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Auditor Report of Winsome Yarns Ltd.

Mar 31, 2015

We have audited the accompanying Standalone Financial Statements of WINSOME YARNS LIMITED ("the Company"), which comprise the Balance Sheet as at 31st March, 2015, the Statement of Profit and Loss, the Cash Flow Statement for the period (6 Months) then ended, and a summary of the 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 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 Standalone 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 Standalone 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 Financial Statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Standalone 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 Standalone 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 Standalone 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

Attention is drawn to:

i. Note no. 2.25 and 2.26 [this is to be read with note. No. 2.8(b) & 2.8(c)] regarding non-provisioning of Interest Expenses of Rs. 3273.37 Lacs (Previous Year NIL), penal interest, penalty etc. (amount unascertainable) AND Adjustment/set off of payment of receivables/payables pending necessary approval respectively as stated in the said notes.

ii. Note no. 2.22(A)(iv) (b) and 2.22(A) (v) regarding Non compliance of conditions [read with note no. 2.2 (A) (iii)] with respect to physical verification of fixed assets, as advised not to maintain bank accounts outside consortium parties (Bankers etc.) as directed by the CDR-MC and the impact on the state of affairs on exiting from CDR by Banks, as stated in the said notes.

iii. Note No. 2.14 regarding pending confirmation / reconciliation of balances of certain receivables (including overseas overdue receivables as stated in note no.2.8), bank balances, payables (including of an Associate Company), secured loans, other liabilities, loans and advances etc.; and contingent liability being considered as certified by the management in the absence of full detail, in this respect impact is unascertainable and cannot be commented upon by us. In our view read with said note internal control needs to be further strengthened.

iv. Note No. 2.8 (a)&(b) and Note no. 2.11 regarding non-provision against receivables [including of oversea overdue debtors of amounting to Rs. 6908.79 lacs (Previous Year Rs. 6846.77 Lacs)] [including accounting of exchange fluctuation of Rs. 897.41 lacs (Previous Year Rs. 823.31 Lacs) till 31st March 2015] and loans and advances of Rs. 10377.68 lacs (Previous Year Rs. 6844.14 Lacs) and Rs. 2599.32 lacs (Previous Year Rs. 2935.38 Lacs) respectively. The accounting of exchange fluctuation is not in line with generally accepted accounting principles and Accounting Standards 11 (AS-11)-"The Effect of Changes in Foreign Exchange Rates".

v. Note No. 2.22(A)(iv)(a) to (d) regarding accounting of consumption of Raw Material and Stores & Spares as balancing figure and the valuation of inventories is as taken, valued and as certified by the management [also attention is drawn on provision against non/slow moving which has been made as assessed by the management] as stated in said note; the impact whereof on the statement of state of affairs and loss for the period not being ascertainable for the reason stated in the said note and cannot be commented upon by us.

vi. As stated in note no. 2.5 and as per the AS-28 (Impairment of Assets), the company have carried out assessment of value in use of assets of knitwear unit, by an independent professional firm, based on this estimated impairment loss is of amounting to Rs. 2365.58 lacs (Previous Year 2996.00 Lacs -Gross Amount) (net). However, no provision against the same has been made by the company for the reason as explained in the said note. The Non provision against impairment in value of above stated assets is not in line with AS 28.

vii. Note no. 2.3 regarding pending receipt of part money of amounting to USD 50,72,110 (Rs. 2679.34 lacs) out of the GDR issue made by the company and as explained lying outside India [i.e. balance amount against GDR issue of 19,94,125 nos. made in financial year 2010-11, entitling 19,94,12,500 fully paid up equity shares of Re. 1/ each at Rs. 2.97 per share including premium (now 1,99,41,250 fully paid up equity shares of Rs. 10/ each at Rs. 29.70 including premium)]. In respect of realisability/receipt we are unable to comment. As explained, above stated amount is invested in money market fund outside India, pending for utilization.

viii. Note No. 2.23 (read with note no. 2.14) regarding non-provisions of Interest, Penalty etc. on delay of certain statutory dues on time w.r.t. Employee State Insurance, Provident Fund, Punjab Welfare Fund, Tax Deducted at source, Tax Collected at source and Service Tax etc. (amount unascertainable) and our inability to comment the impact on the loss for the period.

ix. Note no. 2.12(b) regarding the net worth of the Company become negative and preparation of financial statements by the management on "going concern basis", considering the future business plans and expected cash flows as stated in the said note. In the event of the same not being held to be a "going concern" and various assets and liabilities being consequently required to be adjusted with respect to their realizable value, the impact whereof has not been ascertainable.

x. Note no. 2.21 regarding payment of managerial remuneration of Rs. 44.46 Lacs (w.e.f. 1st July, 2014) (Previous Year Rs. 14.82 Lacs) is subject to necessary approval of the Central Government.

xi. Note no. 2.28 regarding pending appointment of requisite number of independent directors as stated in the said note.

xii. In view of our comment under para (i) to (x) above and on our comments in terms of the internal control system needs to be further strengthened to be made the same commensurate with the size of the Company and the nature of its business for the purchases and consumption of inventory, booking of the expenses, set off of balances and for the sale of goods and services.

We report that, without considering items mentioned in paragraph (ii),(iii), (v), (vii) and (viii) above the impact of which could not be determined, had the impact of notes referred in paragraph (i), (iv) & (vi) above been given to in these financial statements, the loss for the period would have been Rs. 23,290.66 lacs (as against the reported figures of Rs. 4,674.71 lacs), accumulated loss at the period end would have been Rs. 43,277.78 Lacs (as against the reported figure of Rs. 24,661.82 lacs), Loans and advances at the period end would have been Rs. 1,167.34 lacs (as against the reported figure of Rs. 3,766.66 lacs), carrying value of fixed assets would have been Rs. 25,342.70 lacs (as against the reported figure of Rs. 27,708.28 Lacs), trade receivables would have been Rs. 1,466.83 lacs (as against the reported figure of Rs. 11,844.51 lacs), other current liability at the period end would have been Rs. 20,311.82 lacs (as against the reported figure of Rs. 17,038.45 lacs).

