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Auditor Report of ITI Ltd.

Mar 31, 2023

ITI LIMITED, BENGALURU Report on the Audit of the Standalone Financial Statements Qualified Opinion

We have audited the accompanying standalone financial statements of ITI Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2023, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as "the Standalone financial statements") in which are incorporated the returns for the year ended on that date audited by the branch auditors of the company''s branches located at Naini, Mankapur, Raebareli, Srinagar and Palakkad.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the aforesaid financial statements give the information required by the Companies Act, 2013 (âthe Act'') in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015, as amended, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2023, the profit/ (loss) and total comprehensive income/ (loss), changes in equity and its cash flow for the year ended on that date.

Basis for Qualified Opinion

1) The Company has not made provision for bad debts (credit losses) in respect of the following items included under Current Assets - Financial Assets, which are doubtful of recovery:

a) Rs 5,847.90 lakhs, receivable from C-DOT towards rent from premises leased out to them up to the period ending 31-32011.

b) Recoverable from HCL Infosystems Limited of Rs 1,690.20 lakhs as compensation on account of the excess amount spent by the Mankapur Unit of the Company based on the agreement between ITI, HCL and Alcatel.

c) Recoverable from Himachal Futuristic Communications Ltd of Rs 1,049.41 lakhs towards Liquidated Damages.

d) Receivable from Mindarray towards encashment of letter of credit of Rs 1,023.00 lakhs

Accordingly, if provision for credit losses were made by the Company, the loss for the year would have been higher and the net current assets lesser by Rs 9610.51 lakhs.

2) The Company has not reversed the wrong GST input tax credit of Rs 889 lakhs taken during 2019-20 at the Palakkad Unit of the Company. The Naini Unit carries a debit balance of Rs 94.42 lakhs towards unavailed input tax credits that are time-barred. Consequently, the net profit for the year is overstated by Rs 983.42 lakhs, plus applicable interest.

3) In respect of the below-mentioned issues, the impact on the items of financial statements is not quantifiable/ unascertained:

a) The Company carries long outstanding balances under trade receivable, unbilled debtor balances, claims receivable, and rent receivable. These balances are subject to confirmation by the parties and reconciliations. The effect of the adjustment arising from reconciliation and the delay in settlement of the dues may result in a possible loss due to short/non-recovery. In the absence of sufficient and appropriate evidence, we are unable to comment on the impact of such unascertained losses on the carrying value of these receivables as well as on the Other Comprehensive Income.

b) The Company''s inventories include old inventory, and it is in the process of an assessment of the ageing, usefulness, and serviceability of the inventories held at various units to ascertain the quantum of obsolete inventory. Consequently, we are unable to comment on whether the valuation of the inventories is at the lower of cost and net realisable value, which constitutes a departure from the requirements of Ind AS 2.

c) Regarding Goods & Services Tax, in certain cases, entries/ balances as per the books of accounts do not match with the returns filed and input tax credits reflected in the portal. Adjustment entries and reversal of ineligible input tax credits are pending.

d) The Company carries certain items of property, plant & equipment under Capital Work-in-Progress pending acceptance/ installation. This includes a let-out building costing Rs 6582.06 that is not yet capitalised as an investment property. A detailed list of such items, along with the date available for use, was not made available to ascertain the shortfall in providing depreciation, if any, as under Ind AS 16/ 40, depreciation shall commence from the date the items are available for use. In the absence of sufficient and appropriate evidence, we are unable to comment on the impact of such delayed capitalisation and the resultant shortfall in charging depreciation on the Other Comprehensive Income.

4) Finance costs for the year include the interest of Rs 3,006.98 lakhs towards delayed remittance of Provident Fund. This amount includes interest for current and previous years, and such a break-up is unavailable.

5) The Company''s process for identifying suppliers covered by the Micro, Small and Medium Enterprises Development Act of 2006 and the payment of interest in cases of delays in payment appears to be inadequate and unverifiable. As a result, we are unable to verify whether the provision for interest on delayed payments is complete and comment on MSMED Act 2006 compliance or correctness of disclosure made by the Company under Schedule III of the Companies Act 2013.

to our audit of the standalone financial statements under the provisions of the Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.

Emphasis of Matter

We draw attention to the following matters under various notes (referred against each item) of the financial statements. Our opinion is not modified in respect of these matters.

i. The Company had received funds towards capital expenditure as part of the financial assistance approved by CCEA when the Company was declared a Sick Company as per provisions of the Sick Industrial Companies Act, 1985. [Note No.31.14]

ii. The Company has postponed revenue recognition in respect of rent from a few parties due to uncertainty of ultimate collection owing to several reasons, including but not limited to the finalisation of the terms of the lease and not entering into formal agreements. [Note Nos. 31.10(b), 31.15, 31.17 and 31.19]

iii. The Company carries under ''other financial assets- current'' accumulated unbilled revenue of Rs 2,57,855 lakhs that were recognised during the current as well as the previous few years. [Note No. 9(b)]

iv. The Company has not provided for the demand of property tax based on the demand notice from BBMP, as it has disputed the demand

by filing a writ in the High Court of Karnataka. [Note No.31.10

(a)(ii)]

v. The Company is not in compliance with the requirements of having a specified proportion/ number of independent directors and appointment of a Company Secretary. [Note No.31.36]

vi. The Company continues to carry a land admeasuring 77 acres having a carrying value of Rs 19,470 lakhs under Property, Plant & Equipment after receiving intimation of re-possession by the Government of Kerala as the Company has disputed the same, and the matter is under adjudication of the Apex Court. [as reported by the branch auditor]. [Note No.31.21 .(i)]

vii. Non-disclosure of fair value on the balance sheet date in respect of Investment Properties [Note No.3(iv)]

viii. The Palakkad Unit of the Company has made provision for bad debts only to the extent of Rs 242 lakhs after netting off the corresponding liability to the back-end partners in respect of overdue receivables from M/s.Karvy Data Management Services Limited and M/s.Telva Systems.[Note No.31.22]

Key Audit Matters

Key audit matters are those matters that in our professional judgement were of most significance in our audit of the financial statements of the current period, These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters, We have determined the matters described below to be the key audit matters to be communicated in our report

Key Audit Matters

Auditorsâ Response

Revenue from contracts with customers:

Accounting for revenue is an exercise of recognising revenue based on accounting policies for supply of goods or services. Revenue on Projects (Service/ Construction Contracts) such as fixed-price, fixed-time frame contracts, where the performance obligations are satisfied over time is recognized using the input (percentage-of-completion) method. Efforts or costs expended are used to determine progress towards completion as there is a direct relationship between input and productivity. Progress towards completion is measured as the ratio of costs or efforts incurred to date (representing work performed) to the estimated total costs or efforts.

Use of the percentage-of-completion method requires the Company to determine the actual efforts or costs expended to date as a proportion of the estimated total efforts or costs to be incurred. The estimation of total efforts or costs involves significant judgment and is assessed throughout the period of the contract to reflect any changes based on the latest available information.

We identified the recognition of revenue as a key audit matter as the estimation of efforts or costs involves significant judgment throughout the period of the contract and is subject to revision as the contract progresses based on the latest available information. This estimate has a high inherent uncertainty and requires consideration of progress of the contract, efforts or costs incurred to-date and estimates of efforts or costs required to complete the remaining contract performance obligations over the life of the contracts.

