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Notes to Accounts of Sonata Software Ltd.

Mar 31, 2015

1 (i) During the year, the Company has acquired software service business of Xyka Software Private Limited, pursuant to a business transfer agreement dated 21.08.2014. The Company has acquired the business by way of slump sale for a consideration in cash. Excess of consideration paid over net assets taken over is treated as goodwill, in accordance with Para 16 of Accounting Standard 10, Accounting of Fixed Assets.

2 (ii) During the year, pursuant to the notification of Schedule II to the 2013 Act with effect from 01.04.2014, the Company revised the estimated useful life of its assets to align the useful life with those specified in Schedule II. Further, assets individually costing Rs. 5,000/- or less that were depreciated fully in the year of purchase are now depreciated based on the useful life considered by the Company for the respective category of assets.

Pursuant to the transition provisions prescribed in Schedule II to the 2013 Act, the Company has fully depreciated the carrying value of assets, net of residual value, where the remaining useful life of the asset was determined to be nil as on 01.04.2014, and has adjusted an amount of Rs. 11,352,885/- (net of tax) against the opening balance in Surplus in Statement of Profit & Loss under Reserves and surplus.

The depreciation expense in the Statement of Profit and Loss for the year is higher by Rs. 12,211,563/- consequent to the change in the useful life of the assets.

3 : Contingent liabilities

For the Year For the Year ended ended 31.03.2015 31.03.2014

a) Guarantees 675,000,000 50,000,000

The Company has given corporate guarantees to certain suppliers of Sonata Information Technology Limited (SITU its wholly owned subsidiary on behalf of SITL,amount drawn down as at year end against this facility is Rs.Nil (as at 31.03.2014 is Rs.Nil)

b) Claims against the Company 22,863,099 22,863,099 not acknowledged as debt The Company had received a legal notice from its ex-employee towardscompensation arising on account of terms of appointment. Based on legal opinion received by the Company, the maximum amount payable in the event the proceeding goes against the Company is Rs 22,863,099.

c) Disputed demand of Service tax 67,653,029 67,653,029 The Company renders Information Technology related services to some of its clients in India. The Service Tax department had classified these services as Manpower Recruitment or Supply Agency Services''. The Company had contested this re-classification and had preferred an appeal before the Central Excise and Service Tax Appellate Tribunal (CESTAT). One of the clients of the Company had indemnified the Company for any demands that may arise on account of service tax liability up to an amount of Rs.23,700,000. The amount included as disputed demand is excluding the amount indemnified by the client.

d) Disputed demands of Income-tax 1,285,298,864 1,410,577,388

Details of disputed demands of Income-tax by issue and by year are as below:

(i) Disallowance of claims made under Section 10A of the Income-tax Act, 1961

The Company does its business of software exports through multiple operating units or undertakings registered under the Software Technology Park Scheme of India. In computing taxable profit from the export of software, the Company claims exemptions provided to registered software technology parks undertakings and units as provided under Section 10A of the Income-tax Act, 1961 ("Act").

The Income-tax department in its assessments has been denying or limiting the benefits of Section 10A of the Act to the multiple undertakings of the Company on the ground that they were in fact one single unit and thus the benefits claimed were in excess of permissible limits, and had raised a demand of Rs.720,298,198 (As at 31.03.14 - Rs.720,298,198) for financial year 2006-07, 2007-08, 2008-09 and 2009-10.

Rs.Nil (As at 31.03.2014-Rs.236,805,408) for the financial year 2005-06. The Commissioner of Income Tax (Appeals) had given a favorable order against which the department had filed an appeal before Income Tax Appellate Tribunal (ITAT). Income Tax Appellate Tribunal has dismissed the appeal during the current year.

For the financial year 2006-07, the Commissioner of Income Tax (Appeals) had given a favorable order against which the department had filed an appeal before Income Tax Appellate Tribunal. For the financial year 2007-08, 2008-09 and 2009- 10, the Company has challenged the decision of Assessing Officer and has preferred appeals to the Commissioner of Income-Tax (Appeals).

For the financial year 2001-02, Income Tax Appellate Tribunal had given a favorable order on the ground of income accrued under Section 10A of the Act against which the department had filed an appeal before the High Court of Mumbai Rs. 14,863,703 (As at 31.04.14 -Rs.14,863,703).