Our opinion was also qualified on the financial statements for the year ended 30th Sept 2014 in respect of matter reported in (i) to (vii) above.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the matters described in the Basis for Qualified Opinion paragraph, 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 31st March, 2015, and its loss and its cash flows for the period ended on that date.

Emphasis of Matters

Attention is drawn to Note no. 2.29 regarding Financial Statements of a Subsidiary Company namely Winsome Yarns FZE for the year ended 31.3.2015 are unaudited and as certified by the management.

Our opinion is not qualified in respect of above matter.

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, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us during the course of audit, we give in the Annexure a statement on the matters specified in the paragraphs 3 and 4 of the order.

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

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit, except as stated in para (iii) under the head "Basis of Qualified Opinion".

(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.

(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, Except for the matter described in para (iv) [AS-11 "The Effect of Changes in Foreign Exchange Rates" and read with note no. 2.8(a)) and para (vi) (AS-28 "Impairment of Assets" and read with note no.2.5] under the Basis for Qualified Opinion paragraph, 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) The matters described in the Basis for Qualified Opinion paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

(f) On the basis of the written representations received from the directors as on 31st March, 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of Section 164 (2) of the Act.

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

(h) With respect to the 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 No. 2.1 [read with Note No. 2.2(A)(iv)(a), 2.2(A)(v) and 2.2(B)] to the Standalone 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; except to the extent and as explained in Note No.2.2 of the Standalone Financial Statements.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

Annexure referred to in paragraph 1 under the heading "Report on Other Legal and Regulatory Requirements" of our report of even date for the period (6 Months) ended 31st March 2015 Standalone Financial Statements of Winsome Yarns Limited

1. (a) The company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets except in respect of certain fixed assets (including assets of knitwear unit) where, the records as explained, are in process of compilation/ updation [Read with note no. 2.22(A)(iv)(b)].

(b) As per information and explanations given to us, certain fixed assets have been physically verified by the Management according to the programme of physical verification once in every three years in phased manner, which in our opinion need to be further strengthen having regard to the size of the company and the nature of its fixed assets. The discrepancies noticed on such physical verification were not material.

2. (a) As explained, only some of the inventories of the Company (including stock lying with the third parties and in transit) have been physically verified by the management during the period [Read with our comments para (b) and (c) below].

(b) In our opinion and according to information & explanations given to us, the procedures of physical verification of inventories followed by the management need to be strengthen in relation to the size of the Company and nature of its business [Read with note no. 2.22(A)(iv)(a) to (c)].

(c) In the absence of detailed item wise quantitative records (Read with our comments in para (b) above], we are not in position to comment whether discrepancies accounted for is correct and complete. However, as per the information made available the discrepancies noticed between the physical stock, to the extant physical verification carried out read with note no. 2.22(A) (iv) (a) to (c) and the book records were not material.

3. As informed to us, the Company has not granted any loan secured or unsecured to any companies, firms or other parties covered in the register maintained under Section 189 of the Companies Act, 2013. Accordingly, the provisions of Clause 3(iii) (a) & (b) of the Order are not applicable.

4. In our opinion and according to the information and explanations given to us, having regard to the explanation that some of the items purchased/ sold/ services rendered are of special nature and suitable alternative sources do not exist for obtaining comparable quotation or where user department has shown specific preference, where, as explained, rates were determined considering the quality, volume, nature of the items and market conditions prevailing at that time, there are internal control system which need to be further strengthened to be made the same commensurate with size of the company and nature of its business with regard to the purchase of inventory, fixed assets, services and for the sale of goods/fixed assets and services. [read with note no. 2.8, 2.14, 2.16, 2.22(A) (iv) & 2.26 and our comments under "Basis of Qualified Opinion" paragraph]. Based on the audit procedure performed and information & explanation provided by the management, during the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system nor been identified by the management except to the extent as stated above under clauses (i) and (ii) above.

5. In our opinion and according to the information and explanations given to us, the Company has complied with the directive issued by the Reserve Bank of India and the provisions of Section 73 to 76 of the Act or any other relevant provisions of the Act and the rules framed there under (to the extent applicable) with regard to deposit accepted from the public. We have been informed that no order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or other tribunal in this regard.

6. We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under sub section (1) of section 148 of the Act in respect of the Company's products to which the said rules are made applicable and are of the opinion that prima facie, the prescribed records have been made and maintained. We have however not made a detailed examination of the said records with a view to determine whether they are accurate or complete.

7. (a) According to the records of the Company, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Cess and other material statutory dues to the extent applicable to it except in respect of Provident Fund, Employee State Insurance dues, Punjab Welfare Fund, TDS, TCS & Service Tax were same found paid with certain delay (and as stated in note no. 2.23) and non deposition of PF, ESI & PWF amounting to Rs. 94.54 Lacs, Rs. 0.77 Lacs & Rs. 2.02 Lacs respectively and According to the information and explanations given to us, there are no undisputed statutory dues payable for a period more than six months from the date they became payable as at 31st March 2015.