Principal Audit Procedures

Our audit procedures related to estimates of total expected costs or efforts to

complete fixed-price contracts included among others the following:

We tested the effectiveness of controls relating to:

(1) reviewing the efforts or costs incurred and estimation of efforts or costs required to complete the remaining contract performance obligations and

(2) reviewing the controls pertaining to recording & allocation systems which prevent unauthorised changes to recording of efforts incurred.

We selected a sample of fixed price contract accounted using percentage-of-

completion method and performed the following :

â¢ Compared efforts or costs incurred with Company''s estimate of efforts or costs incurred to date to identify significant variations and evaluate whether those variations have been considered appropriately in estimating the remaining costs or efforts to complete the contract.

â¢ Review the computations of total revenue recognisable and comparisons with the billing done up to the balance date to identify the unbilled revenue

Information Other than the Standalone Financial Statements and Auditorsâ Report Thereon

The Company''s Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in Management Discussion and Analysis, Board''s Report including Annexures to Board''s Report, Business Responsibility Report, Corporate Governance

and Shareholder''s information, but does not include the standalone financial statements and our auditor''s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon.

In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether

the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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 of these financial statements that give true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India, 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 misstatements, whether due to fraud or error.

In preparing the standalone financial statements, Management of Company is responsible for assessing the Company''s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management of Company either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are responsible for overseeing the Company''s financial reporting process.

Auditor''s Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor''s report that includes our opinion, Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

â¢ Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion, The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

â¢ Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

â¢ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosure made by the management.

â¢ Conclude on the appropriateness of management''s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company''s ability to continue as a going concern, If we conclude that a material uncertainty exists, we are required to draw attention in our auditor''s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion, Our conclusions are based on the audit evidence obtained up to the date of our auditor''s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

â¢ Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor''s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication,

Other Matters

We did not audit the financial statements of Mankapur, Raebareli, Srinagar, Naini & Palakkad Branches included in the standalone financial statements of the Company whose financial statements reflect total assets of Rs

2,96,230.66 lakhs as at March 31, 2023 and total income of Rs 17,057.64 lakhs for the year ended on that date, as considered in the standalone financial statements (excluding inter-unit balances and transactions). The financial statements of these branches have been audited by the branch auditors whose report has 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 solely on the report of such Branch Auditors. 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, 2016 (''the Order") issued by the Central Government of India in terms of subsection (11) of section 143 of the Act, we give in the "Annexure A" a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2) As required by Section 143 (3) of the Act, based on our audit 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 branches not visited by us.

c) The reports on the accounts of the branch offices of the Company audited under Section 143(8) of the Act by branch 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 (including other comprehensive income), Statement of Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the books of accounts.

e) In our opinion, the aforesaid financial statements comply with the Indian Accounting Standards prescribed under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules 2015.

f) In terms of Notification no. G.S.R. 463 (E) dt. 05-06-2015 issued by Ministry of Corporate Affairs, the Provision of Section 164(2) of the Companies Act, 2013 in respect of disqualification of directors are not applicable to the Company, being a Government Company.

g) The provisions of Section 197 are not applicable to a government Company (in terms of MCA Notification NO.GSR 463 (E) dated 05th June 2015) as the managerial remuneration is paid as per the appointment letter from the Government of India.

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

i) The company has disclosed the impact of pending litigations on its financial position in its standalone financial statements. (Refer Note 31.10 to the financial statements)

ii) The company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts.

iii) There has been no delay in transferring the amount, required to be transferred in accordance with the relevant provisions of the Companies Act, 2013 and the rules made thereunder to the Investor Education and Protection Fund by the Company.

iv) The management has represented that,

(1) to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies), including foreign entities, âintermediariesâ, with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities Identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiariesâ) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

(2) to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities (âFunding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (âUltimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and

(3) Based on such audit procedures we have considered reasonable and appropriate in the circumstances; nothing has come to our notice that has caused us to believe that the representations under sub-clause (a) and (b) contain any material misstatement.

v) The Company has neither declared nor paid any dividend during the year and hence commenting on

the compliance with section 123 of the Companies Act, 2013 does not arise.

vi) Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining books of account using accounting software which has a feature of recording audit trail (edit log) facility is applicable to the Company with effect from April 1,2023, and accordingly, reporting under Rule 11(g) of Companies (Audit and Auditors) Rules, 2014 is not applicable for the financial year ended March 31,2023.

3) On the basis of such checks of the books and records of the Company, as we considered appropriate and according to the information and

explanations given to us, we are enclosing our report in terms of Section 143(5) of the Act, on the directions and sub directions issued by the Comptroller and Auditor General of India in "Annexure C".

For GRSM & ASSOCIATES

Chartered Accountants [FRN: 000863S]

UDIN: 23205296BGWRPM3312 RAJGOPAL A

Place: Bangalore Partner

Date: 29^th May 2023 M.No. 205296

Mar 31, 2022

1 Corporate information:

ITI Limited is a Public Limited Company incorporated under the provisions of the Companies Act, 2013. The Company is primarily engaged in the business of Manufacture, sale and servicing of Telecommunication equipments.

2 Execution and registration of sale deed for assets sold to DRDO for ''2600 lacs during 2003-2004 is under process .

3 An amount of ''16500 Lakhs has been received from the government towards payment of wage revision arrears during 2014-2015. An Amount of ''15479.79 lakhs has been paid towards payment of wage revision arrears and remaining amount of ''1020.21 lakhs kept under Other Current Liabilities.

4 Balances in the accounts of creditors, advances from customers, debtors, claims recoverable, loans & advances, materials with fabricators , subcontractors/others, material in transit, deposits, loans, and other payables/receivables such as Sales Tax, VAT, Excise Duty, Cenvat, Service Tax, GST, TDS etc., are under confirmation/ reconciliation. Adjustments, if any will be made on completion of such review / reconciliation / receipt of confirmations. However, in the opinion of the management, the Trade Receivables, current assets and loans and advances are realisable in the ordinary course of the business.

5 The Company is primarily engaged in business of manufacturing, trading and servicing of telecommunication equipments and rendering other associated / ancillary services and there are no other reportable segments. The Company is primarily operating in India, which is considered as a single geographical segment. The company is also engaged in Defence projects. The MCA vide its notification dt.23.02.2018 has exempted companies engaged in the Defence production from the requirement of Segment Reporting.

6 a) As per Indian Accounting Standard (Ind AS) 24 on Related Party Disclosures the following transactions are entered into with the Joint Ventures of the company viz. India Satcom Ltd.,(ISL).

i. ) Due to the financial crunch, there have been delayed remittance of some of the statutory dues including contribution to the provident fund. The company has provided interest for the delay on an estimated basis as the actual amount of interest/penalty payable is unascertainable.

ii. ) The company has disclosed a contingent liability of '' 14,139.51 lakhs (Previous Year '' 19,929.54 Lakhs) towards additional central sales tax liability for non-collection/submission of C/D forms for the past years on the estimated basis. The actual liability may vary based on the collection and submission of the statutory forms and adopting the applicable tax rate at the time of tax assessments.

iii. ) Out of the claims against the company not acknowledged as debt of '' 21380.42 Lakhs which includes '' 16700.00 Lakhs towards M/s Alphion Corporation, Company has to recover '' 17096 Lakhs from BSNL on back to back basis contract related to GPON.

b) Pending litigations:-

(i) Claim Recoverable - in land - ''1049.41 lakhs due from M/S Himachal futuristic communications. The Company has filed a legal case and the matter is pending before Delhi High court.

(ii) Vendors have filed the case against the company involving total amount ''100.00 lakhs and the case is pending before various forums.

(iii) Disputed statutory liabilities of ''17030.26 lakhs.

