a fraud as reported by the Branch Statutory Auditors of Palakkad unit. The said auditors have reported that "According to the information and explanation given to us, during the year a fraud has been reported by the company involving an amount of Rs. 2453 lakhs by M/s Netwing Technologies Pvt Ltd, a service Provider of the Company in the implementation of SECC Project in Palakkad Unit. The Unit has made equal provision as there is no Insurance Cover".

For Sundar Srini & Sridhar Chartered Accountants Firm Registration No: 004201S

Sd/- (S. SRIDHAR) Partner Membership No: 025504

Place: New Delhi Date: 30.05.2014


Mar 31, 2013

Report on the financial statements

We have audited the accompanying financial statements of ITI Limited("the Company") which comprise the Balance Sheet as at 31 March 2013, the Statement of Profit & Loss and the Cash flow Statement for the year then ended and a summary of significant accounting policies and other explanatory information, in which are incorporated the financial statements of Corporate Office, Bangalore Plant, NS Unit and RO Bangalore audited by us, five Units audited by the respective Unit Auditors appointed by the Comptroller & Auditor General of India and that of NS units at New Delhi & Kolkata and seven other ROs as certified by the Management.

Management''s responsibility for the financial statements

Management is responsible for preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flow of the Company in accordance with the Accounting Standards referred to in Section 211(3C) of .the Companies Act, 1956(the "Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatements, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. 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 Auditor''s judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements 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 Management, 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 a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view and are in conformity with the accounting principles generally accepted in India, subject to:

Qualifications not quantifiable

(a) Our comments relating to adequacy of provision and realisable value of the inventories and trade receivables in paras 4.(ii) & (iii) of Annexure to this report containing a statement on the matters specified in paragraphs 4 and 5 of the Companies(Auditor''s Report) Order, 2003;

(b) Investment of Rs. 40.55 lakhs in the unquoted equity shares of a Company being continued to be shown at cost, though the Company remains closed and impairment loss having not been ascertained and provided for(Refer Significant Accounting Policies 5.00 and Note No. 17);

(c) Pending approval from the Government of India for the lease terms and finalization of the lease terms & agreement, rental on lease of land to the Bangalore Metropolitan Transport Corporation(BMTC)(of the 12.15 acres to be leased, 8.22 acres of land is already in possession of the BMTC), not recognised as income. Rs. 285.00 lakhs received earlier from the BMTC is held under deposits(Refer Note 40.17);

(d) Non provision of interest payable on royalty to C-DoT (Refer Note No. 35) in view of rental dues from the same agency for the premises taken on rent from the Company being more than the royalty amount (Refer Note No. 40.21);

(e) Interest and penalty, if any, leviable for non remittance of statutory dues on sales accounted on provisional basis (tax incidence on such sales not recognized) and delayed/short remittance of other statutory dues as also non deduction of TDS as per the provisions of Income Tax Act, 1961;

Qualifications quantifiable

(a) Non provision of Rs. 6897.31 lakhs towards claims doubtful of recovery comprising of (i) rent of Rs. 5847.90 lakhs for a leased premises up to 31.3.2011, rent from 1.4.2011 for the same premises being deferred for recognition on accrual basis due to uncertainty of realization(Refer Note No. 21); (ii) liquidated damages of Rs. 1049.41 lakhs on a supplier, rejected by the Arbitral Tribunal. Had the said amounts been provided in the accounts, loss for the year would have been higher by Rs. 6897.31 lakhs and consequently reserves & surplus and current assets would be lower by similar amount,

a) In the case of Balance Sheet, of the state of affairs of the Company as at 31 March 2013;

b) In the case of Statement of Profit and Loss, of the loss for the year ended on that date;

c) In the case of Cash flow Statement, of cash flows for the year ended on that date.

Emphasis of matter

On the following Notes on financial statements, without qualifying our opinion, we draw attention of members:

(a) Cumulative Redeemable Preference Shares amounting to Rs. 30000.00 lakhs overdue for redemption continued to be shown under Share Capital since the redemption is part of the BIFR package envisaged for the Company (Refer Note No. 1);

(b) Dues to micro, small and medium enterprises being disclosed to the extent to which such enterprises are identified by the Company (Refer Note No. 10);

(c) Pendency of formal conveyance/lease deeds in respect of lands, except part of lands at Bangalore and Mankapur, by the respective State Governments (Refer Note No. 13);

(d) Change in the Significant Accounting Policy for Revenue Recognition under sales in the year - a) Sales include Excise Duty & Service Tax and excludes Sales Tax(Refer Significant Accounting Policies 10.00 (a) and Note No. 27) as against Excise Duty only in the earlier years resulting in higher gross sales turnover of Rs. 7406.29 lakhs (Rs. 7102.54 lakhs). However, the change has no effect on the net revenue from operations and loss for the year;

(e) Sales accounted on provisional basis/prices for supply of various equipments and variation, if any, being accounted on determination of final prices(Refer Significant Accounting Policies 10.00 (d) and Note No. 27);

(f) Necessary accounting adjustments for acquisition of 1.375 acres of land by the National Highway Authority of India (NHAI) for public purposes to be made on receipt of compensation, with proportionate cost of the acquired land having been withdrawn from the fixed assets and held as claims recoverable(Refer Note No. 40.18);

(g) Wage arrears of Rs. 16500.00 lakhs to the employees arising as per the Presidential directives and Tripartite agreement on wage settlement with the employees for the period 1/1/1997 to 31/03/2000 having not been provided in view of the same having to be paid by the Company in a phased manner on the improvement of profitability position and on declaration of the Company by the BIFRas a Sick Company and conditions for payment of arrears being not prevalent (Refer Note No. 40.3);

(h) Balances in the accounts of creditors, advances from customers, debtors, claims recoverable, loans & advances, materials with fabricators, sub contractors/others, material in transit, deposits, loans and other payables/receivables such as Sales Tax, VAT, Excise Duty, CENVAT, Service Tax, TDS etc., being under confirmation/ reconciliation(Refer Note 40.4);

(i) Penalty of t 2685 Lakhs for non payment of guarantee fee to the Government of India, having not been provided for, since the Ministry of Communications and IT has agreed in principle to waive the same as part of Company revival package(Refer Note No. 40.10);

(j) Land measuring 5 acres being used by Karnataka Power Transmission Corporation Limited (KPTCL)(Refer Note 40.19).

