Mar 31, 2023
ii) Details of rights, preferences and restrictions attached to each class of shares
The Company has equity shares having a par value of ^ 1/-. Each shareholder, other than shares held by ESOP Trust, is entitled to one vote per share. The shareholders have the right to receive interim dividends declared by the Board of directors and final dividends proposed by the Board and approved by the shareholders.
In the event of liquidation by the Company, the holders of the equity shares will be entitled to receive in proportion to the number of equity shares held by them, the remaining assets of the Company.
The shareholders have all other rights as available to equity shareholders as per the provisions of the Companies Act 2013, read together with the Memorandum of Association and Articles of Association of the Company, as applicable.
(vi) Equity shares movement during the 5 years preceding March 31, 2023
Equity shares issued as bonus: The Company allotted 34,642,061 equity shares as fully paid up bonus shares in the ratio of 1:3, by capitalisation of securities premium amounting to 346 lakhs for the quarter ended September 30, 2022, pursuant to an ordinary resolution passed after taking the consent of shareholders through postal ballot.
(vii) During the year ended March 31, 2023, on account of final dividend for fiscal 2022 the Company has incurred a net cash outflow of ^ 13,510 lakhs and interim dividend of ^ 9,702 lakhs for fiscal 2023. (During the year ended March 31, 2022, on account of final dividend for fiscal 2021 the Company has incurred a net cash outflow of ^ 10,391 lakhs and interim dividend of ^ 8,312 lakhs for fiscal 2022.)
The applicable Indian corporate statutory tax rate for the year ended March 31, 2023 and March 31, 2022 is 25.17% and 25.17% respectively.
Dividend income from certain category of investments is exempt from tax. The difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax.
The Company is also subject to tax on income attributable to its permanent establishments in foreign jurisdictions due to operation of its foreign branches.
22. Revenue from software services
Disaggregate revenue information
The table below presents disaggregated revenues from contracts with customers for the year ended March 31, 2023 by contract type. The Company believes that this disaggregation best depicts how the nature, amount, timing and uncertainity of our revenues and cashflows are affected by industry, market and other economic factors.
The Company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue.
A receivable is a right to consideration that is unconditional upon passage of time. Revenue from time and material contracts are recognized as related services are performed. Revenue from fixed price maintenance contracts are recognized on a straightline basis over the period of the contract. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for these cases as right to consideration is unconditional upon passage of time.
Revenues from fixed-price contracts are recognized using the "percentage-of-completion" method. Invoicing to the clients is based on milestones as defined in the contract. This would result in the timing of revenue recognition being different from the timing of billing the customers. Unbilled revenue for fixed price contracts is classified as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
Invoicing in excess of earnings are classified as unearned revenue.
Trade receivable and unbilled revenues are presented net of impairment in the Balance Sheet.
During the year ended March 31, 2023, T 1,874 Lakhs of unbilled revenue as of April 1, 2022 has been reclassified to Trade receivables upon billing to customers on completion of milestones.
During the year ended March 31, 2023, the company recognized revenue of T 1 Lakhs arising from opening unearned revenue as of April 1, 2022
Performance obligations and remaining performance obligations
The remaining performance obligation disclosure provides the aggregate amount of the transaction price yet to be recognized as at the end of the reporting period and an explanation as to when the Company expects to recognize these amounts in revenue. Applying the practical expedient as given in Ind AS 115, the Company has not disclosed the remaining performance obligation related disclosures for contracts where the revenue recognized corresponds directly with the value to the customer of the entity''s performance completed to date, typically those contracts where invoicing is on time and material basis. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.
The aggregate value of performance obligations that are completely or partially unsatisfied as at March 31,
2023, other than those meeting the exclusion criteria mentioned above, is T Nil. The Company expects to recognize the revenue within the next one year. This includes contracts that can be terminated for convenience without a substantive penalty since, based on current assessment, the occurrence of the same is expected to be remote.