(iv) LERC is using the temporary road in ITI land measuring 5310 sq.ft. belonging to ITI without permission and the matter is subjudiced.

(v) Bruhat Benguluru Mahanagara Palike (BBMP) constructed road in ITI land in Krishnarajapuram without permission of ITI which is used by general public despite the stay order from High court of Karnataka.

(vi) Interest and penalties on arrears of all overdue statutory liabilities (including undisputed) could arise as and when assessed and determined by the respective authorities.

(vii) One employee has filed case against the company for claiming interest on 39 months wage revision arrears for '' 28.28 Lakhs and the case is pending in High Court.

12 Write-back of liabilities of earlier years amounting to ''289.18 1akhs comprises Rae Bareli Unit ''161.46 lakhs and NSU ''127.72 lakhs (Previous year ''2043.71 Lakhs comprises Palakkad unit ''1.13 Lakhs, Mankapur unit ''2010.40 Lakhs, and ROs ''32.18 Lakhs).

Value of Imported Raw Materials, Store and Spare parts consumed and Value of Indigenous Materials Consumed and percentage of each to the total consumption

13	Particulars	2021-22	%	2020-21	%
	Imported	53.38	0.44	2093.87	11.92
	Indigenous	12042.06	99.56	15470.60	88.08
	TOTAL	12095.44	100.00	17564.47	100.00

14 Accretion/Decretion to stock-in-trade is arrived at after considering due adjustment to difference in excise duty element in respect of opening stock.

15 The Company is a Sick Company as per provisions of Sick Industrial Companies Act (SICA), 1985. CCEA has approved a financial assistance of ''4156.79 Crores in February, 2014, for revival of ITI under Rehabilitation Scheme. As a part of the approved financial assistance, a sum of ''192 Crores has been received towards share application money as Capital Grant during the financial year 2014-15 and shares allotted during financial year 2016-17 and additionally ''80 Crores received as share capital in financial year 2016-17. During the year 2017-18 ''337 Crores has been received towards Capital Grant in Aid, out of this ''200 Crores alloted during 2017-18 and balance ''137 Crores during 2018-19. The Company also received ''55 Crores during 2018-19 which was lying in share application money for pending allotment. During the FY 2019-20 the company has received capital grant of ''105 Crores. For the total Capex amount of Rs 160 Crores (Rs 50 Crores Rs 5 Crores Rs 35 Crores Rs 70 Crores) received by ITI, the company alloted 2,81,19,508 equity shares @ '' 56.90 per share (Each ''10 fully paid up at premium of Rs 46.90 per share) to The President of India. The allotment was made in accordance with the Ministry of Communications vide order no. 20-36/2012-FAC.II(Pt) dated 06.09.2019 & dated 14.01.2020 at prevailing market price or average share price for three months prior to the date of allotment whichever is lower.

"During the FY 2020-21 the company has received capital grant of ''105 Crores and the company has alloted the 84,03,361 equity shares @ '' 124.95 per share (Each ''10 fully paid up at premium of Rs 114.95 per share) to The President of India. The allotment was made in accordance with the BIFR order dated 08.01.2013 read with Ministry of Communications order no. 20-86/2014-FAC.II dated 02.08.2019 at prevailing market price or average share price for three months prior to the date of allotment, whichever is lower.

"Further to the above, during the FY 2021-22 the company has received capital grant of ''7156.30 lakhs which is lying in share application money pending allotment During the Year, the Dept of Telecommunications (DoT), GOI has allocated Grant of ''21429 lakhs to the company towards meeting the liability of PF and Gratuity of the employees who were in service as on 30.06.2018 which was approved by Dept of Expenditure,MoF. In accordance with Ind AS 20 the Grant amount of ''21429 lakhs has been recognised as Income.

The company has received ''15500 lakhs towards VRS expenditure, out of which ''3658.19 lakhs has been spent towards VRS during FY 2016-17 and 2017-18 and ''3350 lakhs have been transfered to units/Ros for meeting the expenditure during 2016-17 and the balance ''308.18 lakhs has been transfered during FY 2018-19. During FY 2018-19 the company has not paid VRS expenditure and during FY 2019-20 the company has paid VRS expenditure of ''439.33 lakhs and during FY 202021, '' 6675.00 lakhs was paid to VRS optee.During FY 2021-22 Company has paid '' 481.49 lakhs to VRS optees and the balance amount is lying in the account.

16 Land proposed to be leased to Bangalore Metropolitan Transport Corporation, BMTC , measuring 12.15 acres is in possession of the BMTC. Pending Government

of India approval for the lease, lease terms and agreement yet to be finalised. Lease rental will be recognised on finalisation of the terms. An amount of 285 lakhs received earlier from the BMTC under an agreement to sell is held under deposits.

17 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.

18 Karnataka Power Transmission Corporation Limited is using 5 Acres of Land and no lease agreement has been entered for the same.

19 Lease agreement with ESIC has expired in the month of July 2016 and renewal lease agreement has not been entered, as the revised lease rent is not settled with ESIC.

20 Value of Imports on CIF basis
Raw Materials and Production Stores	53.38	1697.18
Components and Spare Parts	0.00	0.00
Material in transit	0.00	0.00
Capital Goods	946.87	274.83
TOTAL	1000.25	1972.01

21 Rent from C-DoT, Government of India aggregating '' 5847.90 lakhs has not been realised for the years 2005-06 to 2010-11. Due to uncertainty of realisation, recognition of gross rental revenue aggregating '' 10879.92 lakhs for the financial years 2011-12,2012-13,2013-14,2014-15,2015-16, 2016-17, 2017-18,2018-19, 2019-20,2020-21 & 2021-22 on accrual basis is deferred, which is in conformity with Ind AS.

22 Write off of Trade receivables of earlier years amounting to '' 323.02 lakhs pertains to NSU and Provision for Bad & Doubtful debt amounting to Rs.700 lakhs pertains to Bangalore Plant

23 The title deeds of all the immovable properties , as disclosed in Note 1 and Note 3 to the financial statements are held in the name of the Company except those mentioned below:

Land Measuring 77 Acres at Palakkad valuing '' 19470 Lakhs (Carrying Value) have been resumed by the Govt of Kerala and 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 pending decision by the Apex court.

ITI Complex land 174.69 acres valuing '' 9282 lakhs (Carrying Value) was handed over to Naini Unit by District Industrial Officer in 1969 which is not in the name of the Company

Transfer of title of 196.37 acres of land (factory area) valuing '' 11620 Lakhs (Appx) acquired against Gazette No 10574(1) . SHA.U/18.II.666/Bha-72 dted 09.01.1973 pertaining to Villages Ballapur, Chhajlapur & Malikmau Aima, Raebareli transfereed by Industries Department , Raebareli dated 12.11.1973 is pending due to non submission of proof of compensation paid by ITI Limited to the land owners at the time of land acquirement

24 The Company has not revalued its Property, Plant & Equipment during the Current or Previous year

25 No loans or advances in the nature of loans are granted to promoters, directors, KMPs and the related parties (as defined under Companies Act, 2013), either severally

or jointly with any other person that are (a) repayable on demand or (b) without specifying any terms or period of repayment.

26 No proceedings has been initiated or pending against the Company for holding any benami property under the Benami Transactions (Prohibition) Act 1988 (45 of 1988) and the rules made there under.