(b) Based on the records and information and explanations given to us, there are no dues in respect of Income Tax, Custom Duty, Wealth Tax, Service Tax and Cess that have not been deposited on account of any dispute. In our opinion based on the records and according to the information and explanations given to us, the dues in respect of Income Tax, Sales Tax and Excise duty that have not been deposited with the appropriate authorities on account of dispute and the forum where these disputes pending are given below:

Name of the Statute Nature of dues Amount Period to which (Rs. in Lacs) amount relates

Central / State Sales Tax/VAT 4.35 1999-2000 Sales Tax

2.25 1993-1994

13.36 2003-2004



29.08 2008-2009

Central Excise Act# Excise Duty 67.45 2000-01 to 2004-05

Excise Duty 35.54 2005-06 to 2008-09

Excise Duty 513.39 2006-07 to 2009-10

Excise Duty 15.97 2010-11

Excise Duty 13.42 2011-12

Name of the Statute Forum where dispute is pending

Central / State Joint Director Excise and Sales Tax Taxation, Chandigarh

Sales Tax Tribunal Punjab

Deputy Excise and Taxation Commissioner (Appeal)

Commissioner (Appeal)

Central Excise Act* CESTAT, New Delhi

CESTAT, New Delhi

CESTAT, New Delhi

CESTAT, New Delhi

CESTAT, New Delhi

* (Excluding show cause notices)

This para is to be read with note no. 2.1(A) and 2.1(B) and note no. 2.14 AND para (iii) of "Basis for Qualified Opinion".

(c) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

8. The Company's accumulated losses at the end of the financial year is in excess of fifty percent of the net worth and it has incurred cash loss during the current financial period as well as in the immediate preceding financial year.

9. In our opinion, on the basis of audit procedures and according to the information and explanations given to us, the company has defaulted in repayment of dues on account of interest and principal (maximum) of amounting to Rs. 4024.25 lacs and amounting to Rs. 8083.59 lacs respectively for delay of maximum period of 727 days and 788 days respectively) to banks (this is to be read with note no.2.2). During the period, Company has not taken loan from financial institution or debenture holders (This to be read with Note No. 5.6 for the continuing default).

10. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks and financial institution.

11. According to the information and explanations given to us, the term loans were applied for the purposes for which the loans were obtained.

12. To the best of our knowledge and belief, based on the audit procedure performed and on the basis of information and explanations provided by the management, no material fraud [read with note no.2.3, 2.22(A)(iv) and our comments under the "Basis for Qualified Opinion"] on or by the Company has been noticed or reported during the course of the audit.

For LODHA & CO., Chartered Accountants Firm's Registration No. 301051E

(N. K. LODHA) Partner Membership No. 85155

Place : New Delhi Date : 28th May, 2015


Sep 30, 2014

We have audited the accompanying financial statements of Winsome Yarns Limited, which comprise the balance sheet as at 30th September 2014, and the statement of the profit and loss and the cash flow statement for the year then ended, and a summary of the 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 Acf) read with the General Circular 15/2013 dated 13th 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 Company''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 sufficient and appropriate to provide a basis for audit opinion.

Basis for Qualified Opinion:- Attention is drawn to:

i. Note no. 2.26 and note no. 2.14 regarding non-provision for penal interest, penalty etc. AND adjustment/set off of payment of receivables/payables pending necessary approval as stated in the said notes.

ii. Note no. 2.23 (A) (iv) (b) and 2.23(A) (v) regarding Non-compliance of conditions [read with note no. 2 .2 (A) (iii) and 2.2 (B)] with respect to physical verification of fixed assets and also advised not to maintain bank accounts outside consortium parties (Bankers etc.) as directed by the CDR-MC, as stated in the said notes.

iii. Note No.2.15 regarding pending confirmation/ reconciliation of balances of certain receivables (including oversea overdue receivables as stated in note no.2.8) bank balances, payables (including of an Associate Company of amounting to Rs. 572.40 lacs), secured loans, contingent and other liabilities, loans and advances etc., in this respect impact is unascertainable and cannot be commented by us. In our view read with said note internal control needs to be further strengthened.

iv. Note No. 2.8 and Note no. 2.11 regarding non-provision against receivables (including of oversea overdue debtors of amounting to Rs. 6846.77 lacs and including accounting of exchange fluctuation of Rs. 823.31 lacs till 30th September 2014) AND loans and advances of Rs. 6844.14 lacs and Rs. 2935.38 lacs respectively. The accounting of exchange fluctuation is not in line with generally accepted accounting principles and Accounting Standards 11 (AS-11)-"The Effect of Changes in Foreign Exchange Rates''"

v. Note No. 2.23(A) (iv) (a) to (d) regarding accounting of consumption of Raw Material and Stores & Spares as balancing figure and the valuation of inventories is as taken, valued and certified by the management [also regarding provision against non/slow moving as assessed by the management] in view of reasons stated in said note, the impact whereof on the statement of profit and loss and state of affairs not being ascertained and cannot be commented by us.

vi. As stated in note no. 2.5 and as per the AS-28 (Impairment of Assets), the company have carried out assessment of value in use of assets of knitwear unit, by an independent professional firm, based on this estimated impairment loss is of amounting to Rs. 2,996.00 lacs. However, no provision against the same has been made by the company for the reason as explained in the said note. The Non-provision against diminution in value of above stated assets is not in line with AS-28. The overall impact of above cannot be assessed (except of AS-28) or otherwise on loss for the year and balance in Statement of Profit & Loss.

vii. Note no. 2.3 regarding pending receipt of part money of amounting to USD 50,72,110 (Rs. 2679.34 lacs) of the GDR issue made by the company lying outside India [i.e. balance amount against GDR issue of 19,94,125 nos. made in financial year 2010-11, Entitling 19,94,12,500 fully paid up equity shares of Re.1/- each at Rs.2.97 per share including premium (now 1,99,41,250 fully paid up equity shares of Rs.10/- each at Rs.29.70 including premium)]. As explained, above stated amount is invested in money market fund outside India, and the same is pending for utilization.