(ii) Inter-unit set-off of losses

As discussed in point (i) above, the Company operates multiple operating units and undertakings under the Software Technology Park Scheme of India. While computing its taxable profits, losses from one undertaking were set off against profits of another or carried forward to the subsequent years. The Income-tax department had disallowed such carry forward of losses. The Company received favorable orders from ITAT and the department had preferred an appeal before the Mumbai High Court which is yet to be admitted for financial years 2004-05 and hence there is no contingent liability.

Rs. 12,321,813 (As at 31.03.14 Rs. 7,770,960) for the financial year 2002-03 and 2003-04. The Company has preferred appeals before ITAT.

(iii) Disallowance of Inter-Company Service Charges

The Company charges Sonata Information Technology Limited, its wholly owned subsidiary, for certain support services rendered. During assessments, the Income-tax department denied Section 10A of the Act benefits on such support services and assessed the same as normal business income and raised demand of Rs.233,708,329 (As at 31.03.14 -Rs.138,367,875) for financial years 2001-02, 2002-03, 2003-04 and 2004-05. The Company had received favorable orders from Income Tax Appellate Tribunal. However, the department preferred an appeal on the said orders before the Honorable High Court of Mumbai.

Rs.11,635,577 (As at 31.03.14- Rs.Nil) for the financial year 2010- 11. The Company has filed an appeal before the Commissioner of Income Tax (Appeals) during the current year.

(iv) Withholding tax demand

The Income-Tax department has been contending that amounts paid by the Company for buying the software products is in the nature of''Royalty''and hence had to withhold Income-tax on the same as per the Act and had raised demand of Rs.284,187,956 (As at 31.03.14 - Rs. 284,187,956) for the financial years 1999-00, 2000-01 and 2001-02. The Company''s contention has been that the payments were made for purchase of ''Goods'' and hence was under no obligation to withhold Income tax on the same. The Company had received favorable orders from the Income Tax Appellate Tribunal which were reversed by the Honorable High Court of Karnataka. The Company had preferred a Special Leave Petition Appeal on the said order to the Honorable Supreme Court of India, which had been admitted. However, for these years one of the principal suppliers of software to the Company had paid taxes of Rs. 87,904,913 out of the above demand. The amount included as disputed demand is excluding the amount paid by the supplier.

(v) Deductions claimed under section 80

Prior to the enactment of Section 10A of the Act, the Company claimed deduction for exports made, under Section 80 of the Act. The department had re-opened the assessments and disallowed certain aspects of the claims made on the contention that cost allocation principles followed for the claim are erroneous and raised a demand of Rs.8,283,288 (As at 31.03.14 - Rs. 8,283,288) for the financial year 1994-95. The Company had received favorable orders from Income-Tax Appellate Tribunal. The department had preferred an appeal on the said order before the Honorable High Court of Mumbai.

e) In addition, the Company in the ordinary course of business receives various claims from its customers and other business partners. Based on review of such matters and the information available at this time, the Company does not anticipate that any of these will result in a settlement that will have a material impact on its financial statements.

Dues to Micro and Small Enterprises have been determined to the extent such parties have been identified on the basis of information collected by the Management. This has been relied upon by the auditors.

4. Details on derivative instruments and unhedged foreign currency exposures

i) Forward exchange contracts (being derivative instruments), which are not intended for trading or speculative purposes but for hedge purposes to establish the amount of reporting currency required or available at the settlement date of certain receivables / investments. The following are the outstanding forward exchange contracts entered into by the Company and outstanding as at 31.03.2015 (Previous year figures are in brackets).

5: Employee benefit plans i) Defined contribution plans

a) Provident fund

The Company makes contributions towards a Provident Fund under a defined contribution plan for qualifying employees. The Provident Fund is administered by the Trustees of Sonata Software Limited Provident Fund and by the Regional Provident Fund Commissioner. Under this scheme, the Company is required to contribute a specified percentage of payroll cost to fund the benefits.

The Rules of the Company''s Provident Fund administered by the Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees'' Provident Fund by the Government under para 60 of the Employees'' Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by the Company. Having regard to the assets of the Fund and the return on the investments, the Company does not expect any deficiency in the foreseeable future. There has also been no such deficiency since the inception of the Fund.