27 The Company has borrowings from Banks on the basis of security of current assets. The Stock and Debtors Statement filed by the Company with banks are in agreement with the books of accounts

28 The Company has not been declared as a Wilful Defaulter by any banks or other Financial Institutions or other lenders

29 As per the information available with the management , the Company does not have any transactions with Companies stuck off under Section 248 of the Companies

Act 2013 or Section 560 of the Companies Act 1956, in respect of Investments in Securities, Receivables, Payables, Shares held by Stuck off Company and other

outstanding balances.

30 The Company does not have any charges or satisfaction of charges which is yet to be registered with ROC beyond the statutory period

32 No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in

any other person or entity, including foreign entities (âIntermediariesâ) with the understanding, whether recorded in writing or otherwise, that the Intermediary shall

lend or invest in party identified by or on behalf of the Company (Ultimate Beneficiaries). The Company has not received any fund from any party(Funding Party) with the understanding that the Company shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Company (âUltimate Beneficiariesâ) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries

33 The Company does not have any transactions not recorded in the books of accounts that has been surrendered or disclosed as income during the year in the tax assessments under the Income Tax Act 1961

34 The Company has not traded or invested in Crypto or Virtual Currency during the Current or Previous year.

35 The borrowings obtained by the Company from banks and financial institutions have been applied for the purpose for which such loans are taken

38 The spread of Covid-19 pandemic and subsequent restrictions during the year adversely impacted several businesses across the globe. There was a moderate impact on the company''s operations/performance for the quarter and year ended on 31-03-2021. Based on the information (internal, as well as external) available up to the date of approval of these financial results, Company expects to recover the carrying amounts of trade receivables and other financial assets. The company will continue to closely monitor the developments, future economic and business outlook, and its impact on the company''s future performance.

39 ITI Limited, being a Public Sector Undertaking, the Directors on the Board of the company are appointed by the order of Government of India. The composition of Board of Directors is not as per provisions of SEBI Listing Regulations due to insufficient number of Independent Directors including women Independent Director. However, the proposal for the appointment of requisite number of Independent Directors including Women Independent Director on the Board of the company is under process with the Administrative Ministry.

40 Pending approval from the concerned ministry on the finalisation of the lease terms and agreement, rental income on the land the newly constructed building leased out to NIFT by the Raebareli Unit has not been recognised.

41 Figures in brackets indicated in the Accounts reflect negative balances.

42 Previous year''s figures have been re-grouped, re-classified & re-stated wherever necessary to conform to current year''s classification.

Mar 31, 2021

TO THE MEMBERS OF ITI LIMITED, BENGALURU Report on the Audit of the Standalone Financial Statements

Qualified Opinion

We have audited the accompanying standalone financial statements of ITI Limited ("the Company"), which comprise the Balance Sheet as at March 31,2021, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as "the Standalone financial statements") in which are incorporated the returns for the year ended on that date audited by the branch auditors of the company''s branches located at Naini, Mankapur, Raebareli, Srinagar and Palakkad.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the aforesaid financial statements give the information required by the Companies Act, 2013 (''the Act'') in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015, as amended, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31,2021, the profit and total comprehensive income, changes in equity and its cash flow for the year ended on that date.

Basis for Qualified Opinion

1. The Company is carrying an amount of Rs.5,847.90 lakhs as receivable from C-DOT towards rent from premises leased out to them up to the period ended 31-3-2011. The company has not made a provision for credit losses in respect of this amount which is doubtful of recovery. The company has also not recognised any rent for further period due to uncertainty of collection.

2. The Company has also not made provision for credit losses in respect of the following items included under Current Financial Assets - Loans, which are also doubtful of recovery:

i) Recoverable from HCL Infosystems Limited of Rs.1690.20 lakhs as compensation on account of excess amount spent by the Mankapur Unit of the Company based on the agreement between ITI, HCL and Alcatel.

ii) Recoverable from Himachal Futuristic Communications Ltd of Rs.1049.41 lakhs towards Liquidated Damages.

Accordingly, if provision for credit losses were made by the Company, the profit for the year and the net current assets would have been reduced by Rs.8587.51 lakhs.

We conducted our audit of the standalone financial statements in accordance with the Standards on Auditing (SAs) specified under section 143 (10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor''s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.

Emphasis of Matter

We draw attention to the following matters under various notes (referred against each item) of the financial statements. Our opinion is not modified in respect of these matters.

â¢ Balances in the accounts of trade receivables, claims recoverable, loans & advances, trade & other payables are subject to confirmation/ reconciliation. [Note No.31.4]

â¢ The Company is a Sick Company as per provisions of Sick Industrial Companies Act, 1985. CCEA has approved a financial assistance of Rs.415679 lakhs in February 2014 for revival of ITI Limited under rehabilitation scheme. [Note No.31.15]

â¢ Postponement of revenue recognition in respect of rent, due to uncertainty of ultimate collection owing to various reasons including but not limiting to finalisation of the terms of the lease and not entering into formal agreements.

o BMTC - 12.15 acres, additionally 1.85 acres [Note No.31.16]

o KPTC - 5 acres [Note No.31.18]

o C-DOT - 24.46 acres [Note No.31.22]

o NIFT - New Building [Note No.31.27]

â¢ The Company is not in compliance with the requirements of having specified proportion/ number of independent directors including women independent director(s). [Note No.31.26]

â¢ Recoverability of carrying amounts of various assets due to the impact of Covid-19 [Note No.31.25]

â¢ Provision for interest/ penalty on delayed remittance of statutory dues including provident fund contributions [Note No.31.11]

â¢ Land admeasuring 77 acres with the carrying value of Rs.3850 lakhs was re-possessed by the Government of Kerala is under adjudication of the Apex Court. [Note No.31.20]

â¢ Improper application of the principles of valuation of inventories, making provisions and accounting for leases as per the Indian Accounting Standards at the Raebareli Unit. [as reported by the branch auditor].

â¢ Non filing of appropriate forms to carry cenvat deposit of Rs.108.85 lakhs to the GST regime at the Srinagar Unit [as reported by the branch auditor].

â¢ Non-disclosure of fair value on the balance sheet date in respect of Investment Properties [Note No.3]

Key Audit Matters

Key Audit Matter	Auditors'' Response
Unbilled Revenue:	Principal Audit Procedures
Accounting for unbilled revenue is an exercise of recognising revenue	Our audit procedures related to estimates of total expected costs or
based on accounting policies when an invoice/ charge on the customer is	efforts to complete for fixed-price contracts included the following,
yet to be made for supply of goods or services. Revenue on Projects	among others :
(Service/ Construction Contracts) such as fixed-price, fixed-timeframe contracts, where the performance obligations are satisfied over time is	We tested the effectiveness of controls relating to (1) reviewing the
recognized using the percentage-of-completion method. Efforts or costs	efforts or costs incurred and estimation of efforts or costs required to
expended are used to determine progress towards completion as there is	complete the remaining contract performance obligations and (2)
a direct relationship between input and productivity. Progress towards	reviewing the controls pertaining to recording & allocation systems
completion is measured as the ratio of costs or efforts incurred to date	which prevent unauthorised changes to recording of efforts incurred.
(representing work performed) to the estimated total costs or efforts.	We selected a sample of fixed price contract accounted using
Use of the percentage-of-completion method requires the Company to determine the actual efforts or costs expended to date as a proportion of	percentage-of-completion method and performed the following :
the estimated total efforts or costs to be incurred. Efforts or costs	Compared efforts or costs incurred with Company''s estimate of
expended have been used to measure progress towards completion as	efforts or costs incurred to date to identify significant variations and
there is a direct relationship between input and productivity. The	evaluate whether those variations have been considered
estimation of total efforts or costs involves significant judgement and is	appropriately in estimating the remaining costs or efforts to complete
assessed throughout the period of the contract to reflect any changes	the contract.
based on the latest available information.	Review the computations of total revenue recognisable and
We identified the recognition of unbilled revenue as a key audit matter as	comparisons with the billing done up to the balance date to identify
the estimation of efforts or costs involves significant judgement throughout the period of the contract and is subject to revision as the contract progresses based on the latest available information. This estimate has a high inherent uncertainty and requires consideration of progress of the contract, efforts or costs incurred to-date and estimates of efforts or costs required to complete the remaining contract performance obligations over the life of the contracts.	the unbilled revenue

Information Other than the Standalone Financial Statements and Auditors'' Report Thereon

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon.