We report that, without considering items mentioned in paragraph (i), (ii), (iii), (v)and (vii) above the impact of which could not be determined, had the impact of notes referred in paragraph (iv) and (vi) above been given to in these financial statements, the loss for the period would have been Rs. 23,938.82 lacs(as against the reported figures of Rs. 11,163.30 lacs), accumulated loss at the period end would have been Rs.32,678.61 Lacs (as against the reported figure of Rs. 19,903.09 lacs), Loans and advances at the period end would have been Rs. 1,468.26 lacs (as against the reported figure of Rs. 4403.64 lacs), carrying value of fixed assets would have been Rs.25709.59 lacs (as against the reported figure of Rs. 28,705.59 Lacs), trade receivables would have been Rs. 5152.16 lacs (as against the reported figure of Rs.11,996.30 lacs).

Qualified Opinion

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 under the head "Basis for Qualified Opinion"paragraph, 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:

(a) In the case of the balance sheet, of the state of the affairs of the company as at 30th September 2014,

(b) In case of the statement of the profit and loss, of the loss for the year ended on that date, and

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

Emphasis of Matter

Attention is drawn to:

(i) Note no 2.12(b) regarding the net worth of the Company become negative and preparation of financial statements by the management on "going concern basis" considering the future business plans and expected cash flows. In the event of the same not being held to be a "going concern" and various assets and liabilities being consequently required to be adjusted with respect to their realizable value, the impact whereof has not been ascertained and herefore cannot be commented upon by us.

(ii) Note no. 2.22 regarding payment of remuneration of Rs. 14.82 Lacs (w.e.f. 1st July 2014) is subject to approval of shareholders in General Meeting and also necessary approval of the Central Government.

Our report is not qualified in respect of above matter.

Report on other legal and the 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 sub-section (4A) of section 227 of the Act, we give the Annexure a statement on the, matters specified in the paragraphs 4 and 5 of the order.

(2) As required by section 227(3) of the Act, we report that:

(a) Except as stated in para (iii) under the head "Basis of Qualified Opinion"'' We have 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 appears from our examination of those books;

(c) The Balance Sheet, Statement of Profit & Loss and Cash Flow Statement referred to in this report are in agreement with the books of account;

(d) In our opinion, the Balance Sheet, Statement of Profit & Loss and Cash Flow Statement referred to in this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of Companies Act, 1956 read with the General Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013 to the extent applicable except to the extent stated in para (iv) [AS-11 "The Effect of Changes in Foreign Exchange Rates"and read with note no.2.8(a)) and para (vii) (AS-28"Impairment of Assets"and read with note no2.5]under the head "Basis of Qualified Opinion"

(e) On the basis of the written representations received from the Directors and taken on records by the Board of Directors, we report that none of the directors of the Company is disqualified as on 30th September 2014 from being appointed as a Director of the Company in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS'' REPORT

(Referred to in paragraph 1 of our Report of even date on Winsome Yarns Limited for the period ended 30th September, 2014).

i. (a) The company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets except in respect of certain fixed assets (including assets of knitwear unit) where, the records as explained, are in process of compilation/ updation [Read with note no. 2.23(A) (iv) (b)].

(b) As per information & explanations given to us, physical verification of the fixed assets have not been carried out according to the regular programme of physical verification, once in every three years (in phased manner) which in our opinion need to be further strengthen having regard to the size of the company and the nature of its fixed assets. As explained in note no no. 2.23 (A) (iv) (b), in view of the necessary security arrangements there will not be any material discrepancies on completion of such physical verification.

(c) As per the records and information and explanation given to us, fixed assets disposed off during the year were not substantial.

ii. (a) As explained, only some of the inventories of the Company (including stock lying with the third parties and in transit) have been physically verified by the management during the period. [Read with our comments para (a) and (b) below].

(b) In our opinion and according to information & explanations given to us, the procedures of physical verification of inventories followed by the management need to be strengthen in relation to the size of the Company and nature of its business[Read with note no. 2.23(A) (iv) (a) to (c)].

(c) In the absence of detailed item wise quantitative records and physical verification reports (Read with our comments in para (b) above], we are not in position to comment whether discrepancies accounted for is correct and complete. However, as per the information made available the discrepancies noticed between the physical stock, to the extant physical verification carried out read with note no. 2.23(A) (iv) (a) to (c) and the book records were not material.

iii. (a) As explained, The Company has not granted any loans, secured/ unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4 (iii) (b) to (d) of the Order are not applicable to the Company.

(b) The Company has taken unsecured loans from a party covered in the register maintained under section 301 of the Act. The maximum amount involved during the year and the year end balance of such loans is Rs. 549.17 lacs and Rs. NIL respectively.

(c) In our opinion and according to information and explanations given to us, the rate of interest and other terms and conditions of such loans taken by the Company are not prima facie prejudicial to the interest of the Company.

(d) In respect of aforesaid loans taken, the Company is regular in repayment of principal mounts as stipulated and payment of interest is regular.

iv. An our opinion and according to the information, and explanations given to us, paving regard to the explanation that some of the items purchased/ sold/ Services rendered are of special nature and suitable alternative sources do not exist for obtaining comparable quotation or where user department has shown specific preference, where, as explained, rates were determined considering the quality, volume, nature of the items and market conditions prevailing at that time, there are internal control system which need to be further strengthened to be made the same commensurate with size of the company and nature of its business with regard to the purchase of inventory, fixed assets, services and for the sale of goods/fixed assets and services.(read with note no. 2.8, 2.10, 2.14, 2.15, 2.17 & 2.23 (A)(iv) and our comments under "Basis of Qualified Opinion"paragraph]. Based on the audit procedure performed and information & explanation provided by the management, during the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system nor been identified by the management except to the extent as stated above under Para (i) and (ii) above.