Report on Other Legal and Regulatory Requirements

1. As required by the Companies(Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of Section 227(4A) of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

2. As required by Section 227 (3) of the Act, 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 account as required by law have been kept by the Company so far as appears from our examination of those books;

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

d) In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956;

e) Provisions of Section 274(1 )(g) of the Companies Act, 1956 is not applicable to a Government Company. Hence, reporting on any Director being disqualified to be appointed as a Director under Section 274(1 )(g) of the Companies Act, 1956 does not arise.

(Referred to in Paragraph 1 under the heading of "Report on Other Legal and Regulatory Requirements" of our report of even date)

1. In respect of fixed assets

(a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets on the basis of available information other than at Bangalore Plant where the records are to be updated in relation to situation and adjustment for revaluation.

(b) According to the information and explanations given to us, fixed assets have been physically verified by the management other than at the Bangalore Plant and no material discrepancies were noticed on such verification. At the Bangalore Plant, continuous verification system is said to have been followed. However, documentation does not support comparison of the extent of verification to the total assets and book balance to physical balance, resulting in inability to comment on the reasonableness of the intervals of verification, materiality of discrepancies, if any, and whether the same has been dealt with appropriately in the books.

(c) In our opinion and according to the information and explanations given to us, the Company has not disposed off a substantial part of its fixed assets during the year to affect the going concern status.

2. In respect of inventories

(a) According to the information and explanations given to us, inventories(excluding those with third parties) have been physically verified by the management at reasonable intervals other than at Bangalore Plant where perpetual inventory system verification has been followed. However, documentation does not support assessment of the reasonableness of the intervals of verification.

(b) In our opinion and according to information and explanations given to us, the procedure for physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business other than at Bangalore Plant wherein documentation does not support comparison to the extent of physical verification to the total inventory as also examination of the adequacy of the system of verification followed.

(c) In our opinion and according to the information and explanations given to us, the Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification of the inventory other than at Bangalore Plant wherein documentation does not support comparison of physical balance with book balance resulting in inability to comment on the materiality of discrepancies, if any and whether the same has been dealt with appropriately in the books.

3. According to the information and explanations given to us, the Company has neither granted nor taken any loans, secured/unsecured to/ from Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Consequently, comments on clauses (iii)(b) to (d) and (f) to (g) of paragraph 4 of the Order do not arise.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business for purchase of inventory, fixed assets and for sale of goods & services except for the following areas, wherein internal control systems need to be considerably strengthened, to address weaknesses, continuing or otherwise, therein:

(i) Inadequacies in relation to maintenance of fixed asset records, systems of physical verification of fixed assets & inventory, ascertaining discrepancies as also their materiality and proper treatment of the discrepancies as observed in paras 1 & 2 above;

(ii) Aggregate inventories as at 31.3.2013 were Rs. 13866.29 lakhs against which provision of Rs. 3375.58 lakhs is held towards non-moving and obsolescence(net inventory Rs. 10490.71 lakhs). In view of Company''s production activities having come down substantially and slow movement in the inventory, there is a need for systematic age wise segregation and analysis of the items comprised in the inventory to assess their usefulness/usability in the production & servicing activities, period over which they could be used as also whether the inventory items are capable of being sold/disposed off as standalone items. Pending such an exercise, we are unable to express an opinion as to the adequacy of the provision held towards non moving and obsolete inventories and the eventual realizable amount in respect of the inventories, as also the possible effect on the financial statements.

(iii) In relation to sale of goods & services, scope for improvement in the accounting for contact revenues as also monitoring and recovery of the high level of trade receivables of Rs. 413623.42 lakhs as at 31.3.2013 in relation to gross sales turnover of Rs. 92199.80 lakhs in 2012-13, including timely adjustment of the advances received from the customers, in the absence of which correct position of trade receivables is not arrived at. Against aggregate receivables of Rs. 413623.42 lakhs(of which Rs. 272716.91 lakhs are long term), provision held towards doubtful receivables is Rs. 6891.08 lakhs(of which Rs. 4332.91 lakhs is for long term receivables) and Company follows the practice of making provision for doubtful receivables on a case to case basis(Refer Significant Accounting Policies 17.00). There is a need for systematic age wise segregation, analysis, adjustment of advances received from the customers and reconciliation of the trade receivable accounts. Pending such an exercise, we are unable to express an opinion as to the adequacy of the provision held towards doubtful debts and the eventual realizable amount in respect of the trade receivables, as also the possible effect on the financial statements.

5. According to the information and explanations given to us, the Company has no transactions that need to be entered in the register to be maintained as per Section 301 of the Companies Act, 1956. Consequently, comment on clause (v)(b) of paragraph 4 of the Order does not arise.

6. According to the information and explanations given to us, the Company has not accepted any deposits from the public within the meaning of Sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and Rules framed there under. In respect of deposits accepted in the past while the deposit scheme was in, repayment of matured deposits aggregating Rs. 23.85 lakhs (to check the amount) to the depositors is pending on account of orders/ directions of the Judicial Authority for non refund and consequently money is not deposited in the Investors Education & Protection Fund.

7. The Company has an Internal Audit System, implemented through the in-house Internal Audit Department, which in our opinion requires further strengthening with respect to personnel, scope of the audit, reporting and systematic follow up to make it commensurate with the nature of business and size of the Company.

8. Maintenance of cost records by the Company has been prescribed by the Central Government under section 209(1 )(d) of the Companies Act, 1956 and on a broad review of the books/ records, we are of the opinion that prima facie, the prescribed cost records have been maintained. However, we have not made a detailed examination of the cost records with a view to determine whether they are accurate and complete.

9. (a) The Company has generally been regular in depositing undisputed statutory dues including Provident Fund other than Rs. 6768.00 lakhs pertaining to Naini and Rae Bareli units, Employees State Insurance, Sales Tax & Service Tax other than on sales set up on provisional basis in respect of which tax incidence is not recognised & accounted, Customs Duty, Excise Duty, Cess and other statutory dues. According to the information and explanations given to us, other than to the extent indicated above, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31.3.2013 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, disputed statutory dues aggregating Rs. 6380.22 lakhs have not been deposited on account of disputed matters pending before the appropriate authorities as under:

10. The accumulated loss of the Company as at 31.03.2013 was not less than fifty percent of its net worth. The Company has incurred cash loss in the financial year under audit and in the immediately preceding financial year.

11. According to the information and explanations given to us, the Company has not defaulted in repayment of dues to Banks. An amount of Rs. 210.00 lakhs with interest of Rs. 18.00 lakhs is due to a debenture holder (debentures issued in March 2004 being redeemable at par in March 2009 & having been redeemed except this debenture holder), on account of the debenture holder not agreeing for the one time settlement(OTS) offered by the Company and filing a suit against the Government of India(Gol), as the debentures were backed by Gol guarantee. Debenture holder is said to have since approached the Company for OTS(Refer Note No. 11). There are no dues to financial institutions.