23. Contingent Liabilities |
^ in Lakhs |
|
Particulars |
As at March 31, 2023 |
As at March 31, 2022 |
a) Guarantees |
||
The Company has given corporate guarantees to certain suppliers of Sonata Information Technology Limited (SITL) and Sonata Software North America Inc., (SSNA), its wholly owned subsidiaries. |
39,531 |
36,500 |
b) Disputed demand of Service tax |
||
The demand for payment of service tax for the period from FY 2006-07 to FY 2012-13 on services received and consumed by UK branch of the company and a subsidiary company at USA, treating it as import of service, wrong availment of cenvat credit and usage of software services provided to subsidiary. The company had filed appeal before the Commissioner of Appeals and is confident of getting favourable outcome based on legal precedents which support its stand. |
1,028 |
1,028 |
c) Other claims against the Company not acknowledged as debt |
3,071 |
3,071 |
d) Disputed demands of Income-tax |
7,142 |
6,845 |
Details of disputed demands of Income-tax primarily relate to:
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").
For the financial year 2005-06 and 2006-07 ^ 4,570 lakhs (As at March 31, 2022 - ^ 4,570) lakhs the Company has received favourable order from Income-tax Appellate Tribunal (ITAT) and the Department has preferred an appeal before the Honourable High Court of Mumbai.
For financial year 2010-11 & 2019-20 ^ 2,572 lakhs (As at March 31, 2022 ^ 2,275 lakhs), assessing officer has re-opened the Assessment under section 148 of the Act and disallowed 10A benefit. The Company has preferred an appeal before Commissioner of Income-tax (Appeals).
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.
^ in Lakhs |
||
Particulars |
As at |
As at |
March 31, 2023 |
March 31, 2022 |
|
Estimated amount of contracts remaining to be executed on capital account and |
494 |
19 |
not provided for |
The management assessed that fair value of cash and short-term deposits, trade receivables, trade payables, inter corporate deposits and other current assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
1. The fair value of the quoted mutual funds are based on price quotations at reporting date. The fair value of other financial liabilities and other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates.
2. The fair values of the unquoted equity and preference shares have been estimated using a discounted cash flow model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility, the probabilities of the various estimates whose range can be reasonably assessed and are used in management''s estimate of fair value for these unquoted equity investments.
3. The Company enters into derivative financial instruments with Banks. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing model, using present value calculations. The models incorporate various inputs including the credit quality of banks, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March 31, 2022, the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative bank default risk. The changes in bank credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognised at fair value.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The following table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2023 and March 31, 2022.
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and forecasted cash flows denominated in foreign currency. The Company uses derivatives to hedge foreign currency assets/ liabilities and foreign currency forecasted cash flows. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material.
For movement in cash flow hedge reserve gain or loss - Refer note 10
The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''s policy that no trading in derivative for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.
The following table gives details in respect of revenues generated from top customer and top 5 customers (excluding Inter-company):
Two customer accounted for more than 10% of the revenue for the year ended March 31, 2023 and two of the customer accounted for more than 10% of the receivables for the year ended March 31, 2023. One customer accounted for more than 10% of the revenue for the year ended March 31, 2022 and two of the customer accounted for more than 10% of the receivables for the year ended March 31, 2022.
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from nonperformance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks.
The Company''s corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management.
The Company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. Dollar, British pound sterling and Euro). A significant portion of the Company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company''s revenues measured in rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company reviews on a periodic basis to formulate the strategy for foreign currency risk management.
Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward contracts are given under the derivative financial instruments section.
In respect of the Company''s forward contracts, a 1% decrease/ increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately ? 119 lakhs increase and decrease in the Company''s net profit as at March 31, 2023
b) an approximately ? 160 lakhs increase and decrease in the Company''s net profit as at March 31, 2022
The following table presents foreign currency risk from non-derivative financial instruments as of March 31, 2023 and March 31, 2022.
The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company''s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
The Company is predominantly equity financed which is evident from the capital structure table. Further, the Company has generally been a net cash Company with cash and bank balances along with investment which is predominantly investment in liquid and short term mutual funds.
i) Defined contribution plans a) Provident fund
Until the end of April 2021 the eligible employees of Sonata Software Limited are receiving benefits from a provident fund, which is a defined benefit plan. Both the eligible employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee''s salary. The Company contributes a portion to the Sonata Software Provident Fund. The trust invests in specific designated instruments as permitted by Indian law. The remaining portion is contributed to the government administered pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the Government.
The Company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate.
During the last year the Sonata Provident Fund Trust has surrendered the exemption granted and transferred the provident fund accumulation of employees to the Employees'' Provident Fund Organisation (EPFO), Mumbai. Accordingly from the month of May 2021 onwards the company has been remitting their monthly contribution of provident fund to EPFO.