In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Management''s Responsibility for the Standalone Financial Statements

In preparing the standalone financial statements, Management of Company is responsible for assessing the Company''s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management of Company either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are responsible for overseeing the Company''s financial reporting process.

Auditor''s Responsibilities for the Audit of the Standalone Financial Statements

As part of an audit in accordance with SAs, we exercise professional judgement and maintain professional skepticism throughout the audit.We also:

â¢ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosure made by the management.

going concern, If we conclude that a material uncertainty exists, we are required to draw attention in our auditor''s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion, Our conclusions are based on the audit evidence obtained up to the date of our auditor''s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Other Matters

We did not audit the financial statements of Mankapur, Raebareli,

Rrinanar Naini & PalakkaH Rranr.haa inr.li iHaH in tha stanHalnna

financial statements of the Company whose financial statements reflect total assets of Rs.304598.68 lakhs as at March 31,2021 and total income of Rs.31144.32 lakhs for the year ended on that date, as considered in the standalone financial statements (excluding interunit balances and transactions). The financial statements of these branches have been audited by the branch auditors whose report has 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 solely on the report of such Branch Auditors.

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, 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 paragraphs 3 and 4 of the Order, to the extent applicable.

2) As required by Section 143 (3) of the Act, based on our audit 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.

f) In terms of Notification no. G.S.R. 463 (E) dt. 0506-2015 issued by Ministry of Corporate Affairs, the Provision of Section 164(2) of the Companies Act, 2013 in respect of disqualification of directors are not

applicable to the Company,

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".

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 standalone financial statements. (Refer Note 31.11 to the financial statements and clause vii(c ) of Annexure A to this Report )

ii) The company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts.

(3) On the basis of such checks of the books and records of the Company, as we considered appropriate and according to the information and explanations given to us, we are enclosing our report in terms of Section 143(5) of the Act, on the directions and sub directions issued by the Comptroller and Auditor General of India in "Annexure C".

Place: Bangalore For GRSM & ASSOCIATES

Date: 22 June 2021 Chartered Accountants

[FRN: 000863S]

UDIN: 21208063AAAAGW4851

GOPALKRISHNA HEGDE

Partner

M.No.208063

"Annexure A" to Independent Auditors'' Report

(Referred to in Paragraph 1 under the heading "Report on Other Legal and Regulatory Requirements" of our report of even date on the standalone financial statements of ITI Limited ("the Company"), for the year ended March 31, 2021

i. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of its fixed assets except in the case of Bangalore Plant, NS Unit and R&D Unit at Bangalore, where the records are not updated.

(b) According to the information and explanations given to us, physical verification of fixed assets is being conducted in a phased manner by the management over a period of three years, which, in our opinion, is reasonable having regard to the size of the Company and nature of its business and no material discrepancies were noticed on such verification to the extent verification was made during the year. However, no records of comparative statements of verification with the book records were produced before us for verification.

(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. The details of title deeds of immovable properties, in the opinion of the management that not held in the name of the Company are given in note no. 1 to the Financial Statements.

ii. As explained to us physical verification of inventory has been conducted by the management under at regular intervals during the year. In our opinion the frequency of verification is reasonable. No material discrepancies have been reported. According to the branch auditor of Raebareli, no physical verification of inventory was carried out during the year at that unit.

iii. According to the information given to us, the Company has not granted any loans or advances in the nature of loans, secured or unsecured to companies, firms, Limited Liability Partnerships or other parties listed in the register maintained under section 189 of the Companies Act, 2013. Therefore, clauses (iii) (a), (iii) (b) and (iii) (c) of Paragraph 3 of the Order are not applicable to the Company.

iv. The Company has complied with the provisions of section 185 and 186 of the Companies Act, 2013 in respect of loans, investments, guarantees and securities.

v. Based on our examination of the Company''s records and according to the information and explanations given to us, the Company has not accepted any deposits from public during the year within the meaning of sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules 2014.

vi. We have broadly reviewed the books of account and records maintained by the Company pursuant to the Companies (Cost Records and Audit) Rules 2014 prescribed by the Central Government under section 148(1) of the Companies Act, 2013 and are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we are not required to and have not carried out any detailed examination of such accounts and records.

vii. (a) According to the information and explanations given to us, in our opinion, the Company is generally not regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Employees'' State Insurance, Income Tax, Sales Tax, Service Tax, duty of Customs, duty of Excise, Value Added Tax, Goods and Service Tax, Cess and any other statutory dues as applicable to it.

(b) According to the information and explanations given to us, the following undisputed amounts payable in respect of Provident Fund, Employees State Insurance, Income Tax, Sales Tax, Service Tax, duty of Customs, duty of Excise, Value Added Tax, Goods and Service Tax, Cess and any other statutory dues were outstanding as at March 31,2021 for a period of more than six months from the date they became payable.

Place: Bangalore For GRSM & ASSOCIATES

Date: 22 June 2021 Chartered Accountants

[FRN: 000863S]

UDIN: 21208063AAAAGW4851

GOPALKRISHNA HEGDE

Partner

M.No.208063

Mar 31, 2018

Report on the Standalone Ind AS financial statements

We have audited the accompanying standalone Ind AS financial statements of ITI LIMITED (âthe Companyâ), which comprise the Balance Sheet as at 31 March 2018, the Statement of Profit and Loss (including Other Comprehensive Income) and, the Cash Flow Statement for the year then ended and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information, in which are incorporated the Returns for the year ended on that date audited by the branch auditors of the Companyâs branches at Rai Bareli, Naini, Mankapur, Palghat and Srinagar.

Managementâs Responsibility for the Standalone Ind AS financial statements

The Companyâs Board of Directors are responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (âthe Actâ) with respect to the preparation of these standalone Ind AS financial statements that give a true and fair view of the state of affairs(financial position), profit or loss (financial performance including other comprehensive income), cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Companies Act, 2013 read with relevant rules issued thereunder.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and 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 standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditorâs Responsibility

Our responsibility is to express an opinion on these standalone Ind AS 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 thereunder.

We conducted our audit of the standalone Ind AS financial statements 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 standalone Ind AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the standalone Ind AS financial statements. The procedures selected depend on the auditorâs judgment, including the assessment of the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Companyâs preparation of the standalone Ind AS 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 Companyâs Directors, as well as evaluating the overall presentation of the standalone Ind AS financial statements.

We believe that the audit evidence obtained by us and the audit evidence obtained by the other auditors in terms of their reports referred to in sub-paragraph (b) of the Other Matters paragraph below, is sufficient and appropriate to provide a basis for our audit opinion on the standalone Ind AS financial statements.

Basis of Qualified Opinion Qualifications not quantifiable

(a) 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 âAccounting for Investmentsâ 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 31.03.2018 have expressed their inability to comment on the going concern concept adopted by the said JV.