v. (a) According to the information and explanations provided by the management and based on the audit procedure performed, we are of the opinion that the particulars of the contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section; and (b) In our opinion and according to the information and explanation given to us and having regard to para iv above, the transactions made in pursuance of such contracts or arrangements (exceeding the value of Rs.5Lacs in respect of each party during the financial year) have been made at prices which are generally reasonable having regard to the prevailing market prices at the relevant time.

vi. According to the information and explanations given to us, the Company has not accepted any deposits from the public within the meaning of Section 58A and 58 AA Act and the rules framed there under and directives issued by the Reserve bank of India and other relevant provisions of the Act We have been informed that no order has been passed by the company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

vii. In our opinion, the Company has an internal audit system which needs to be further strengthened to be made the same commensurate with the size of the Company and nature of its business.

viii. We have broadly reviewed the books of account to the extent made [Read with note no. 2.23(A) (iv)(a) to (c)] and maintained by the company as prescribed by the Central Government for the maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 and are of the opinion that, prima facie the prescribed full details and records which needs to be updated. We have, however, not made a detailed examination of the said records with view to determine whether they are accurate to the extent the same are maintained.

ix. (a) According to the records of the Company, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Service tax, Custom Duty, Cess and other material statutory dues to the extent applicable to it except in respect of Provident Fund and Employee State Insurance dues and Service Tax were same found paid with certain delay (and as stated in note 2.24) According to the information and explanations given to us, there are no undisputed statutory dues payable for a period more than six months from the date they became payable as at 30th September 2014.

(b) Based on the records and information and explanations given to us, there are no dues in respect of Income Tax, Custom Duty, Wealth Tax, Service Tax and Cess that have not been deposited on account of any dispute. In our opinion based on the records and according to the information and explanations given to us, the dues in respect of Income Tax, Sales Tax and Excise duty that have not been deposited with the appropriate authorities on account of dispute and the forum where these disputes pending are given below:

Name of the Nature of Amount Period to which Statute Dues (Rs. In Lacs) amount relates

Central/ State Sales Tax 4.35 1999-2000 Sales Tax 2.25 1993-1994

13.36 2003-2004

29.08 2008-2009

Name of the Statute Forum where dispute is pending

Centrla /State Joint Director Excise and Taxation Sales Tax Sales Tax Tribunal Punjab

Dy. Excise and Taxation Commis- sioner (Appeal)

Commissioner (Appeal)

Name of the Nature of Amount Period to which Statute Dues (Rupees) amount relates

Central Ex- Excise Duty 6744540 2000-01 to 2004-05 cise Act Excise Duty 3553824 2005-06 to 2008-09

Excise Duty 51339129 2006-07 to 2009-10

Excise Duty 1597494 2010-11

Excise Duty 1342181 2011-12

Name of the Statute Forum where dispute is pending

Central Ex-cixe Act CESTAT, New Delhi

CESTAT, New Delhi

CESTAT, New Delhi

CESTAT, New Delhi

CESTAT, New Delhi

This para is to be read with note no. 2.1 (A) and 2.1(B) and note no. 2.15 AND para (iii) of "Basis for Qualified Opinion"''

x. The Company''s accumulated losses at the end of the financial year is in excess of fifty percent of the net worth and it has incurred cash loss during the current financial period as well as in the immediate preceding financial year.

xi. In our opinion, on the basis of audit procedures and according to the information an explanations given to us, the company has defaulted in repayment of dues on account of interest and principal (maximum) of amounting to Rs. 2,579.56 lacs and amounting to Rs. 5,776.53 lacs respectively for delay of maximum period of 488 days and 549 days respectively) to banks (this is to be read with note no. 2.2).

During the period Company has not taken loan from financial institution or debenture holders (This to be read with Note No. 5.5 for the continuing default).

xii. Based on our examination of the records and the information and explanations given to us, the Company has not granted any loans and/or advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii. The Company is not a Chit Fund Company or nidhi /mutual benefit fund/society accordingly clause (xiii) of the order is not applicable.

xiv. In our opinion, the company is not dealing in or trading in shares, securities, debentures and other investment.

xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks and financial institution.

xvi. According to the information and explanations given to us, the term loans were applied for the purposes for which the loans were obtained.

xvii. On the basis of information and explanations given to us and on overall examination of the Company, we are of the opinion that prima facie no funds raised on short-term basis have been used for long term investment.

xviii. According to the information and explanations given to us, the Company has not made preferential allotment of shares during the year to any parties or companies covered in the register maintained under Section 301 of the Act.

xix. No debenture has been issued /outstanding during the year hence the provision of clause 4 (xix) of the said order are not applicable.

xx. According to the information and explanations given to us, during the earlier year (2010-11) the Company has raised money through a GDR issue (this to be read with note no. 2.3) However, as explained, no money has been raised through issue during the year.

xxi. To the best of our knowledge and belief, based on the audit procedure performed and on the basis of information and explanations provided by the management, no material fraud [read with note no. 2.3, 2.23(A)(iv) and our comments under the "Basis for Qualified Opinion"] on or by the Company has been noticed or reported during the course of the audit

For LODHA & CO. Firm Registration Number: 301051E Chartered Accountants

N.K. Lodha (Partner) Membership No: 85155

Date : 29.11.2014 sPlace : New Delhi


Mar 31, 2012

We have audited the attached Balance Sheet of Winsome Yarns Limited as at 31st March 2012, the Statement of Profit and Loss and also the Cash Flow Statement of the Company for the year ended on that date annexed thereto. These financial statements are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

1. As required by the Companies (Auditor's Report) Order, 2003 ('The Order') as amended by the Companies (Auditor's Report) Order, 2004 issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956 ('The Act'), we enclose in the Annexure a statement on the matters specified in the paragraphs 4 & 5 of the said Order.

2. Further to our comments in the Annexure referred to in paragraph 1 above, 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 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 appears from our examination of those books.