Provident fund contributions amounting to Rs. 71,245,461 (for the year ended 31.03.2014Rs.56,312,685), National Pension Scheme contribution amounting to Rs. 2,518,182 (for the year ended 31.03.2014 Rs.2,413,390) have been charged to the Statement of Profit and Loss (as part of Contribution to Provident Fund and other Funds in Note 20 Employee benefits expense).

b) During the year the Company has recognised the following amounts in the Statement of Profit and Loss Employers contribution to The expected rate of return on plan assets is determined after considering several applicable factors such as the composition of the plan assets, investment strategy, market scenario, etc. In order to protect the capital and optimise returns within acceptable risk parameters, the plan assets are well diversified.

The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations.

The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors.

6: Segment reporting

The Company prepares consolidated financial statements, hence as per Accounting Standard 17 on Segment Reporting, segment information has not been provided in the standalone financial statements.

7: Related party disclosure i) Details of related parties :

Description of relationship Names of related parties

a) Wholly owned Subsidiaries Sonata Information Technology (WoS) Limited, India Sonata North America Inc., USA Sonata Software GmbH, Germany Sonata Europe Limited, UK Sonata Software FZ LLC, Dubai Sonata Software Qatar LLC, Qatar Sonata Technology Solutions Limited, India ( Dissolved on 18.06.2014)

(b) Subsidiary Rezopia Inc, USA (subsidiary of Sonata Software North America Inc. w.e.f 22.08.2014)

(c) Key Management personnel P Srikar Reddy, Managing Director & (KMp) Chief Executive Officer

Notes :

(i) Maximum balance outstanding during the year is Rs.973,500,000 (for the year ended 31.03.2014 Rs.860,000,000)

(ii) These inter corporate deposits were given for business purposes.

8 : Details of leasing arrangements

i. The Company has entered into various operating lease agreements for office premises, residential premises, guest houses and certain assets. These leases are cancellable as well as non-cancellable and are for a period of 11 months to 180 months and may be renewed based on mutual agreement of the parties.

iii. The Company has subleased a portion of its leased premises cancellable at the option of either parties.

iv. The lease payments recognised in the statement of Profit and Loss are as under :

9: There is no amount due and outstanding as at Balance Sheet date to be credited to the Investor Education and Protection Fund.

10: Expenditure on corporate social responsibility activities

i. Gross amount required to be spent by the company during the year Rs. 6,762,318/-.

ii. Amount spent during the year on:

11: Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure.


Mar 31, 2013

Note 1 : Corporate Information

Sonata Software Limited (SSL or the Company) is a Company registered in India with its registered office at Mumbai and operationally headquartered at Bangalore. The Company is listed on the National Stock Exchange Limited and the Bombay Stock Exchange Limited. The Company is primarily engaged in the business of providing IT Services and Solutions to its customers in the US, Europe, Middle East and India.

Note 2 : Disclosures required under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006

There are no Micro and Small Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days during the year and also as at 31.03.2013 (Previous year - Rs. Nil). The information has been identified to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.

Note 3 : Details on derivative instruments and unhedged foreign currency

i) Forward exchange contracts (being derivative instruments), which are not intended for trading or speculative purposes but for hedge purposes to establish the amount of reporting currency required or available at the settlement date of certain payables / receivables.

Note 4 : Employee benefit plans

i) Defined contribution plans

a) Provident fund

The Company makes contributions towards a provident fund under a defined contribution retirement benefit plan for qualifying employees. The provident fund is administered by the Trustees of Sonata Software Limited Provident Fund and by the Regional Provident Fund Commissioner. Under this scheme, the Company is required to contribute a specified percentage of payroll cost to fund the benefits. The Rules of the Company''s Provident Fund administered by the Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees'' Provident Fund by the Government under para 60 of the Employees'' Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by the Company. Having regard to the assets of the Fund and the return on the investments, the Company does not expect any deficiency in the foreseeable future. There has also been no such deficiency since the inception of the Fund.