12. According to the information and explanation given to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Consequently, comment on clause (xii) of paragraph 4 of the Order does not arise.

13. The Company is not a chit fund company, nidhi, mutual benefit fund/society. Consequently, comments on clauses (xiii)(a) to (d) of paragraph 4 of the Order do not arise.

14. The Company is not dealing or trading in shares, securities, debentures and other investments. Consequently, comment on clause (xiv) of paragraph 4 of the Order does not arise.

15. According to the information and explanation given to us, the Company has not given guarantees for loans taken by others from Banks or financial institutions. Consequently, comment on clause (xv) of paragraph 4 of the Order does not arise.

16. According to information and explanations given to us, the Company has not availed any term loan during the year. Consequently, comment on clause (xvi) of paragraph 4 of the Order does not arise.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we are of the opinion that no funds raised on short term basis have been used for long term investment.

18. 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. Consequently, comment on clause (xviii) of paragraph 4 of the Order does not arise.

19. The Company has created security and charge in respect of debentures issued in March 2004, due for redemption at par in March 2009 and having been redeemed except for Rs. 210.00 lakhs in respect of one debenture holder(Refer Note No. 11 and para 11 above).

20. The Company has not raised money by way of public issue during the year. Consequently, comment on clause (xx) of paragraph 4 of the Order does not arise.

21. Duringthecourseofourexaminationofthebooks of account carried out in accordance with the generally accepted auditing practices in India, as also the audit procedures performed and according to the information and explanations given to us, to the best of our knowledge and belief, 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 such case by the management.

For BADARI, MADHUSUDHAN & SRINIVASAN

CHARTERED ACCOUNTANTS

Sd/-

(T.V. SUDARSHAN)

PARTNER

M. No.019108

FRN: 005389S

Place: Bangalore

Date: 29.05.2013


Mar 31, 2012

1. We have audited the attached Balance sheet of ITI Limited, as at 31st March 2012 and also the Profit & Loss Account and the Cash flow statements for the year ended on that date annexed thereto which incorporates all the Units of ITI Limited audited by Unit Statutory Auditors in accordance with the allotment made by the Comptroller & Auditor General of India, New Delhi. 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. Our opinion on the consolidated financial statements of the Company is based on our audit of accounts of the Corporate Office, Bangalore plant, NS unit- Bangalore, ROs at Bangalore, Chennai & Mumbai and financial statements of other units which have been audited by the branch auditors appointed by C & AG and the financial statements of ROs at Delhi, Lucknow, Kolkata, Bhubaneshwar, Hyderabad, NS Units at Delhi and Kolkata as certified by the Management.

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 (Auditor's Report) Order, 2003 (as amended) 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 paragraphs 4 and 5 of the said Order

4. We invite attention of the members to the following notes on accounts:

(i) Inventories, Manufactured items and Stock in Trade are valued at the lower of cost and net realizable value as stated in Accounting Policy No.3.0. However, stocks aggregating to Rs.10.13 crores have been carried at cost due to difficulty in ascertaining the net realizable value vide note no. 22;

(ii) Sales are recognized on provisional basis where the prices are not established vide note no.27 read with Significant Accounting policy no.9(d);

(iii) Disputed property tax of Rs.7.34 crores payable to BBMP is pending before the High Court of Karnataka for the period 2008-09 to 2011-12 which is included in Contingent liability vide note no.40.13;

(iv) 12.15 acres of land (not revalued) has been agreed to be sold to BMTC and advance of Rs.2.85 crores has been received, pending sale registration of land, 8.22 acres is handed over to BMTC but registration is pending for approval of the Ministry vide note no.40.18;

(v) National Highway Authority of India has acquired 1.375 acres of land for road widening in Electronics City Bangalore for compensation of Rs.1.46 crores (yet to be received) during 2007-08, the land is in possession of NHAI pending transfer of title but value of land continues in the books of accounts vide note no.40.19;

(vi) NHAI has notified for acquisition of land of 0.5495 acres & building at Palakkad for which compensation is yet to be decided vide note no.40.19;

5. Further to our comments 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 our audit;

(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 those books;

(iii) the Balance Sheet, Profit & Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account;

(iv) in our opinion, the Balance Sheet, Profit & Loss Account and the Cash Flow Statement dealt with by this report comply with the mandatory accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 except for improvement in Project Accounting System under AS-7, subject to:

(a) non reconciliation of CENVAT credit aggregating to Rs 4.53 crores;

(b) non provision for interest on royalty payable to C-DOT vide note no.35 not quantifiable;

(c) non confirmation of balances in respect of creditors, debtors, advances from customers, claims recoverable, loans and advances, materials with fabricators , sub- contractors/others, material in transit, deposits, loans, sales tax, VAT, excise duty, Cenvat and service tax;

(d) the Company has not provided for a sum of Rs.26.85 crores being penalty levied for non payment of Guarantee fees which has resulted in understatement of loss and current liabilities;

(e) interest and penalty leviable for non- remittance of statutory dues, on sales recognized on provisional basis, delayed/short remittance of other statutory dues and non-deduction of TDS as per the provisions of Income Tax Act 1961 is not ascertainable;

The said accounts 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 March 31st 2012;

(b) in the case of the Profit and Loss Account, of the loss for the year ended on that date;

(c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

6. Provisions of Section 274(1)(g) of the Companies Act, 1956 is not applicable to a Government Company. Hence, reporting on any Director being disqualified to be appointed as a Director under Section 274(1)(g) of the Companies Act, 1956 does not arise.

ANNEXURE TO THE AUDITORS' REPORT

(Referred to in Paragraph 3 of our report of even date to the members of ITI Limited on the financial statements for the year ended 31st March, 2012)

1. (a) Company has maintained proper records showing particulars including quantitative details and depreciation over the life of the asset, but however needs to be updated with details of location of the asset and impairment loss, if any & details of revaluation.

(b) According to information and explanations given to us, fixed assets have been physically verified by the management only in Naini, Mankapur & Srinagar units.

(c) According to information and explanations given to us, Company has not disposed off substantial part of the fixed assets during the year so as to affect its going concern status.

2. (a) According to information and explanations given to us, the inventories (excluding the stocks with third parties) have been physically verified by the management at reasonable intervals.