Provident fund contributions amounting to T 1,255 lakhs (for the year ended March 31, 2022 T 1,249 lakhs ) has been charged to the Statement of Profit and Loss (as part of Contribution to Provident Fund and other Funds in Note 19 Employee benefits expense).
The Company expects to contribute T 1,305 lakhs to its defined benefit plans during the next fiscal year.
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 optimize 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.
The Company has established an income tax approved irrevocable trust fund to which it regularly contributes to finance liabilities of the plan. The fund''s investments are managed by insurance company as per the mandate provided to them by the trustees and the asset allocation is within the permissible limits prescribed in the insurance regulations.
a) Employee share option plan of the Company
i) Details of the employee share option plan of the Company
The Company has a stock option plan for employees of the Company and its subsidiaries, authorized by the nomination and remuneration committee . In accordance with the terms of the plan, as approved by shareholders at its annual general meeting dated August 19, 2014. Eligible employees are granted to get stock option with graded vesting period of four years. The quantum of stock option is decided by the Nomination and Remuneration Committee. The shares are transferred to employees from the Sonata Software Ltd Employee Welfare Trust based on approval.
Each vested stock option shall convert into one equity share of the Company upon exercise. The exercise price of the stock option shall be the closing market price of the share on National Stock Exchange of India Ltd on the trading day immediately preceding the date of the grant . The stock options carry neither rights to dividends nor voting rights unless the transfer of shares from the Sonata Software Ltd Employee Welfare Trust to the employee is duly registered by the company . Options may be exercised at any time from the date of vesting to the date of their expiry.
The share options outstanding at the end of the year had a weighted average exercise price of ? 543.88 (as at March 31, 2022 ? 198.48)
During the year, the amount recognised as expense for employee Stock Options is ? 746 Lakhs (for the year ended March 31, 2022 is ? 34 Lakhs). Reversal of ESOP expenditure is ? 67 lakhs(for the year ended March 31, 2022 is Nil)
b) Other stock Based compensation arrangements
Stock appreciation rights plan provides the certain employee with the right to receive cash that is equal to the increase in the value of the company''s shares from the date the right was granted and the right was exercised. They are not entitled to any shares or dividend. Plan 1 and 2 of 2018 has been approved by the Board vide Board meeting dated May 29, 2017 subsequently amended dated August 13, 2018. Plan of 2019 and 2020 has been approved by the Board vide Board meeting dated August 13, 2018 and August 4, 2021 respectively.
The Company had cancelled the existing Stock appreciation rights Plan (SAR) during the previous year and introduced the bonus plan in lieu of SAR effective from June 30, 2021.
The Company publishes this financial statement along with the consolidated financial statements. In accordance with Ind AS 108, Operating Segments, the Company has disclosed the segment information in the consolidated financial statements.
33. Consolidation of Employee Welfare Trust
Ind AS 110 - Consolidated financial statements defines control and establishes control as the main basis for consolidating the entities. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, in view of which the company has consolidated Sonata employee welfare trust accounts.
34. Corporate social responsibility
As per Section 135 of Companies Act, 2013 a company meeting the applicability threshold, needs to spend atleast 2% of its average net profit of the immediately preceding three financial years on corporate social responsibility (CSR) activities. A CSR committee has been formed by the Company as per the Companies Act, 2013. The CSR initiatives are focused towards those programme directly or indirectly, benefit the community and society at large.
(i) Gross amount required to be spent by the Company during the year is ? 416 lakhs (Previous year is ? 393 lakhs).
(ii) Amount spent during the year is ? 463 lakhs (Previous year is ? 396 lakhs)
36. There is no amount due and outstanding as at Balance Sheet date to be credited to the Investor Education and Protection Fund.
37. Distributions made and proposed :
The Board of Directors at their meeting held on October 18, 2022 had declared an interim dividend of 700% (T 7 per equity share of par value of T 1 each). Further, the Board of Directors at its meeting held on May 13, 2023 have recommended a final dividend of 875 % (T 8.75 per equity share of par value T 1 each), which is subject to approval of shareholders.
The Board of Directors at their meeting held on October 19, 2021 had declared an interim dividend of 800% (T 8 per equity share of par value of T 1 each). Further, the Board of Directors at its meeting held on April 29, 2022 had recommended a final dividend of 1,300 % (T 13 per equity share of par value T 1 each), which was approved by shareholders.