Provident fund contributions amounting to Rs. 36,253,463 (Previous year Rs. 40,429,178) have been charged to the Statement of Profit and Loss.

b) During the year the company has recognised the following amounts in the statement of profit and loss Employers contribution to

Note 5 : Related party disclosure

i) Details of related parties :

Description of relationship Names of related parties

a) Wholly Owned Subsidiaries (WOS) Sonata Information Technology Limited, India

Sonata North America Inc., USA Sonata Software GmbH, Germany Sonata Europe Limited, UK Sonata Software FZ LLC, Dubai Sonata Software Qatar LLC, Qatar Sonata Technology Solutions Limited, India

b) Other Subsidiaries (OS) TUI InfoTec GmbH, Germany (ceased to be a subsidiary w.e.f 1st October, 2011)

c) Key Management Personnel (KMP) P Srikar Reddy, MD & CEO

Sanjay Viswanathan (Resigned w.e.f. 14th February, 2012)

B Ramaswamy (Resigned w.e.f. 16th August, 2011)

Note 6 : Details of leasing arrangements

The Company has various operating leases for office facilities and residential premises for employees that are renewable on a year basis, and cancelable at its option. Rental expenses for operating leases included in the Statement of Profit and Loss is Rs. 104,981,823 (Previous year Rs. 110,190,019).

The sublease payment received during the year included in the Statement of Profit and Loss is Rs. 535,368 ( Previous year Rs. 109,376).

There are no rents which are contingent in nature.

Note 7: There is no amount due and outstanding as at Balance Sheet date to be credited to the Investor Education and Protection Fund

Note 8: Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure.


Mar 31, 2012

A) Rights and preferences attached to equity shares

The Company has equity shares having a par value of Rs 1, Each Shareholder is entitled for one vote per share. The shareholders have the right to receive interim dividends declared by the Board of Directors and final dividend proposed by the Board of Directors and approved by the shareholders.

In the event of liquidation by the company, the shareholders will be entitled in proportion to the number of equity shares held by them to receive remaining assets of the company, after distribution to those it was secured.

The shareholders have all other rights as available to equity shareholders as per the provisions of the Companies Act, 1956, read together with the Memorandum of Association and Articles of Association of the Company, as applicable.

The company has created deferred tax asset on carried forward loss of its branch of Rs 46,734,916 as at 31.03.2012 (Rs 40,836,058) as the company estimates that the branch would make taxable profits in the foreseeable future. Deferred tax asset on carried forward loss of its branch increased by Rs 5,898,859 (Rs 2,037,757) on account of foreign exchange fluctuation which is recognized in the statement of profit and loss.

1. Short-term borrowings

The working capital facilities of the company are secured by hypothecation of inventories, book debts, moveable assets and receivables both present and future,

2. Tax expense

Current tax of Rs 60,993,394 (Rs 99,674,446) shown under statement of profit and loss for the year ended 31st March, 2012 is net of Rs 9,942,473 (Rs 4,284,338), being excess tax provided for earlier years reversed,

3. Contingent liabilities

(as certified by the Management) (Rs)

31.03.2012 31.03.2011

a) Claims against the Company not acknowledged as debts - 6,970,461

b) Guarantees

i) The Company has given corporate guarantee to IBM Ltd on behalf of Sonata Information Technology Limited for a value of Rs 50,000,000 (Rs 50,000,000).

ii) The Company has provided an indemnity of US$ 500,000 (US$ 500,000) to Standard Chartered Bank, India to cover working capital limits provided by Standard Chartered Bank, Dubai to Sonata Software FZ LLC, Dubai.

c) Contingent Liabilities not provided for:

(Rs)

31.03.2012 31.03.2011

A. Disputed Income- Tax demands 975,629,465 456,972,314

(a) Disallowance of claims made under Section 10A of the Income-Tax Act, 1961:

The Company does its business of software export through its multiple operating units or undertakings registered under the Software Technology Parks Scheme of India. In computing taxable profits from the export of software, the Company claims exemptions provided to registered Software Technology Parks undertakings and units as provided under Section 10A of the Income-Tax Act, 1961 ("Act").

The Income-Tax department has been disallowing Company's claims under Section 10A on the ground that the Company and its units were formed by restructuring of the operations of Futura Polyesters Limited. The Company's contention was that it was formed by a process of de-merger as per the provisions of the Companies Act, 1956 and not through a process of restructuring as contemplated under Section 10A. The Company's contention has been upheld by the Honorable High Court of Mumbai.

The other ground adopted by the Income-Tax department in later years to deny Section 10A benefits was that the 'multiple undertakings of the Company operating under the Software Technology Parks Scheme of India were in fact one single undertaking' and so benefit as claimed by the Company for each of the unit or undertaking is not correct.

The Company has challenged all of the above disallowances and consequent demands at appellate levels.