(b) According to information and explanations given to us, the procedure for physical verification of inventory followed by the management needs to be strengthened in order to be reasonable and adequate in relation to the size of the company and the nature of its business.

(c) According to information and explanations given to us, the company is maintaining proper records of inventory. No material discrepancies were noticed on physical verification of inventory.

3. (a) According to the information and explanations given to us, the Company has neither granted nor taken any loans, secured/unsecured to/from Companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act. Accordingly, Clauses (iii) (b) to (iii) (g) paragraph 4 of the of the Companies (Auditor's Report) Order, 2003(as amended) are not applicable.

4. In our opinion and according to the information and explanations given to us, there are internal control systems commensurate with the size of the Company and the nature of its business for purchase of inventory, fixed assets and for sale of goods and services but however there is a scope for improvement. Further, on the basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control systems.

5. According to information and explanations given to us, there are no transactions entered in pursuance of Section 301 of the Companies Act, 1956.

6. As explained to us, the Company has not accepted any deposits from the public within the meaning of Sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and Rules framed thereunder.

7. Company has its own Internal Audit department; however, in our opinion the internal audit needs to be strengthened in terms of personnel, coverage, scope of the work and regular reporting in order to be commensurate with size and nature of its business.

8. As explained to us, maintenance of Cost Records has been prescribed by the Central Government under section 209 (1) (d) of the Companies Act, 1956.

9. (a) Company has been generally regular in depositing undisputed statutory dues with the appropriate authorities except for statutory dues on sales set on provisional basis, the PF dues of Rae Bareli and Naini unit.

According to the information and explanations given to us, following undisputed statutory dues are in arrears for more than 6 months and remain unremitted on 31.03.2012.

Statutory Dues Amount (Rs in lakhs)

Provident Fund 4141 Sales Tax, Excise Duty and Entry Tax Not ascertained as sales recognized on provisional basis

(b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of sales tax, excise duty and service tax as at March 31, 2012 aggregating to Rs. 5524.30 lakhs which have not been deposited on account of a dispute pending are as under: Amount

SL. Financial Particulars Year Forum (Rs in
1 ED demanded on R&D protoRs. 2003 - 2004 Commissioner of 329 modules for field trial is correct or notRs. Central Excise

2 Nil rate of duty availed on software 2001 - 2002 Commissioner of disputed by CE dept. 2002 - 2003 Centrai Excise 560

3 Dispatches of Software (CNMS & DCME) 2007 - 2008 Commissioner Appeals 7.39

4 CENVAT credit availed on import of Commissioner of IFWT and Power Supply Units, 2007 376.14 Central Excise denied by the CE dept

5 110/115% demanded on Transfer Commissioner of 2007 108.28 of Purchased Items to Sister Units Central Excise

6 ED demanded on Insurance, Commissioner of

2000 - 2001 71.55 Freight an d towards Credit notes. CentraL Excise

7 CENVAT credit availed on Scrap Commissioner of and Written off cases was 2000 - 2001 16.75 Central Excise disallowed.

8 NIL rate of duty availed on 2003 - 2004 Commissioner of 637.00 Software d isputed by CE dept 2004 - 2005 CentraL Excise

9 Service Tax Service Tax 2004 - 2008 Appellate Tribunal 83.23 Chennai

10 Sales Tax 2002 - 2003 Kolkata High court 8.19

11 Sales Tax DC(Appeals) 2006 - 2007 97.70 Ernakulam

12 Excise Duty 2004 - 2005 CE STAT 91.65

13 Excise Duty Commissioner 2001 - 2002 68.07 (Appeals) Kochi

14 Excise Duty Commissioner 2002 - 2003 5.15 (Appeals) Kochi

15 Service Tax Showcause notice 2010 - 2011 109.44 by CCE Calicut

16 Central Excise- Provision for Showcause notice 2011 - 2012 52.28 obsoloscence by CCE Calicut

17 Service Tax Showcause notice 2011 - 2012 4.44 by CCE Calicut

18 Sales Tax Trade Tax Tribunal 2000 - 2004 268.36 Lucknow

19 Sales Tax Additional 1998 - 1999 Commissioner 466.27 2000 - 2008 Appeal, Lucknow

20 Sales Tax Deputy 2000 - 2001 Commissioner, Rae 0.93 Bareli

21 Sales Tax 1986 - 1989 UP Government 264.89

22 Sales Tax Committee Formed by UP Govt as 1989 - 1996 15.32 directed by High Court

23 Sales Tax 1987 - 1989 Lucknow Bench of 1996 - 1998 Allahabad High 158.12 2000 - 2002 Court

24 Sales Tax 1987 - 1989 Additional 1994 - 1995 Court(Appeals) 160.06 2006 - 2007 Sales Tax, Gonda 2008 - 2010

25 Demand of Additional Tax against Deputy Form -C Commissioner 2005 - 2006 1013.98 Commercial Tax, Allahabad

26 Demand of Additional Tax against Deputy Form - C Commissioner 2006 - 2007 464.81 Commercial Tax, Allahabad

27 Demand of Additional Tax against Joint Commissioner Form - C c/f Appeals 2007 - 2008 35.26 Commercial Tax, Allahabad

28 Interest on TDS Income Tax 2004 - 2008 50.04 Appellate Tribunal

Grand Total 5524.30



10. The net worth of the Company (without reckoning the revaluation reserve) as on 31.03.2012 has completely eroded. Further Company has incurred cash losses of Rs.348.5 crores and Rs.335.48 crores for the financial year 2011-12 and 2010-11 respectively.

11. Based on our examination of books of account and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to financial institutions or Banks.

12. According to the information and explanation given to us, the Company has not granted any loan & advance on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company is not a Chit Fund or a Nidhi/mutual benefit fund/society. Accordingly, Clause(xiii) (a) to (d) of the Companies(Auditor's Report) Order, 2003(as amended) are not applicable.

14. The Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of Clause (xiv) of the Companies (Auditor's Report) Order, 2003(as amended) are not applicable.

15. According to the information and explanation given to us, the Company has not given guarantees for loan taken by others from Banks or financial institutions.

16. According to information and explanations given to us, during the year, Company has not availed any term loan. Hence, commenting on application of loan for the purpose other than for which the loan was sanctioned does not arise.

17. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, no funds raised on short term basis have been used for long term investment.

18. According to information and explanations given to us, 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 debentures during the year.

20. According to information and explanations given to us, the Company has not raised money by public issue during the year.

21. Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanation given by the management, to the best of our knowledge and belief, no fraud on or by the Company has been noticed or reported during the year under audit.