(b) Pending approval from the Government of India on the finalization of the lease terms & agreement, rental income on the land leased out to the Bengaluru 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, further based on the information furnished to us, BMTC additionally occupies 1.85 acres, has not been recognised 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 31.16);

(c) 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 recognised as income pending finalisation of lease agreement. (Refer Note No. 31.18)

Our opinion is modified in respect of these matters. Qualifications quantifiable

Non-provision of Rs 5847.90 lakhs towards claims doubtful of recovery, being rent receivable from premises leased out to C-DOT upto the period ended 31.3.2011 and no rental income for the period subsequent to 31.03.2011 for the same premises has been recognised on accrual basis due to uncertainty of realization (Refer Note No.31.22);

Our opinion is modified in respect of these matters. Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the various matters described in the âBasis of Qualified Opinionâ paragraph above, 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, of the state of affairs of the Company as at 31 March 2018 and its Profit and its cash flows 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) The profit for the year has been arrived at after making adjustments for the following items:

i) Write-back of liabilities of earlier years amounting to Rs 11214.51 lacs. -Refer Note No. 12 (c)

ii) Rs 9211.48 lacs being the difference between the compensation received from KIADB for surrender of land and its original cost. -Refer Note No.12(b)

iii) Rs 7998.00 lacs representing grants received related to previous years towards salaries, PF and Gratuity has been credited to Other Income. Refer Note No.12 (d)

iv) Rs 154.00 lacs being the profit recognised in Rae Bareli unit regarding transaction of earlier years.

a) Further the Branch auditors of Rae Bareli Unit has reported that from FY 2012-13 onwards till 31^st July 2017 on the basis of provisional invoices for GPON AMC services rendered by a service provider to BSNL for a total amount of Rs.6151 lacs as the turnover based on the provisional invoice and included under the head âRevenue from Operationsâ and the same has been included under the head âUnbilled revenueâ under the head Current Assetsâ in the financial statements. -Refer Note No.12 (e)

b) Formal conveyance/lease deeds in respect of lands, excepting part of lands at Bengaluru and Mankapur, are yet to be executed by the respective State Governments - Refer Note No.1;

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. 31.17);

d) Balances in the accounts of trade payables, advances from customers, trade receivables, claims recoverable, loans & advances, sub-contractors/ others, deposits, loans and other payables/ receivables such as Sales Tax, VAT, Excise Duty, CENVAT, Service Tax, Income Tax, GST, TDS, etc., being under confirmation/reconciliation. Adjustments, if any will be made on completion of such reconciliation /receipt of confirmation and we are unable to comment on the impact of the same on the accounts of the company (Refer Note 31.4);

e) 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 Crore in February, 2014, for Revival of ITI under Rehabilitation Scheme (Refer Note No. 31.15)

f) Lease agreement with ESIC has expired in the month of July 2016 and renewal lease agreement has not been entered. (Refer Note 31.19)

g) 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 31.20)

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.266222.77 Lakhs as at March 31, 2018, total revenues of Rs.95092.32 Lakhs and Profit after tax of Rs.3271.45 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 financial statements of Regional Offices whose financial statements reflect total assets of Rs.46320.79 Lakhs as at March 31, 2018, total revenues of Rs.17599.97 Lakhs and Profit after tax of Rs.586.35 Lakhs for the year ended on that date. These 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

c) We draw attention to Note No.31.5 regarding disclosure of segment information as required under Ind AS 108.

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

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditorâs Report) Order, 2016 (âthe Orderâ) 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 matters described in the Basis of Qualified opinion paragraph above, in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

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

g) The matters described in the basis of qualified opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

i) With respect to the other matters to be included in the Auditorâs 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 31.11(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 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 Auditorsâ Report to the members of the Company on the standalone financial statements for the year ended 31 March 2018, 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.

(b) According to the information and explanations given to us and on the basis of the Report of the Other Auditors, fixed assets at all other locations have been physically verified by the management periodically in a phased manner and no material discrepancies were noticed on such verification.

ii. According to the information and explanations given to us, inventories have been physically verified by the management at reasonable intervals. 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.

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.

(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:

Sl. No.	Name of the statute	Nature of dues	Amount in Rs.Lakhs	Period to which the dispute relates	Forum where the dispute is pending
1.	Central Excise Act, 1944	Nil rate of duty availed on Software disputed by CE dept (Net of Pre deposit Rs.200.00 lakhs)	637.00	2003-2005	Custom Excise & Service Tax Appellate Tribunal
2.	Central Excise Act, 1944	ED Demanded on R&D prototype modules for field trail. Stay extended (net of pre deposit Rs.30.00 lakhs)	299.00	2006-07	Custom Excise & Service Tax Appellate Tribunal
3.	Central Excise Act, 1944	Duty Short paid	0.99	1998-99	Custom Excise & Service Tax Appellate Tribunal
4.	Central Excise Act 1944	Nil Rate of Duty availed on software disputed by Central excise dept (Net of Pre deposit Rs.Rs.14.00)	496.76	2001-2002 2002-2003	Custom Excise & Service Tax Appellate Tribunal
5.	Central Excise Act 1944	CENVAT Credit	376.00	2007-2008	Custom Excise & Service Tax Appellate Tribunal
6.	Central Excise Act 1944	110%/115% demanded on transfer of purchased items to sister units	108.28	2007-2008	Custom Excise & Service Tax Appellate Tribunal
7.	UP VAT	Sales Tax	264.89	1986-1989	UP Government
8.	UP VAT	Sales Tax	15.32	1989-1996	UP Government
9.	UP VAT	Sales Tax	158.12	1987-1989 1996-1998 2000-2002	UP Government
10.	UP VAT	Sales Tax	429.96	1987-1989 1996-1998 2000-2002	Member Tribunal
11.	Income Tax Act, 1961	Penalty/Additional fees For TDS	19.48	2007-2016	CPC (TDS)
12.	Finance Act, 1994	Service Tax	8435.14	2009-10 to 2013-14	Tribunal Allahabad
13.	Finance Act, 1994	Service Tax	1992.19	2009-10 to 2013-14	Tribunal Allahabad
14.	Central Sales Tax. 1956	Demand of Additional Tax against Form C	1013.98	2005-2006	Addl Commissioner, Appeals Commercial Tax, Allahabad
15.	Central Sales Tax, 1956	Demand of Additional Tax against Form C	2.64	2007-08	Dy. Commissioner sector 14, Commercial Tax, Allahabad
16.	Central Sales Tax, 1956	Demand of additional Tax Against Form C/F	9.23	2008-09	Addl Commissioner, Appeals Commercial Tax, Allahabad
17.	Central Sales Tax, 1956	Addl. Commissioner Appeals Commercial Tax Allahabad	7.48	2009-10	Joint Commissioner, Commercial Tax, Allahabad
18.	Central Sales Tax, 1956	Demand of Additional Tax Against Form C/F	60.57	2010-11	Dy. Commissioner sector 14, Commercial Tax, Allahabad