Details of Demands and Forums where they are pending are:

I. Rs 113,100,918 for the financial year 2004-2005. The Company has received favorable orders from Commissioner of Income-Tax (Appeals). The Department has preferred an appeal on the said order to the Income- Tax Appellate Tribunal. However, based on the favorable orders on 10A issue received from the Honorable High Court of Mumbai, the Company is confident of a positive outcome at the Income-Tax Appellate Tribunal.

(Previous Year - Rs Nil).

II. Rs 220,166,905 for the financial year 2006-2007. For <8 this year, the Income-Tax department has disallowed the Company's 10A claim on the ground that the multiple undertakings of the Company operating were in fact one single undertaking. Further, certain additional disallowances have been made on Income accrued but not billed, depreciation claims, etc. The Company has preferred an appeal to the Commissioner of Income-Tax (Appeals) on above order. (Previous Year - Rs 220,166,905).

III. Rs 229,570,226 for financial year 2007-2008. This demand was received during the year. As discussed above for the earlier year the Income-Tax department has disallowed the Company's claim under Section 10A of the Act on the ground that the multiple undertakings of the Company operating were in fact one single undertaking. Further, certain additional disallowances have been made on Income accrued but not billed, depreciation claims, etc. The Company has preferred an appeal to the Commissioner of Income-Tax. (Appeals) on above order. (Previous Year - Rs Nil)

(b) Inter-unit set-off of losses :

As discussed in point (a) above, the Company operates multiple operating units and undertakings under the Software Technology Parks Scheme of India. While computing its taxable profits, losses from one undertaking were set off against profits or carried forward to the subsequent financial years by the Company. The Income- Tax department has disallowed such carry forward of losses. This position was adopted by the Assessing Officer from the financial year 2005-2006.

Details of Demands and Forums where they are pending are:

I. Rs 12,321,813 for financial years of 2002-2003 and 2003-2004. The assessments were re-opened by the me-Tax Officer to make the above demand. The Company has preferred an appeal to the Commissioner of me-Tax (Appeals). (Previous Year - Rs Nil).

II. Rs 1 1,900,233 for financial years 2004-2005. The assessments were re-opened during the year by the Income-Tax Officer to make the above demand. The Company received unfavorable orders on this issue from the Commissioner of Income Tax (Appeals) and has preferred an appeal on the said unfavorable order before Income-Tax Appellate Tribunal. (Previous Year - Rs Nil).

(c) Disallowance of Inter-Company Service Charges :

Sonata Software Limited, the holding company, charges Sonata Information Technology Limited its wholly owned subsidiary for certain support services rendered. During assessments, the Income-Tax department denied Section 10A benefits on such support services and assessed the same as normal business income. The Income-Tax department's contention is that such service charges are not eligible for benefits as contemplated under Section 10A.

Details of Demands and Forums where they are pending are:

Rs 96,098,126 for financial years 2000-2001 and 2002-2003. The Company has received favorable orders from Income-Tax Appellate Tribunal. The Department has preferred an appeal on the said order before the Honorable High Court of Mumbai, which has been admitted. (Previous year - Rs Nil)

(d) Withholding tax demand:

The Company, prior to the formation of its wholly owned subsidiary Sonata Information Technology Limited, was engaged in the business of buying and selling packaged software in India. The Income-Tax department has been contending that amounts paid by the Company for buying the software products is in the nature of 'royalty' and hence had to withhold Income-Tax on the same as per the Act. The Company's contention among others has been that the payments were made for purchase of 'goods' and hence was under no obligation to withhold Income-Tax on the same. On this dispute the Company had received favorable orders from the Income-Tax Appellate Tribunal which were during the year reversed by the Honorable High Court of Karnataka. The Company has preferred a Special Leave Petition Appeal on the said order to the Honorable Supreme Court of India, which has been admitted.

Details of Demands and the Forums where they are pending are:

Rs 284,187,956 for the financial years 1999-2000, 2000-2001 and 2001-2002. However, for these years one of the principal suppliers of software to the Company has paid Rs 87,904,913 out of the above demand.

(e) Deductions claimed under Section 80 O:

Prior to the enactment of Section 10A, the Company claimed deduction for exports made, under Section 80 of the Act. The department has re-opened the assessments and disallowed certain aspects of the claims made on the contention that cost allocation principles followed for the claim are erroneous.