For BADARI, MADHUSUDHAN & SRINIVASAN

CHARTERED ACCOUNTANTS

sd/-

(N. SRINIVASAN)

PARTNER

Membership No. 027887

FRN 005389S

Place: Bangalore

Date: 11.08.2012


Mar 31, 2011

We have audited the Balance Sheet of ITI Ltd, as on 31st March 2011, 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 basedonour audit.

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 a reasonable assurance about whether the financial statements are free from material misstatement. An audit also includes examining, on 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 presentation. We believe that our audit provides a reasonable basis for our opinion.

As required by the Companies (Auditors Report) Order, 2003 and as Amended by Companies (Auditors' Report Order 2004), issuedbythe GovernmentofIndiain terms of sub section (4A) of section 227 of the Companies Act, 1956, and on the basis of the books and records of the company as we considered appropriate and according to information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs4and5ofthe said Order.

Further to our comments in the Annexure referred to above, we report that:

1. We have obtained all the information and explanations, which to the best our knowledge and belief were necessary for the purposeofour audit

2. In our opinion, proper books of accounts as required by the law have been kept by the company so far as appears from our examination ofthose books. Proper returns adequate for the purpose of our audit have been received frombranches/units not visitedbyus.

3. The reports on the accounts of the units audited by other auditors have been forwarded to us and have been appropriately dealt with by us in preparing our report.

4. The Balance Sheet, Profit and Loss Account and Cash Flow Statements referred to in this report are in agreement with the books of account and with the audited returns from the units.

5. In our opinion, The Balance Sheet, Profit and Loss Account and Cash Flow Statements dealt with by this report comply with the accounting standard referred toinSection 211(3C)ofthe CompaniesAct 1956.

6. Disclosure in terms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956 is not required for Government Companies as per Notification No. GSR 829 (E) dated 21st October 2003 issuedbythe DepartmentofCompanyAffairs:

7.a. As stated in Accounting Policy No. 3.0 on Valuation of Inventories, Manufactured items and items lying as Work in Progress are valued at the lower of cost and net realizable value. However in Bangalore plant stocks amounting to Rs. 15.74 Crores have been carried at cost due to difficulty in ascertaining the Net Realisable Value. We are unable to ascertain the quantum of reduction in the value of inventory if any and consequent impact on the financial statements.

7.. The Company has not provided for a sum of Rs. 26.85 Crores being penalty levied for non- payment of guarantee fee. This has resulted in understatement of Loss and Current Liabilities to the extent of Rs. 26.85 Crores.

7.c. Balances in the accounts of creditors, debtors, claims & expenses recoverable, loans & advances, deposits, goods with third parties and other payables are subject to reconciliation, confirmation, and consequential adjustments (Refer Note no.13).

7.d. Interest & penalty leviable for non-remittance of statutory dues, on the sales recognized on provisional basis, delayed / short remittance of other statutory dues and non deduction of TDS as per the provisions of Income Tax Act 1961 is not ascertainable.

7.e. The Company has not provided for interest on royalty payable to C-DOT. (Refer Note no.7)

7.f. The impact of the observation in Para 7b has resulted in understatement of loss and understatement of liabilities to the extent of Rs. 26.85 Crores.

The impact of the observations in Para 7a and Para's 7c to 7e if any on financial statements is not ascertainable.

Subject to the effect on the financial statements of the matters referred to in the preceding paragraphs, in our opinion and to the best of our information and according to explanations given to us, the financial statements read together with notes thereon and the accounting policies give the information requiredbythe CompaniesAct 1956 in the manner so required and give a true and fair view in conformity with accounting principles generally accepted in India:

i) In case of the Balance Sheet of the state of affairs of the companyasat31stMarch 2011

ii) In case of the Profit and Loss Account, of the loss for the year endedonthat date, and

iii) In case of the Cash Flow Statement, of the Cash Flows for the year endedonthat date.

Further to our opinion, Attention is drawn to Note 6 to the Financial Statements "regarding the payment of wage revision arrears amounting to Rs.165 Crores in a phased manner on the improvement of the profitability position and also generation and availability of funds, for which no provision has been made in view of BIFR declaring the companyasSICK.The Company has includedthe amount under Draft Rehabilitation Scheme submittedtoBIFR".

ANNEXURE TO AUDITOR'S REPORT (Referred to in paragraph 3 of our report of even date)

i) (a) Company has maintained proper records showing particulars including quantitative details and situation of fixed assets, but requires updation so as to reflect original cost, depreciation to date, impairment loss and details of revaluation so as totally with the figures shown in the books of account.

(b) According to information and explanation given to us, all fixed assets have been physically verified by the management in a phased manner except for Rae Bareli, R & D, and Regional offices. No material discrepancies in physical verification have been reported to us.

(c) According to information and explanations given to us the company has not disposed off substantial part of the fixed assetsso as to affect its going concern status.

ii)

(a) According to information and explanations give to us the inventories (excluding the stocks with third parties) have been physically verifiedbythe managementatreasonable intervals.

(b) According to information and explanation given to us the procedure for physical verification inventory followed by the management needs to be codified and strengthened in order to be reasonable and adequateinrelationtothe sizeofthe company and the natureofits business.

(c) According to information and explanation given to us the company is maintaining proper records of inventory. No material discrepancies were noticed on physical verification of inventory.

iii)

(a) Company has neither granted nor taken any loans, secured or unsecured to / from companies, firms or other parties covered in the register maintained under Sec 301 of Companies Act 1956. Accordingly clauses (iii) (b) to (iii) (g) paragraph 4 of the order are not applicable for the current year.

(b) According to information and explanation given to us company has adequate internal control procedures commensurate with the size of the company and the nature of its business for the purchase of inventory, fixed assets & sale of goods. According to our information, no major weaknesses in internal control requiring correction have been reported.

iv)

(a) According to the information and explanation given to us no transactions have been entered during the year that need to be entered into the register maintained under Section 301 of the Companies Act of 1956. Hence, our comments regarding the reasonableness of prices having regard to the prevailing market price at the relevant time under clause 4(v) (b) does not arise.

v) According to the information and explanations given to us company has not accepted any deposits from the public requiring compliance with the directives issued by the RBI and the provisions of Section 58A and 58 AA of the Companies Act 1956 and the rules framed there under. The National Company Law Tribunal has passednoorder.

vi) Company has its own Internal Audit department. However, in our opinion the internal audit needs to be

strengthened in terms of personnel, coverage, scope of the work and regular reporting in order to be commensurate with size and natureofits business.

vii) According toour information the Central Govt. has not prescribed any cost records under Sec. 209 (1) (d) of the CompaniesAct 1956.

viii)

(a) Company has been generally regular in depositing undisputed statutory dues with the appropriate authorities except for statutory dues on sales set on provisional basis, the PF dues of Rae Bareli and Naini unit.