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

d) In our opinion, the Balance Sheet, the statement of Profit and Loss and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub section (3C) of Section 211 of the Companies Act, 1956 to the extent applicable except as stated in para g (i) in respect of gain recognised on restatement of foreign currency overdue debtors of Rs.32 6.05 lacs (including Rs. 108.15 lacs for the year), which is not in line with Accounting standard-11 (The Effects of Changes in Foreign Exchange Rates) of the companies accounting standard rules, 2006).

e) On the basis of written representation received from the directors of the Company and taken on the Record by the Board of Directors, we report that none of the directors of the Company is disqualified as on 31.03.2012 from being appointed as director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

f) Without qualifying attention is invited to Note No 6 regarding Deferred Tax Assets (Net) of Rs 1233.24 Lacs carried out as assessed by the management on unabsorbed depreciation and business losses as stated in the said note.

g) Further attention is invited to:

i. Note no. 2.16 regarding non provision for shortfall in recovery (amount unascertained) against overdue debt aggregating to Rs 1641.09 lacs and its cumulative gain recognised on reinstatement of said debtors of Rs. 326.05 lacs as stated in the said note for which persuasive action for recovery has been initiated, in the opinion of the management these debts are good and recoverable.

ii. Note no 2.10 regarding non provision for diminution in the value of investment in a subsidiary company (impact unascertainable) for the reason as stated in the said note

We further report that the loss for the year, the balance in reserve and surplus, debtors and investments are without considering items mentioned in para (g) above, the impact of which could not be determined.

Subject to the para (g) above, In our opinion and to the best of our information and according to the explanations given to us, the said account subject to and read with note no 2.12, 2.17, 2.19 and read together with other notes give the information as required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of Balance Sheet, of the State of Affairs of the Company as at 31st March, 2012;

(ii) in the case of the statement of Profit and Loss, of the loss of the Company for the year ended on that date; and

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

(Referred to in paragraph 1 of our Report of even date on Winsome Yarns Limited for the year ended 31st March, 2012)

i. (a) The company has maintained proper records showing particulars, including quantitative details and situation of fixed assets except of certain fixed assets in respect of which the records are in process of compilation Updation.

(b) As per information & explanations given to us, physical verification of the fixed assets are in process of completion according to the regular programme of physical verification once in every three years, in phased manner, which in our opinion is reasonable having regard to the size of the company and the nature of its fixed assets As explained, in view of the necessary security arrangements there will not be any material discrepancies on completion of such physical verification.

(c) As per the records and information and explanation given to us, fixed assets disposed off during the year were not substantial.

ii. (a) As explained to us, the inventories of the Company (except stock lying with the third parties and in transit) have been physically verified by the management during the year.

(b) In our opinion and according to information & explanations given to us, the procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

(c) According to the information and explanations given to us, we are of the opinion that the company is maintaining proper records of inventories (In case of process stock, records are updated on monthly physical verification of stock) As per records and information made available the discrepancies noticed on verification between the physical stock and the book records were not material in relation to the operation of the company.

iii. As per information & explanations given to us the Company has neither granted nor taken during the year any loans, secured or unsecured to companies, firms or other parties as covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4 (iii) (b) to (d) and (f) to (g) of the Order are not applicable.

iv. In our opinion and according to the information and explanations given to us, having regard to the explanation that some of the items purchased/ sold/ services rendered are of special nature and suitable alternative sources do not exist for obtaining comparable quotation or where user department has shown specific preference, where, as explained, rates were determined considering the quality, volume, nature of the items and market conditions prevailing at that time, there are internal control system commensurate with size of the company and nature of its business with regard to the purchase of inventory, fixed assets, services and for the sale of goods/ fixed assets and services where steps have been initiated to strengthen system further. (read with note no. 2.12, 2.17 & 2.19 of notes) Based on the audit procedure performed and information & explanation provided by the management, during the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system nor been identified by the management.

v. a) According to the information and explanations provided by the management and based on the audit procedure performed, we are of the opinion that the particulars of the contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section, and

b) In our opinion and according to the information and explanation given to us and having regard to para iv above, the transactions made in pursuance of such contracts or arrangements (exceeding the value of Rs 5 Lacs in respect of each party during the financial year) have been made at prices which are generally reasonable having regard to the prevailing market prices at the relevant time.

vi. According to the information and explanations given to us, the Company has not accepted any deposits from the public within the meaning of Section 58A and 58 AA Act and the rules framed there under and directives issued by the Reserve bank of India and other relevant provisions of the Act We have been informed that no order has been passed by the company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

vii. In our opinion, the Company has an internal audit system commensurate with the size of the Company and nature of its business which needs to be further strengthened.

viii. We have broadly reviewed the books of account maintained by the company as prescribed by the Central Government for the maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 and are of the opinion that prima facie the prescribed records have been made and maintained We have, however, not made a detailed examination of the said records with view to determine whether they are accurate and complete.

ix. (a) According to the records of the Company, the Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Income Tax, Sales Tax, Wealth Tax, Service tax, Custom Duty, Excise Duty, Cess and other material statutory dues applicable to it. According to the information and explanations given to us, there are no undisputed statutory dues payable for a period more than six months from the date they became payable as at 31.03.2012.