Details of Demands and the Forums where they are pending are:

Rs 8,283,288 for the financial year 1994-1995. The Company has received favorable orders from Income-Tax Appellate Tribunal. The Department has preferred an appeal on the said order before the Honorable High Court of Mumbai, which has been admitted. (Previous year - Rs Nil).

4. NOTE ON AS 30 ADOPTION

Accounting Standard 30, (AS 30) Financial Instruments: Recognition and Measurement was issued by the Institute of Chartered Accountants of India (ICAI) in December, 2007. AS 30 becomes recommendatory in respect of accounting periods commencing on or after 1st April, 2009 and mandatory in respect of accounting periods commencing on or after 1st April, 2011. ICAI has announced that the earlier adoption of AS 30 is encouraged. From the accounting year 2008-09, the Company has early adopted Accounting Standard 30 (AS 30) "Financial Instruments: Recognition and Measurement".

From the year 2008-09 the Company applied the recognition and measurement principles as set out in AS 30 in accounting derivatives. Changes in fair values of derivative financial instruments designated as effective cash flow hedges were recognized directly into Hedging Reserve in the Balance Sheet under Reserves and Surplus and later reclassified into Statement of Profit and Loss upon the occurrence of the forecasted hedged transaction. Changes in the fair value of ineffective cash flow hedges are recognized in the Statement of Profit and Loss as they arise, As at 31st March, 2012, the Company recognized Rs 178,722,709 (Previous year Rs 30,712,825) into "Hedging Reserve" due to changes in fair value of the effective cash flow hedges.

a) The Company has given corporate guarantee to IBM Ltd on behalf of Sonata Information Technology Limited for a value of Rs 50,000,000 (Rs 50,000,000).

b) The Company had given corporate guarantee to Axis Bank on behalf Sonata Information Technology Limited for a value of Rs 900,000,000 (Rs 900,000,000) which was valid upto 29.02.2012.

The Company has provided an indemnity of US$ 500,000 to Standard Chartered Bank, India to cover working capital limits provided by Standard Chartered Bank, Dubai to Sonata Software FZ LLC, Dubai.

Sonata Software Qatar LLC, a company incorporated on 7th June, 2011 under the Qatar Chamber of Commerce and Industry in Doha, Qatar which is engaged in software development

(b) Provident Fund : The Guidance issued by the Accounting Standard Board (ASB) on implementing AS-1 5, Employee benefits (revised 2005) states that provident funds set up by < employers which requires interest short fall to be met by the employer, needs to be treated as defined benefit plan.

The Actuarial Society of India has issued Guidance Note for the measurement of Provident Fund (PF) liabilities during the year. The Company's actuary has accordingly provided valuation confirming that there is no liability for shortfall in the PF interest earning for the year.

(c) Basis used to determine expected rate of return on assets :

The expected return on planned assets is based on market expectation at the beginning of the period for returns over the entire life of the related obligation. The Gratuity Scheme is invested in Group Gratuity Scheme with HDFC Standard Life Insurance Company Limited. The expected return on assets assumption is taken based on current market yield.

(d) The estimates of future salary increases, considered in actuarial valuation, take into account of inflation, seniority promotion and other relevant factors, such as supply and demand in the employment market.

(f) Estimated Contribution for the next year on account of gratuity is Rs 15,644,802 (11,145,118).

(g) Contribution/Provisions to superannuation, Pension and other funds stated under defined contribution plan is Rs 37,333,090 (Rs 35,230,035).

5. There are no Micro, Small and Medium Enterprises, as defined in the Micro, Small, Medium Enterprises Development Act, 2006 to whom the company owes dues on account of principal amount together with interest and accordingly no additional disclosures have been made.

The above information regarding Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the company. This has been relied upon by the auditors.

6. Operating leases

The Company has various operating leases for office facilities and residential premises for employees that are renewable on a yearly basis, and cancelable at its option. Rental expenses for operating leases included in the statement of profit and loss for the year is Rs 110,190,019 (Rs 88,731,842).

7. Previous year's figures are shown in brackets and have been regrouped, whenever necessary to confirm to current year's classification.


Mar 31, 2011

(Rs.) 31.3.2011 31.3.2010

1. Contingent Liabilities not provided for

(I) Disputed Income Tax demands as explained below : (Inclusive of Interest Charged) 456,972,314 1,294,841,611

(a) The above amount represents demands raised by the Income Tax Officer at the initial assessment level for the Financial Years 2005-2006 and 2006-2007 with respect deductions sought under section 10A of the Income-Tax Act for new undertakings established by the Company. The Company has filed appeals to the Commissioner of Income Tax (Appeals) against the aforementioned demands.