(b) According to information and explanation given to us, following undisputed statutory dues are in arrears for more than6months and remain unremittedon31.3.2011.

Statutory Dues Amount (Rs.inLacs)

Provident Fund 2109.50

Investor Education andProtection Fund 61.55

SalesTax, Excise Duty& EntryTax Not ascertained as sales recognized on provisional basis

Disputed statutory dues aggregating to Rs. 7767.97 Lacs that have not been deposited on account of matters pending beforeAppellateAuthorities areasunder

Rs. In Lakhs

Particulars Financial Year Forum Amount

Sales Tax 2000-2004 Trade Tax Tribunal, Lucknow 912.15

Sales Tax 1998-1999

2000-2008 Additional Commissioner appeal, Lucknow 537.44

Sales Tax 2000-2001 Deputy Commissioner, Rae Bareli 0.93

Demand of Additional tax against Form C/F 2007-2008 Joint commissioner Commercial Tax, Allahabad 50.26

Demand of Additional tax against Deputy commissioner

Form C 2005-2006 Commercial Tax, Allahabad 1,013.98

Demand of Additional tax against Form C 2006 -2007 Deputy commissioner Commercial Tax, Allahabad 464.81

Sales Tax 1986-1989 UP Government 264.89

Sales Tax 1989-1996 Committee Formed by UP

Govt. as Directed by High Court 15.32

Sales Tax 1987-1989 High Court, Allahabad,

2000-2002 Lucknow Bench 158.12

Sales Tax 1987-1989 Additional Court,

1994-1995 (Appeals) Sales Tax,

2008-2010 Gonda 160.06

ED demanded on R&D prototype modules for field trail is correct or not? 2003-2004 Commissioner of Central Excise 329.00

Nil rate of duty availed on software 2001-2002 disputed by CE dept. 2002-2003 Commissioner of Central Excise 1,770.64

Dispatches of Software (CNMS & DCME) 2007-2008 Commissioner Appeals 7.39

CENVAT credit availed on import of IFWT and Power Supply Units, denied by the CE dept 2007 Commissioner of Central Excise 376.14

110/115% demanded on Transfer of Purchased Items to Sister Units 2007 Commissioner of Central Excise 108.28

ED demanded on Insurance, Freight and towards Credit notes. 2000-2001 Commissioner of Central Excise 71.55

CENVAT credit availed on Scrap and Written off cases was disallowed. 2000-2001 Commissioner of Central Excise 16.75

NIL rate of duty availed on Software 2003-2004 disputed by CE dept & 2004-2005 Commissioner of Central Excise 637.00

Excise duty 2004-2005 Appellate tribunal 61.55

Excise duty 2000-01 Appellate tribunal 690.08

Excise duty 2001-02 Commissioner Appeals 68.07

Excise duty 2002-03 Commissioner Appeals 5.45

Sales tax demand 2001-02 Deputy Commissioner Appeals 15.03

Sales tax demand 2003-04 Deputy Commissioner Appeals 33.08

Grand Total 7,767.97

ix) The net worthofthe company (with out reckoning the revaluation reserve) ason 31.3.2011 has completely eroded. Further company has incurred cash losses of Rs.335.48 Crores & Rs. 434.45 Crores for the financial year 2010-11 and 2009-10 respectively. The cash losses for both the financial years have been arrived at without reckoning the effect of audit qualifications in our reports.

x) The Company has not defaultedinrepaymentofduestoBanks and Financial Institutions.

xi) Company has not granted any loans and advances on the basisof security byway ofpledge ofshares, debentures and other securities.

xii) According to information given to us the company is not a chit fund / Nidhi or mutual benefit trust / society. Accordingly, the provisions of the Para 4 (xiii) (a) to (d) of the Companies (Auditor's Report) order, 2003 do not apply.

xiii) According to the information given to us the company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of the Para 4 (xiv) of the Companies (Auditor's Report) order, 2003, do not apply.

xiv) According to information given to us, the company has not given any guarantee for loans taken by others from Banks or Financial Institutions.

xv) In our opinion and according to information and explanations given to us, the company has prima facie applied the term loans for the purpose for which theywere obtained.

xvi) According to the information and explanations given to us and on over all examination of the balance sheet of the company,wereport that company has during the year applied the loans for the purpose for whichitwas raised.

xvii) According to information and explanations given to us, the company has not made any preferential allotment of sharestoparties and companies coveredinthe register maintained u/s 301ofthe CompaniesAct 1956.

xviii) The company has not issued any debentures. Hence, the question of creating security in respect of debentures issued does notarise.

xix) According to information and explanations given to us, the company has not raised any money from public issues during the year.

xx) According to information and explanations given to us no fraud on or by the company has been noticed or been reported during the year.

For Karra & Co.,

Chartered Accountants

Firm Reg No: 001749S

sd/-

R.Sivakumar

Partner

Mem No. 019834

Place: Delhi

Date: 12th August 2011


Mar 31, 2010

We had earlier given our report dated 4th August 2010 on the Balance sheet of ITI Ltd as at 31s March 10 and the Profit and Loss Account and Cash Flow Statement for the year ended on that date annexed thereto duly approved by the Board of Directors on 4th August 2010.

Subsequent to the above report, the company has, in light of observations of the Comptroller & Audit General revised the said accounts and the same has been approved by the Board of Directors on 8th September 2010. The impact of revision has resulted in the increase in the net loss to the extent of Rs.90.54 Crores and the subsequent changes in the Balance Sheet on account of the revision is reflected in Note no 50 of the notes on accounts of the Financial Statements.

We further state that, on the basis of the observations of the Comptroller and Audit General and further information and explanation provided by the management, we have carried out the necessary revisions in this Report with respect to the qualifications given by us earlier, in para 7a with respect to valuation of Inventories, Manufacturing Items and items lying as work in progress, para 7b with respect to inventory of more than two years of the company and have withdrawn the qualifications under para 7c with respect to Sundry Debtors outstanding for more than three years and para 7d with regard to other recoverables in our earlier report dated 4th August 2010. Further in this revised report we have added the qualification with regard to Non Provision of Service Tax on Renting of Immovable Property in para 7i.