(b) Based on the records and information and explanations given to us, there are no dues in respect of Income Tax, Custom Duty, Wealth Tax, Service Tax and Cess that have not been deposited on account of any dispute. In our opinion based on the records and according to the information and explanations given to us, the dues in respect of Income Tax, Sales Tax and Excise duty that have not been deposited with the appropriate authorities on account of dispute and the forum where these disputes pending are given below:

Nature of the Statute Nature of dues Amount (Rs. In lacs) Period to which Forum where dispute is pending amount relates

Central/ State Sales Tax Sales Tax 4.35 1999-2000 Joint Director Excise and Taxation

2.25 1993-1994 Sales Tax Tribunal Punjab

13.36 2003-2004 Deputy Excise and Taxation Commissioner (Appeal)

Central Excise Act# Excise Duty 11.72 2006-2007 & 2007-2008 Hon'ble Punjab & Haryana High Court Excise Duty 28.60 2000-2001 to 2004-2005 CESTAT

Excise Duty 463.46 2006-2007 to 2009-2010 CESTAT

Excise Duty 3.82 2007-2008 & 2008-2009 Commissioner Appeals

Excise Duty 5.93 2011-2012 Commissioner Appeals

Excise Duty 6.68 2009-2010 Assistant Commissioner

Finance Act 1994 Service Tax 0.62 2005 Commissioner Appeals

# (Excluding excise show cause notices)

This para is to be read with note no. 2.1 (A) and 2.1(B).

x The Company has accumulated losses at the end of the financial year and it has incurred cash loss during the current financial year. However company did not incurred cash loss in the immediately preceding financial year.

xi. In our opinion, on the basis of audit procedures and according to the information and explanations given to us, the company has not defaulted in repayment of dues (except for maximum of interest amounting to Rs 352.40 lacs and principal amounting to Rs 940.71 lacs and delay for maximum period of 89 days and 89 days respectively) to banks (this is to be read with note n. 2.2)During the year Company has not taken loan from financial institution or debenture holders.

xii Based on our examination of the records and the information and explanations given to us, the Company has not granted any loans and/or advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii The Company is not a Chit Fund Company or nidhi /mutual benefit fund/ society accordingly clause (xiii) of the order is not applicable.

xiv. In our opinion, the company is not dealing in or trading in shares, securities, debentures and other investment.

xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks and financial institution.

xvi According to the information and explanations given to us, the term loans were applied for the purposes for which the loans were obtained.

xvii. On the basis of information and explanations given to us and on overall examination of the Company, we are of the opinion that prima facie no funds raised on short-term basis have been used for long term investment.

xviii. According to the information and explanations given to us, the Company has not made preferential allotment of shares to any parties or companies covered in the register maintained under Section 301 of the Act (read with note no 2.3A).

xix. No debenture has been issued /outstanding during the year hence the provision of clause 4 (xix) of the said order are not applicable.

xx. According to the information and explanations given to us, during the previous year the Company has raised money through a GDR issue Certain amount has been utilised for the purposes as mentioned in note no. 2.3B, and pending compliances, the balance money is parked in a separate bank Escrow account outside Indiaxxi.To the best of our knowledge and belief, based on the audit procedure performed and on the basis of information and explanations provided by the management, no material fraud on or by the Company has been noticed or reported during the course of the audit.

For Lodha & Co

Chartered Accountants

FRN No 301051E

N.K. Lodha

Partner

Membership No 85155

30.05.2012

New Delhi


Mar 31, 2010

We have audited the attached Balance Sheet of Winsome Yarns Limited as at 31 st March 2010, the Profit and loss Account and also the Cash Flow Statement of the Company for the year ended on that date annexed thereto. These financial statements are the responsibility of Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material 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 the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

1. As required by the Companies (Auditors Report) Order, 2003 ("The Order") as amended by the Companies (Auditors Report) Order, 2004 issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956 ("The Act"), we enclose in the Annexure a statement on the matters specified in the paragraphs 4 and 5 of the said Order.

2. Further to our comments in the Annexure referred to in paragraph 1 above, 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 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 appears from our examination of those books;

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

d) In our opinion, the Balance Sheet and Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub section (3C) of Section 211 of the Companies Act, 1956 to the extent applicable;

e) On the basis of written representations received from the directors of the Company and taken on the record by the Board of Directors, we report that none of the directors of the company is disqualified as on 31.3.10 from being appointed as director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

f) Attention is drawn on note no. 11 of schedule 15-B regarding depreciation on certain Plant and Machinery is provided as per the rates applicable to the continuous process plant for the reason as stated in the said note.

g) Further attention is invited to:

Note No. 16 of schedule 15B regarding non provision for shortfall in recovery (amount unascertained) against overdue debt aggregating Rs. 1903.39 lacs as stated in the said note for which persuasive action for recovery has been initiated, in the opinion of the management these debts are good and recoverable and our inability to comment thereon. ii. Note No. 10B of Schedule 15B regarding non provision for diminution in the value of investment in a subsidiary company (impact unascertainable) for the reason as stated in the said note and our inability to comment thereon. Hi. Note No. 8 of schedule 15B regarding appointment and remuneration paid to the managing director amounting to Rs. 17.79 lacs is subject to the approval of the Central Government. We further report that the loss for the year, the balance in reserve and surplus, debtors and investments are without considering items mentioned in para (g) above, the impact of which could not be determined. Subject to the para (g) above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts read with Note No 17 of Schedule 15B and read together with other notes on accounts give the information as required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the State of Affairs of the company as at 31 st March, 2010; (ii) in the case of the Profit and Loss Account, of the loss of the company for the year ended on that date; and (iii) in the case of Cash Flow Statement, of the Cash Flows for the year ended on that date.

(Referred to in Paragraph 1 of our report of even date on Winsome Yarns Limited for the year ended 31 st March 2010)

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

(b) As per information & explanations given to us, physical verification of the fixed assets are in process of completion according to the regular programme of physical verification once in every three years, in phased manner, which in our opinion is reasonable having regard to the size of the company and the nature of its fixed assets. As explained, in view of the necessary security arrangements there will not be any material discrepancies on completion of such physical verification.

(c) As per the records and information and explanations given to us, fixed assets disposed off during the year were not substantial.

ii. (a) As explained to us, the inventories of the Company (except stock lying with the third parties and in transit) have been physically verified by the mnagement during the year.