(b) The above does not include demands for earlier years relating to section 10A of the Income Tax, Act where the Company has received favorable orders from

Income Tax Appellate Tribunal Mumbai. The Department has made an appeal for these years to the High Court of Mumbai which is yet to be admitted.

The Supreme Court by its order of September 9, 2010 over ruled the order of the High Court of Karnataka which had held that irrespective of the nature of payment, in the absence of a lower withholding order, income-tax had to be withheld on all payments made to overseas parties. Further the Supreme Court remanded the cases back to the High Court of Karnataka for a fresh review and to examine whether payments made to overseas parties for purchase of software was in the nature of Royalty and if so whether tax had to be withheld on the same.

Based on the above Supreme Court order the following demands are not considered as contingent liability:

i. Rs.15.79 crores as tax which had not been deducted by the Company on payments made to overseas parties for purchase of software for the Financial Years 1999- 2000,2000-2001 and 2001-2002. However, for these years one of the principal suppliers of software to the Company has paid Rs.8.79 crores out of the above demand.

i. Rs.77.38 crores of tax demand for the Financial Years 1996-97, 1997-98, 1998-1999 and 1999-2000 on account of disallowances of payments made for purchase of software on which tax had not been deducted at source. This demand is directly linked to outcome of the issue discussed in point (i) above

The Service Tax Department has raised a demand by classifying Information Technology Consulting Services rendered by the Company to its domestic clients as Manpower Recruitment or Supply Agency Services. The latter service classification brings service rendered by the Company to its domestic clients within the ambit of Service Tax. The Company has contested this re- classification of services and has filed an appeal before the Appellate Authorities. One of the clients has indemnified the Company for any demands that may arise on account of service tax liability up to an amount of Rs.2.37 Crores.

(V) (a) The Company has given corporate guarantee to IBM Ltd on behalf of Sonata Information Technology Limited fora value of Rs.5 Crores.

(b) The Company has provided an indemnity of US$ 0.5 million to Standard Chartered Bank, India to cover working capital limits provided by Standard Chartered Bank, Dubai to Sonata Software FZ LLC, Dubai.

2. Income from Services includes gain on account of exchange fluctuation of Rs.1,350,965 for the current year ended 31st March, 2011 (Previous year loss Rs. 40,692,853)

3. The working capital facility of the company are secured by hypothecation of inventories, book debts, moveable assets and receivables both present and future.

4. NOTE ON AS 30 ADOPTION :

Accounting Standard 30, (AS 30) Financial Instruments: Recognition and Measurement was issued by the Institute of Chartered Accountants of India (ICAI) in December 2007. AS 30 becomes recommendatory in respect of accounting periods commencing on or after April 1 2009 and mandatory in respect of accounting periods commencing on or after April 1 2011. ICAI has announced that the earlier adoption of AS 30 is encouraged. From the accounting year 2008-09, the Company has early adopted Accounting Standard 30 (AS 30) "Financial Instruments: Recognition and Measurement".

From the year 2008-09 the Company applied the recognition and measurement principles as set out in AS 30 in accounting derivatives. Changes in fair values of derivative financial instruments designated as effective cash flow hedges were recognized directly into Hedging Reserve in the Balance Sheet under Reserves and Surplus and reclassified into Profit and Loss account upon the occurrence of the forecasted hedged transaction.

As at 31st March 2011, the Company recognized Rs. 307.13 Lacs (Previous year Rs.1871.21 Lacs) into "Hedging Reserve" due to changes in fair value of the effective cash flow hedges.

5. Related Party Transactions :

a) The list of related parties and nature of their relationship is disclosed in the annexure

Other Related Parties :

Sonata Information Technology limited (SITL) is a company incorporated in India. SITL is a wholly owned subsidiary of SSL and both the Companies have three common directors. Amounts included in the financial statements of the Company are in relation to administrative services, normal business transactions with SITL, as given below :

6. Employee Benefits :

(b) Providend Fund : The Guidance issued by the Accounting standard Board (ASB) on implementing AS-15, Employee benefits (revised 2005) states that provident funds set up by employers which requires interest short fall to be met by the employer, needs to be treated as defined benefit plan. Pending the issuance of the Guidance Note from the Actuarial Society of India, the Companys actuary has expressed his inability to reliably measure the future obligation arising due to interest shortfall (i.e. government interest to be paid on provident fund scheme exceeds rate of interest earned on investment) hence information not furnished.