This report supersedes our earlier report dated 4th August 2010.

We have audited the Balance Sheet of ITI Ltd, as on 31st March 2010, 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 companys management. Our

responsibility is to express an opinion on these financial statements based on our audit.

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 a reasonable assurance about whether the financial statements are free from material misstatement. An audit also includes examining, on 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 presentation. We believe that our audit provides a reasonable basis for our opinion.

As required by the Companies (Auditors Report) Order, 2003 and as Amended by Companies (Auditors Report) Order 2004, issued by the Government of India in terms of sub section (4A) of section 227 of the Companies Act, 1956, and on the basis of the books and records of the company as we considered appropriate and according to 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.

Further to our comments in the Annexure referred to above, we report that:

1. 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

2. In our opinion, proper books of accounts as required by the law have been kept by the company so far as appears from our examination of those books. Proper returns adequate for the purpose of our audit have been received from branches/units not visited by us.

3. The reports on the accounts of the units audited by other auditors have been forwarded to us and have been appropriately dealt with by us in preparing our report.

4. The Balance Sheet, Profit and Loss Account and Cash Flow Statements referred to in this report are in agreement with the books of account and with the audited returns from the units.

5. In our opinion, The Balance Sheet, Profit and Loss Account and Cash Flow Statements dealt with by this report comply with the accounting standard referred to in Section 211 (3C) of the Companies Act 1956.

6. Disclosure in terms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956 is not required for Government Companies as per Notification No. GSR 829 (E) dated 21st October 2003 issued by the Department of Company Affairs:

7. a. As stated in Accounting Policy No. 3.0 on

Valuation of Inventories, Manufactured items and items lying as Work in Progress are valued at the lower of cost and net realizable value. However in Bangalore plant stocks amounting to Rs.27.48 Crores have been carried at cost due to difficulty in ascertaining the Net Realisable Value. We are unable to ascertain the quantum of reduction in the value of inventory if any and consequent impact on the financial statements.

7. b. Inventory of the Company comprises of dormant stocks, work-in-progress, and stock held in the course of trade for two years and more aggregating to Rs.87.98 Crores. Out of such stocks held at Naini Plant there is a short provision to the extent of Rs. 13.21 crores towards obsolescence. This has resulted in understatement of loss and Overstatement of inventories to the extent of Rs. 13.21 Crores. As regards provision Rs. 11.30 Crores made towards such stocks held at Bangalore Plant we are unable to comment on the adequacy of the provision and consequent impact on the financial statements.

7. c. The Company has not provided for a sum of Rs.26.85 Crores being penalty levied for non-payment of guarantee fee. This has resulted in understatement of Loss and Current Liabilities to the extent of Rs. 26.85 Crores

7. d. Deposits with Central Excise and Customs department amounting to Rs.43.74 crores require to be confirmed. The impact if any, on financial statements is not ascertainable.

7. e. Balances in the accounts of creditors, debtors, claims & expenses recoverable, loans & advances, deposits, goods with third parties and other payables are subject to reconciliation, confirmation, and consequential adjustments (Refer Note no. 15). The impact if any, on financial statements is not ascertainable.

7. f. Interest & penalty leviable, if any, for non- remittance of statutory dues, on the sales recognized on provisional basis and on the delayed / short remittance of other statutory dues is not ascertainable at present.

7. g. Interest & penalty leviable if any, for violation of the provision of Income Tax Act 1961, fornon -deduction ofTDS, is not ascertainable at present.

7. h. The Company has not provided interest on non payment of royalty payable. The impact on financial statements is not ascertainable. (Refer Note no. 8)

7. i. The company has not provided Service Tax on Renting on Immovable Property. The impact on financial statements is not

7. j. The impact of notes 7b to 7d has resulted in understatement of loss to the extent of Rs.40.06 Crores, understatement of liabilities by Rs. 26.85 Crores and overstatement of Inventories by Rs.13.21 Crores. The impact of the note 7a, note 7b to the extent of adequacy of provision in Bangalore plant and notes 7d to 7i if any on financial statements is not ascertainable.

7. k. The increase in the net loss to the extent of Rs.90.54 Crores and the subsequent changes in the Balance Sheet on account of the revision carried out as stated in Note No 50 of Notes to Accounts.

7. I. Subject to the effect on the financial statements of the matters referred to in the preceding paragraphs, in our opinion and to the best of our information and according to explanations given to us, the financial statements read together with notes thereon and the accounting policies give the information required by the Companies Act 1956 in the manner so required and give a true and fair view in conformity with accounting principles generally accepted in India:

i) In case of the Balance Sheet of the state of affairs of the company as at 31 st March 2010

ii) In case of the Profit and Loss Account, of the loss for the year ended on that date, and

iii) In case of the Cash Flow Statement, of the Cash Flows for the year ended onthatdate.

ANNEXURE TO AUDITORS REPORT (Contd...) (Referred to in paragraph 3 of our report of even date)

i) (a) Company has maintained proper records showing particulars including quantitative details and situation of fixed assets, but requires updation so as to reflect original cost, depreciation to date, impairment loss and details of revaluation so as to tally with the figures shown in the books of account.

(b) According to information and explanation given to us, all fixed assets have been physically verified by the management in a phased manner except for Srinagar, Rae Bareli, R&D, and Regional offices. No material discrepancies in physical verification have been reported to us.

(c) According to information and explanations given to us the company has not disposed off substantial part of the fixed assets so as to affect its going concern status.

ii)

(a) According to information and explanations given to us the inventories (excluding the stocks with third parties) have been physically verified by the management at reasonable intervals except for Srinagar.

(b) According to information and explanation given to us the procedure for physical verification inventory followed by the management needs to be codified and strengthened in order to be reasonable and adequate in relation to the size of the company and the nature of its business.

(c) According to information and explanation given to us the company is maintaining proper records of inventory except for WIP of Rae Bareli unit. No material discrepancies were noticed on physical verification of inventory.

iii).

(a) Company has neither granted nor taken any loans, secured or unsecured to / from companies, firms or other parties covered in the register maintained under Sec 301 of Companies Act 1956. Accordingly clauses (iii) (b) to (iii) (g) paragraph 4 of the order are not applicable for the current year.