19.	Central Sales Tax, 1956	Remand Order against appeal granted	10.96	2011-12	Addl Commissioner, Appeals Commercial Tax, Allahabad
20.	Central Sales Tax, 1956	Remand Order against appeal granted	96.17	2012-13	Dy. Commissioner sector 14, Commercial Tax, Allahabad
21.	Central Sales Tax, 1956 UP - VAT	Demand of Tax	86.75	2013-14	Addl Commissioner ( Appeals), Commercial Tax, Allahabad
22.	CESTAT- UPVAT	Demand Claim	27.50	2017-18	Appeal filed with Tribunal
23.	Central Sales Tax, 1956	Sales Tax	97.72	2006-2007	High Court of Kerala
24.	Central Sales Tax, 1956	Sales Tax	0.88	2009-2010	Appeal at Tribunal, Palakkad
25.	CST	Sales Tax	400.08	2003-04	KVAT - Appeal
26.	CST	Sales Tax	111.20	2013-14	DC- Appeal
27.	CST	Sales Tax	13.25	2014-15	DC- Appeal
28.	CST	Sales Tax	13.56	2015-16	DC- Appeal
29.	CST	Sales Tax	250.00	2016-17	DC- Appeal
30.	Service Tax (Finance Act, 1994)	Service Tax	109.44	2010-2011	Commissioner of Central Excise, Calicut
31.	Central Excise Act, 1944	Provision for obsolescence	52.28	2011-2012	Commissioner of Central Excise, Calicut
32.	Service Tax (Finance Act, 1994)	Service Tax	140.34	2011-2012	Commissioner of Central Excise, Calicut
33.	Service Tax (Finance Act, 1994)	Denial of service Tax Credit on Input Services	161.27	2011-2012	Commissioner of Central Excise, Calicut
34.	Service Tax (Finance Act, 1994)	CENVAT Credit on Manpower supply	2.76	2012-2013	Commissioner of Central Excise, Calicut
35.	Service Tax (Finance Act, 1994)	CENVAT Credit on Manpower supply	2.69	2012-2013	Commissioner Calicut
36.	Sales Tax Act	Sales Tax	506.70	2000-2001 2001-2002 2003-2004 2005-2006	Trade Tax Tribunal, Lucknow
37.	Sales Tax & Entry Tax Act	Sales Tax	226.23	1998-1999 2000-2005 2006-2009	Additional Commissioner (TradeTax) Lucknow
38.	Sales Tax Act	Sales Tax	0.93	2000-2001	Dy. Commissioner (Trade Tax) RBL
39.	Sales Tax	Sales Tax	185.23	2009-2013	Additional Commissioner (TradeTax ) Lucknow
40.	Karnataka Municipalities Act, 1964	Demand for higher rate of property tax	827.55	2008-09 to 2017-18	High Court of Karnataka
41.	Karnataka VAT Act, 2003	Turnover Suppression	26.47	2013-14	Commercial Tax Officer, Thirpunithura
42.	Karnataka VAT Act, 2003	Turnover Suppression	48.92	2014-15	Appellate Assistant Commissioner, Commercial Taxes, Ernakulam
		Total	17725.91

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 anjd 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. The Provisions of Section 42 and Section 62 of the Companies Act, 2013 and Rule 14 of the Companies (Prospectus and Allottment of Securities) Rules, 2014 are not applicable to the Company as the Preferential Issue of Equity Shares is made in terms of the Rehabilitation Scheme approved by the Board of Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act 1985.

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.

For Sankaran & Krishnan

Chartered Accountants

Firm Registration No: 03582S

V. V. Krishnamurthy

Partner

Membership No: 027044

Place : Bengaluru

Date : May 19, 2018

Mar 31, 2017

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of ITI Limited (âthe Companyâ), which comprise the Balance Sheet as at 31 March 2017, 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.

The Board of directors amended the accounts approved by them on May 28th, 2017 based on the Comptroller & Auditor Generalâs audit observations during the course of audit under Section 143(6)(a) of the Companies Act, 2013 by amending Note No.40 serial number 9 and amending Note No. 40 serial number 16 and incorporating serial number 31 to Note No 40. This amendment/insertion have no impact on the reported figure in the financial statements. Consequent to amendment of serial No.9 to Note No. 40, our report has been revised by removing the emphasis drawn by us earlier on this matter. The amended accounts have been approved by the Directors in their Board Meeting held on August 22nd , 2017.

Managementâs Responsibility for the Standalone Financial Statements

The Companyâs Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (âthe Actâ) 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 flows 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.

Auditorâs 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 auditorâs 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 Companyâs 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 Companyâs 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 of Qualified Opinion Qualifications not quantifiable

(a) In view of Companyâs 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, 2017 were Rs. 17708.46 lakhs against which provision of Rs. 3479.82 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, 2017 were Rs.227913.64 lakhs against which a sum of Rs. 4651.61 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 Investmentsâ 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 31.03.2016 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, further based on the information furnished to us, BMTC additionally occupies 1.85 acres), has not been recognised 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, 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 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 recognised as income pending finalisation 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 âImpairment of Assetsâ 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 (Auditorâs Report) Order, 2016.

(j) Refer Note No 3 on inventories under âSignificant Accounting Policiesâ. Raw materials, components and stores purchased for manufacturing/production activities are valued at lower of cost and net realisable value, after providing for obsolescence, if any. Cost is calculated on weighted average rate as at the end of the year. Total value of inventories at Naini Unit as at March 31, 2017 is Rs. 1258.12 lakhs. Statutory Auditors of the said unit have qualified their report stating that they were unable to comment whether inventories were valued as per the principles laid out in Accounting Standard 2 on âValuation of Inventoriesâ read with the Companyâs Accounting Policy as detailed workings were not made available to them for verification.

(k) The Statutory Auditors of the Mankapur Unit have qualified their report stating that sufficient and appropriate audit evidence were not provided with respect to opening and closing balances of bank accounts, trade receivables, claims recoverable, loans and advances, inventories, materials with fabricators, sub-contractors/others, material in transit, deposits, loans and other payables/receivables. Auditors have further stated that opening balances may not be free from misstatement and may have impact on current year financial statements.

(l) Age wise classification of Short term loans and Advances amounting to Rs 1277.10 lakhs , which are classified as âConsidered Goodâ is not available at the Naini unit so the Statutory Auditors of the said unit were unable to comment on the old outstanding of Such advances and their provisioning in the books of accounts by the unit.

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 upto the period ended 31.3.2011 and no rental income for the period subsequent to 31.03.2011 for the same premises has been recognised 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.

Our opinion is modified in respect of these matters.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the various matters described in the âBasis of Qualified Opinionâ paragraph above, 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, of the state of affairs of the Company as at 31 March 2017 and its Profit and its cash flows 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) 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)

(f) 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)

(g) 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)

(h) Validity of Claims recoverable from DoT towards loss incurred by Srinagar Unit. A sum of Rs. 344.00 lakhs and a sum of Rs. 223.49 lakhs is pending from DoT for the loss incurred by the said unit in FY 2015-16 and for FY 2016-17 respectively.

(i) The Statutory Auditors of Rae Bareli without qualifying their opinion have stated that On random checking of cash vouchers, payment of Rs. 0.86 lakhs was found unsupported. Possibility of more such vouchers could not be ruled out. Such payments prima-facie appears to be embezzlement which needs management attention.

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. 489545.54 Lakhs as at March 31, 2017, total revenues of Rs. 116454.88 Lakhs and Loss after tax of Rs. 9087.23 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. 49050.79 Lakhs as at March 31, 2017, total revenues of Rs. 18207.39 Lakhs and Profit after tax of Rs. 277.42 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

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.

g) The matters described in the basis of qualified opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in âAnnexure Bâ. Our Report expresses a disclaimer of opinion on the adequacy and operating effectiveness of the Companyâs internal financial controls over financial reporting; and

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 required to be transferred to the Investor Education and Protection Fund by the Company

iv. The Company has provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8 November, 2016 to 30 December, 2016 and these are in accordance with the books of accounts maintained by the Company. However, necessary information was not provided by Naini and Srinagar Units to the Statutory Auditors Concerned and no disclosure was made by the said units in its Financial Statements. However, Management has obtained necessary details and included the same in the Note No referred below. Disclosures pertaining to holdings as well as dealings in Specified Bank Notes by other units and regional offices are based on the report of the Other Auditors and certificate given by the management respectively. Refer Note 40.24 to the financial statements

Annexure - A to the Auditorâs Report

The Annexure referred to in Independent Auditorsâ Report to the members of the Company on the standalone financial statements for the year ended 31 March 2017, we report that:

(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 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. In case of Rae Bareli Unit, on the basis of the Report of the other auditors, we report that the Fixed Assets Register was not provided for verification to the statutory auditors concerned.