(c) Basis used to determine expected rate of return on assets

The expected return on planned assets is based on market expectation at the beginning of the period for returns over the entire life of the related obligation. The Gratuity Scheme is invested in Group Gratuity Scheme with HDFC Standard Life Insurance Company Limited. The expected return on assets assumption is taken based on current market yield.

(d) The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority promotion and other relevant factors, such as supply and demand in the employment market.

(f) Estimated Contribution for the next year on account of gratuity is Rs.11,145,118(Nil).

(g) Contribution/Provisions to superannuation, Pension and other funds stated under defined contribution plan is Rs.35,230,035(Rs.31,196,203)

7. There are no Micro, Small and Medium Enterprises, as defined in the Micro, Small, Medium Enterprises Development Act, 2006 to whom the company owes dues on account of principal amount together with interest and accordingly no additional disclosures have been made.

The above information regarding Micro, Small and Medium Enterprises has been determined to the extent; such parties have been identified on the basis of information available with the company. This has been relied upon by the auditors.

8. Operating Leases

The Company has various operating leases for office facilities and residential premises for employees that are renewable on a yearly basis, and cancellable at its option. Rental expenses for operating leases included in the Income statements for the year is Rs. 88,731,842 (Rs. 70,428,748).

9. Previous years figures are shown in brackets and have been regrouped, wherever necessary to conform to current years classification.

LIST OF RELATED PARTIES AND NATURE OF RELATIONSHIP

I. KEY MANAGERIAL PERSONS AND OTHER DIRECTORS AS ON 31.03.2011

1. B Ramaswamy, Managing Director & President

2. P Srikar Reddy, Executive Vice President & Chief Operation Officer

3. M D Dalai, Executive Vice Chairmar

4. Pradip P Shah, Chairmar

5. S B Ghia, Director

6. Viren Raheja, Director

7. S N Talwar, Director

8. B K Syngal, Director

II. OTHERS AS ON 31.03.2011

List of related parties Nature of Relationship

S B Ghia Bhupati Investments & Finance Pvt. Ltd. Significant Influence (through VIPL), Director Spouse Mrs.R S Ghia as Chairperson and brothers wife Mrs.V D Ghia as Director

Chika Pvt. Ltd. Son Mr.N S Ghia as Chairman

Viraj Investments Pvt. Ltd. (VIPL) Son as Chairman and Spouse, Brothers wife are Directors

M D Dalai Daltreya Investment & Finance Pvt. Ltd. Spouse & sister are Directors Executive Vice Chairman

Viren Raheja Rajan B Raheja Father

Director Suman R Raheja Mother

Akshay R Raheja Brother

Excelsior Construction Pvt. Ltd. 100% shareholding by Mr.Rajan B Raheja & his family

Gstaad Investments & Finance Pvt. Ltd. 100% shareholding by Mr.Rajan B Raheja & his family

Trophy Investments & Finance Pvt. Ltd. 100% shareholding by Mr.Rajan B Raheja & his family

B Ramaswamy Sonata Information Technology Ltd. Director

Managing Director & President TUI InfoTec GmbH, Germany Member of Supervisory Board

Sonata Software FZ LLC, Dubai Director

P Srikar Reddy Sonata Information Technology Ltd. Director

Executive Vice President & CEO

TUI InfoTec GmbH, Germany Managing Director

Sonata Software FZ LLC, Dubai Director

Subsidiaries Sonata Information Technology Ltd. Wholly owned subsidiary of Sonata

Sonata Software FZ LLC, Dubai Wholly owned subsidiary of Sonata

Sonata Software North America Inc., USA Wholly owned subsidiary of Sonata

Sonata Software GmbH, Germany Wholly owned subsidiary of Sonata

Sonata Europe Ltd, UK Wholly owned subsidiary of Sonata

TUI InfoTec GmbH, Germany Subsidiary of Sonata

Note : Above disclosures have been made by the Directors pursuant to the legal opinion from M/s Kanga & Co, Solicitors.

 
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