(b) According to information and explanation given to us company has adequate internal control procedures commensurate the size of the company and the nature of its business for the purchase of inventory, fixed assets & sale of goods. According to our information, no major weaknesses in internal control requiring correction have been reported.

iv)

(a) According to the information and explanation given to us no transactions have been entered during the year that need to be entered into the register maintained under Section 301 of the Companies Act of 1956. Hence, our comments regarding the reasonableness of prices having regard to the prevailing market price at the relevant time under clause 4 (v) (b) does not arise.

v) According to the information and explanations given to us company has not accepted any deposits from the public requiring compliance with the directives issued by the RBI and the provisions of Section 58Aand 58 AA of the Companies Act 1956 and the rules framed there under. The National Company Law Tribunal has passed no order.

vi) Company has its own Internal Audit department. However, in our opinion the internal audit suffers from serious inadequacies such as lack of personnel, inadequate coverage of the extent and scope of the work and regular reporting in order to be commensurate with size and nature of its business.

vii) According to our information the Central Govt, has not prescribed any cost records under Sec. 209 (1) (d) ol the Companies Act 1956.

viii)

(a) Company has been generally regular in depositing undisputed statutory dues with the appropriate authorities except for statutory dues on sales set on provisional basis, the PF dues of Rae Bareli anc Nainiunit.

(b) According to information and explanation given to us, following undisputed statutory dues are in arrears for more than 6 months and remains unpaid on 31.3.2010.

Statutory Dues Amount (Rs. In Lacs)

Provident Fund 1032.92

Investor Education and Protection Fund 47.43

Excise Duty Not ascertained on sale recognized on provisional basis

Sales Tax Not ascertained on sale recognized on provisional basis

Entry Tax Not ascertained on sale recognized on provfsional basis

Disputed statutory dues aggregating to Rs. 12,272.02 Lacs that have not been deposited on account of matters pending before Appellate Authorities are as under

Rs. In Lakhs

Particulars Financial Year Forum Amount

Sales Tax 2001 - 2004 Trade Tax Tribunal, 205.64

Lucknow

Sales Tax 1998 -1999 Joint Com. appeal, Lucknow 1,212.08

2000 - 2008

Sales Tax 2000 - 2001 Deputy Com., Rae Bareli 0.93

Penalty and Interest 2003-2004 Comm. Of Appeals, Allahabad 0.24

Service Tax 2006-2007 Comm. Of Appeals, Allahabad 2.86

Service Tax 2006-2007 Comm. Of Appeals, Allahabad 1.97

Service Tax 2006-2007 Comm. Of Appeals, Allahabad 3.71 2007-2008

Service Tax 2007-2008 Comm. Of Appeals, Allahabad 1.36

Demand of Additional tax against Form C/F 2007-2008 Joint Com. Commercial Tax, 50.26

Allahabad

Demand of Additional tax against Form C 2005-2006 Deputy Com. Commercial Tax, 1,013.98

Allahabad

Demand of Additional tax against Form C 2006-2007 Deputy Com. Commercial Tax, 464.81 Allahabad

Sales Tax 1999-2000 Member Tribunal, Gorakhpur 1.40

Sales Tax 1989-1996 Committee Formed by UP 15.32

Govt, as Directed by High Court

Sales Tax 1987-1989 High Court, Allahabad, 138.30

2000-2002 Lucknow Bench



Sales Tax 1987-1989 Additional Court, (Appeals) 85.34

1994-1995 Sales Tax, Gonda 2008-2010

Sales Tax Demand 1994-95 High Court (Appeals) 0.93

Sales Tax Demand 1999-00 Appellate tribunal 1.98

Sales Tax Demand 1995-96 Appellate tribunal 15.05

Sales Tax Demand 1999-00 Appellate tribunal 14.15

Sales Tax Demand 1993-94 Appellate tribunal 472.35

Receipt of C/D Forms 2002-03 To - 441.64

2007-08

Sales Tax Demand 1999-00 Appellate tribunal 50.71

Excise Duty 2003-04 To COD Clearance from CEGAT 854.26

2007-08 awaited

ED demanded on R&D prototype modules for 2003-04 Com. of Central Excise 329.00 field trail

Nil rate of duty availed on software disputed by 2001-02 Com. of Central Excise 1,770.64 CE dept. 2002-03

While finalizing Provisional Assessment for the 2008 Asst Com. of Central Excise 3,904.00 year 2003-04 to 2006-07

CENVAT credit availed on import of IFWT and 2007 Com. of Central Excise 376.14 Power Supply Units, denied by the CE dept

110/115% demanded on Transfer of Purchased 2007 Com. of Central Excise 108.28 Items to Sister Units

Nil rate of duty availed on software disputed by CE 2008 Joint Com. of Central Excise 9.39 dept

ED demanded on Insurance, Freight and towards 2000-01 Com. of Central Excise 71.55 Credit notes.

CENVAT credit availed on Scrap and Written off 2000-01 Com. of Central Excise 16.75 cases was disallowed.

NIL rate of duty availed on Software disputed by 2003-04 & Com. of Central Excise 637.00 CE dept 2004-05

Grand Total 12,272.02

ix) The net worth of the company (without reckoning the revaluation reserve) as on 31.3.2010 has completely eroded. Further company has incurred cash losses of Rs. 434.45 Crores & Rs. 641.10 Crores for the financial year 2009-10 and 2008-09 respectively. The cash losses for both the financial years have been arrived at without reckoning the effect of audit qualifications in our reports.

x) The Company has not defaulted in repayment of dues to Banks and Financial Institutions.

xi) Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xii) According to information given to us the company is not a chit fund / Nidhi or mutual benefit trust / society. Accordingly, the provisions of the Para 4 (xiii) (a) to (d) of the Companies (Auditors Report) order, 2003 do not apply.

xiii) According to the information given to us the company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of the Para 4 (xiv) of the Companies (Auditors Report) order, 2003, do not apply.

xiv) According to information given to us, the company has not given any guarantee for loans taken by others from Banks or Financial Institutions.

xv) In our opinion and according to information and explanations given to us, the company has prima facie applied the term loans for the purpose for which they were obtained.

xvi) According to the information and explanations given to us and on over all examination of the balance sheet of the company, we report that company has during the year applied the loans for the purpose for which it was raised.

xvii) According to information and explanations given to us, the company has not made any preferential allotment of shares to parties and companies covered in the register maintained u/s 301 of the Companies Act 1956.

xviii) The company has not issued any debentures. Hence, the question of creating security in respect of debentures issued does not arise.

xix) According to information and explanations given to us, the company has not raised any money from public issues during the year.

xx) According to information and explanations given to us no fraud on or by the company has been noticed or been reported during the year.

For Karra & Co.,

Chartered Accountants

Firm Reg No. :01749s

Place : Delhi Sivakumar

Date: 08-09-2010 M. NO. 19834

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