(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 (other than plant and machinery), 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. In case of Naini Unit, on the basis of the Report of the other auditors, we report that the physical verification certificate was not provided for verification to the statutory auditors concerned.

(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. Further In case of Naini Unit, on the basis of the Report of the other auditors, we report that the physical verification certificate was not provided for verification to the statutory auditors concerned.

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.

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.

vii. (a) According to the information and explanations given to us and the records of the company examined by us and on the basis of Report of the Other Auditors, in our opinion, the Company is not regular in depositing undisputed statutory dues including Provident Fund employeesâ 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 761.68 lakhs and Rs. 7681.27 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. 57.13 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 recognised & accounted. Statutory Auditors of Naini have qualified their Report with respect to non-provisioning of service tax liability on the payments made under works contract as a service receiver; hence provisions of Section 68 of the Finance Act, 1994 have not been complied with.

Sl. No.	Name of the statute	Nature of dues	Amount in Rs. Lakhs	Period to which the dispute relates	Forum where the dispute is pending
1	Central Excise Act, 1944	Nil rate of duty availed on Software disputed by CE dept (Net of Pre deposit Rs.200.00 lakhs)	637.00	2003-2005	Custom Excise & Service Tax Appellate Tribunal
2	Central Excise Act, 1944	ED Demanded on R&D prototype modules for field trail. Stay extended (Net of Pre deposit Rs.30.00 lakhs)	299.00	2006-07	Custom Excise & Service Tax Appellate Tribunal
3	Central Excise Act, 1944	Duty Short paid	0.99	1998-99	Custom Excise & Service Tax Appellate Tribunal
4	Central Excise Act 1944	Nil Rate of Duty availed on software disputed by Central excise dept (Net of Pre deposit Rs. Rs.14.00)	496.76	2001-2002 2002-2003	Custom Excise & Service Tax Appellate Tribunal
5	Central Excise Act 1944	CENVAT Credit	376.00	2007-2008	Custom Excise & Service Tax Appellate Tribunal

6	Central Excise Act 1944	110%/115% demanded on transfer of purchased items to sister units	108.28	2007-2008	Custom Excise & Service Tax Appellate Tribunal
7	UP VAT	Sales Tax	264.89	1986-1989	UP Government
8	UP VAT	Sales Tax	15.32	1989-1996	UP Government
9	UP VAT	Sales Tax	158.12	1987-1989 19961998 2000-2002	UP Government
10	UP VAT	Sales Tax	429.96	1987-1989 19961998 2000-2002	Member Tribunal
11	Income Tax Act, 1961	Penalty/Additional fees For TDS	19.48	2007-2016	CPC (TDS)
12	Finance Act, 1994	Service Tax	8435.14	2009-10 to 2013-14	Tribunal Allahabad
13	Finance Act, 1994	Service Tax	1992.19	2009-10 to 2013-14	Tribunal Allahabad
14	Central Sales Tax. 1956	Demand of Additional Tax against Form C	1013.98	2005-2006	Addl Commissioner, Appeals Commercial Tax, Allahabad
15	Central Sales Tax, 1956	Demand of Additional Tax against Form C	2.64	2007-08	Dy. Commissioner sector 14, Commercial Tax, Allahabad
16	Central Sales Tax, 1956	Demand of additional Tax Against Form C/F	9.23	2008-09	Addl Commissioner, Appeals Commercial Tax, Allahabad
17	Central Sales Tax, 1956	Addl. Commissioner Appeals Commercial Tax Allahabad	7.48	2009-10	Joint Commissioner, Commercial Tax, Allahabad
18	Central Sales Tax, 1956	Demand of Additional Tax Against Form C/F	60.57	2010-11	Dy. Commissioner sector 14, Commercial Tax, Allahabad
19	Central Sales Tax, 1956	Remand Order against appeal granted	10.96	2011-12	Addl Commissioner, Appeals Commercial Tax, Allahabad
20	Central Sales Tax, 1956	Remand Order against appeal granted	96.17	2012-13	Dy. Commissioner sector 14, Commercial Tax, Allahabad
21	Central Sales Tax, 1956 UP - VAT	Demand of Tax	86.75	2013-14	Addl Commissioner( Appeals), Commercial Tax, Allahabad
22	Central Sales Tax, 1956	Sales Tax	97.72	2006-2007	High Court of Kerala
23	Central Sales Tax, 1956	Sales Tax	0.88	2009-2010	Appeal at Tribunal, Palakkad

24	Central Excise Act, 1944	Excise duty	91.65	2003-2004	Commissioner (Appeals), Kochi
25	Central Excise Act, 1944	Excise duty	68.07	2001-2002	Commissioner (Appeals), Kochi
26	Service Tax (Finance Act, 1994)	Service Tax	109.44	2010-2011	Commissioner of Central Excise, Calicut
27	Central Excise Act, 1944	Provision for obsolescence	52.28	2011-2012	Commissioner of Central Excise, Calicut
28	Service Tax (Finance Act, 1994)	Service Tax	140.34	2011-2012	Commissioner of Central Excise, Calicut
29	Service Tax (Finance Act, 1994)	Denial of service Tax Credit on Input Services	161.27	2011-2012	Commissioner of Central Excise, Calicut
30	Service Tax (Finance Act, 1994)	CENVAT Credit on Manpower supply	2.76	2012-2013	Commissioner of Central Excise, Calicut
31	Service Tax (Finance Act, 1994)	CENVAT Credit on Manpower supply	2.69	2012-2013	Commissioner Calicut
32	Sales Tax Act	Sales Tax	280.86	2000-2001 2001-2002 2003-2004 2005-2006	Trade Tax Tribunal, Lucknow
33	Sales Tax & Entry Tax Act	Sales Tax	234.05	1998-1999 2000-2005 2006-2009	Additional Commissioner (TradeTax ) Lucknow
34	Sales Tax Act	Sales Tax	0.93	2000-2001	Dy. Commissioner (Trade Tax) RBL
35	Sales Tax	Sales Tax	423.57	2009-2013	Additional Commissioner (TradeTax ) Lucknow
36	Karnataka Municipalities Act, 1964	Demand for higher rate of property tax	1360.90	2008-to 2015-16	High Court of Karnataka
37	Karnataka VAT Act, 2003	Turnover Suppression	26.47	2013-14	Commercial Tax Officer, Thirpunithura
38	Karnataka VAT Act, 2003	Turnover Suppression	48.92	2014-15	Appellate Assistant Commissioner, Commercial Taxes, Ernakulam
		Total	17623.71

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.

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.

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.

For Sundar Srini & Sridhar

Chartered Accountants

Firm Registration No: 004201S

R. Jayasankar

Partner

Membership No: 026298

Place: Bangalore

Date: August 22, 2017

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 â 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 â 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:

(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

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 â
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 Â 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 Â 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 Â 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 Â 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 ÂPalakad 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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