(b) In our opinion and according to the information and explanation given to us, the procedures of physical verification of Inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) According to the information and explanations given to us, we are of the opinion that the company is maintaining proper records of inventories (In case of process stock, records are updated on monthly physical verification of stocks). As per records and information made available the discrepancies noticed on verification between the physical stock and the book records were not material in relation to the operation of the company.

iii. As per information and explanations given to us the Company has neither granted nor taken during the year any loans, secured or unsecured to companies, firms or other parties as covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4(iii)(b) to (d) and (f) to (g) of the Order are not applicable.

iv. In our opinion and according to the information and explanations given to us, having regard to the explanation that some of the items purchased are of special nature and suitable alternative sources do not exist for obtaining comparable quotation or where user department has shown specific preference, where, as explained, rates were determined considering the quality, volume, nature of the items and market conditions prevailing at that time, there are internal control system commensurate with size of the company and nature of its business with regard to the purchase of inventory, fixed assets, services and for the sale of goods and services which needs to be further strengthened (read with note no. 17 and 20 of schedule 15B). Based on the audit procedure performed and information and explanation provided by the management, during the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system nor been identified by the management.

v. (a) According to the information and explanations provided by the management and based on the audit procedure performed, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained underthat section;and

(b) In our opinion and according to the information and explanation given to us, the transactions made in pursuance of such contracts or arrangements (exceeding the value of Rs. 5 lacs in respect of each party during the financial year) have been made at prices which are generally reasonable having regard to prevailing market prices at the relevant time.

vi. According to the information and explanations given to us, the company has not accepted any deposits from public within the meaning of Sections 58A, 58AA Act and the rules framed thereunder and the directives issued by Reserve Bank of India and other relevant provisions of the Act. We have been informed that no order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

vii. In our opinion, the Company has an internal audit system commensurate with the size of the Company and nature of its business which needs to be further strengthened.

viii. We have broadly reviewed the books of account maintained by the company as prescribed by the Central Government for the maintenance of cost records under section 209 (1) (d) of the Companies Act, 1956 and are of the opinion that prima facie the prescribed records have been made and maintained. We have, however, not made a detailed examination of the said records with view to determine whether they are accurate and complete.

ix. (a) According to the records of the company, the company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other material statutory dues applicable to it. According to the information and explanations given to us, there are no undisputed statutory dues payable for a period more than six months from the date they became payable as at 31.03.2010.

(b) Based on the records and information and explanations given to us, there are no dues in respect of Income Tax, Custom Duty, Wealth Tax, Service Tax and Cess that have not been deposited on account of any dispute. In our opinion based on the records and according to the information and explanations given to us, the dues in respect of Income Tax, Sales Tax and Excise duty that have not been deposited with the appropriate authorities on account of dispute and the forum where these disputes pending are given below:

Name of the Statute Nature of Dues Period to which Amount (Rs. in Lacs) Forum where dispute is pending the amount relates

Central/ State Sales tax Sales tax 1999-2000 4.35 Joint Director Excise and Taxation 1993-1994 Sales Tax Tribunal Punjab

Central Excise Act# Excise Duty 2002-2003 456.24 CESTAT

Excise Duty 2005 to 2007 35.74 CESTAT

ExciseDuty 2006-2007, 18.15 Commissioner Appeals

2007-2008

ExciseDuty 2008-2009 3.82 Assistant Commissioner

Financial Act, 1994 Service Tax 2005 0.62 Commissioner Appeals

Income Tax Income Tax 2004-2005 33.94 ITAT

Income Tax 2005-2006 103.77 CIT(A)

Income Tax 2006-2007 125.53 Additional Commissioner of Income Tax

#(excluding excise show cause notices)

This para is to be read with note no. 1 of schedule 15B

x. The Company has no accumulated losses at the end of the financial year and it has not incurred cash loss during the financial year. However company did incurred cash loss in the immediately preceding financial year.

xi. In our opinion, on the basis of audit procedures and according to the information and explanations given to us, the company has not defaulted in repayment of dues (except for maximum of interest amounting to Rs. 62.96 lacs and principal amounting to Rs. 83.34 lacs and delay for maximum period of 88 days and 86 days respectively) to banks (this is to be read with note no. 2 of schedule 15B). During the year Company has not taken loan from financial institution or debenture holders.

xii. Based on our examination of the records and the information and explanations given to us, the Company has not granted any loans and /or advances on the basis of security by way of pledge of shares, debenture and other securities.

xiii. The Company is not a Chit Fund Company or nidhi / mutual benefit fund / society accordingly clause

(xiii) of the order is not applicable.

xiv. In our opinion, the company is not dealing in or trading in shares, securities, debenture and other investment. xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks and financial institution.

xvi. According to the information and explanations given to us, the term loans were applied for the purpose for which the loans were obtained.

xvii. On the basis of information and explanations given to us and on overall examination of the Company, we are of the opinion that prima facie no fund raised on short-term basis which have been used for long term investment.

xviii. According to the information and explanations given to us, the Company has not made any preferential allotment of shares to any parties or companies covered in the register maintained under Section 301 of the Act (read with note no. 3 of schedule 15B).

xix. No debenture has been issued/ outstanding during the year hence the provision of clause 4(xix) of the said order are not applicable.

xx. The company has not raised any money through a public issues during the year.

xxi. To the best of our knowledge and belief, based on the audit procedures performed and on the basis of information and explanations provided by the management, no material fraud on or by the Company has been noticed or reported during the course of our audit.

ForLodha&Co.

Chartered Accountants

Firm Registration No. 301051E

Place : New Delhi N.K. Lodha

Date : 27.05.2010 Partner

Membership No.: 85155







 
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