EBITDA - Earnings before interest, taxes, depreciation and amortisation
PAT - Profit after taxes
EBIT - Earnings before interest and taxes.
Debt includes current and non-current lease liabilities.
Adjusted expenses derived from total expenses excluding depreciation and finance cost.
Working capital derived from current assets in excess of current liabilities excluding borrowings & lease liabilities.
Explanation for variances exceeding 25%:
1 Debt-equity ratio decreased on account of termination of lease during the financial year 2022-23
2 Debt service coverage ratio increased on account of increase in EBIT during the year ended March 31, 2023
3 Trade receivable turnover ratio has improved on account of increase in revenue for the year ended March 31, 2023 4Net capital turnover ratio has improved on account of increase in revenue for the year ended March 31, 2023 5Return on investment has improved on account of increase in dividend received during the financial year 2022-23
41. No funds have been advanced or loaned orinvested (either from borrowed funds or share premium or any other sources or kind of funds)by the Company to orinany other person(s) or entity(ies), including foreign entities.
No funds have been received by the Companyfrom any person or entity, including foreign entity (Funding Parties), with the understanding, whether recorded in writing or otherwise, that the Company shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner what so ever by or on behalf of the funding party (Ultimate beneficiaries) or provide any guarantee, security or the like on behalf of the Ultimate beneficiaries.
Mar 31, 2022
The applicable Indian corporate statutory tax rate for the year ended March 31, 2022 and March 31, 2021 is 25.17% and 25.17% respectively.
Dividend income from certain category of investments is exempt from tax. The difference between the reported income tax expense and income tax computed at statutory tax rate is primarily attributable to income exempt from tax.
The Company is also subject to tax on income attributable to its permanent establishments in foreign jurisdictions due to operation of its foreign branches.
The Company has evaluated the impact of COVID-19 resulting from (i) the possibility of constraints to render services which may require revision of estimations of costs to complete the contract because of additional efforts; (ii) onerous obligations; (iii) penalties relating to breaches of service level agreements ,and (iv) termination or deferment of contracts by customers. The Company has concluded that the impact of COVID-19 is not material based on these estimates. Due to the nature of the pandemic, the Company will continue to monitor developments to identify significant uncertainties relating to revenue in future periods.
Trade receivables and Contract Balances
The company classifies the right to consideration in exchange for deliverables as either a receivable or as unbilled revenue.
A receivable is a right to consideration that is unconditional upon passage of time. Revenue for time and material contracts are recognized as related service are performed. Revenue for fixed price maintenance contracts is recognized on a straightline basis over the period of the contract. Revenues in excess of billings is recorded as unbilled revenue and is classified as a financial asset for these cases as right to consideration is unconditional upon passage of time.
Revenues from fixed-price contracts are recognized using the "percentage-of-completion" method. Invoicing to the clients is based on milestones as defined in the contract. This would result in the timing of revenue recognition being different from the timing of billing the customers. Unbilled revenue for fixed price contracts is classified as non financial asset as the contractual right to consideration is dependent on completion of contractual milestones.
Invoicing in excess of earnings are classified as unearned revenue.
Trade receivable and unbilled revenues are presented net of impairment in the Balance Sheet.
During the year ended March 31, 2022, R 1,568 Lakhs of unbilled revenue as of April 1, 2021 has been reclassified to Trade receivables upon billing to customers on completion of milestones.
During the year ended March 31, 2022, the company recognized revenue of R 10 Lakhs arising from opening unearned revenue as of April 1, 2021
Performance obligations and remaining performance obligations
The remaining performance obligation disclosure provides the aggregate amount of the transaction price yet to be recognized as at the end of the reporting period and an explanation as to when the Company expects to recognize these amounts in revenue. Applying the practical expedient as given in Ind AS 115, the Company has not disclosed the remaining performance obligation related disclosures for contracts where the revenue recognized corresponds directly with the value to the customer of the entity''s performance completed to date, typically those contracts where invoicing is on time and material basis. Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustment for revenue that has not materialized and adjustments for currency.
The aggregate value of performance obligations that are completely or partially unsatisfied as at March 31, 2022, other than those meeting the exclusion criteria mentioned above, is R Nil.
R in Lakhs |
||
As at March 31, 2022 |
As at March 31, 2021 |
|
a) Guarantees The Company has given corporate guarantees to certain suppliers of Sonata Information Technology Limited (SITL) and Sonata Software North America (SSNA), its wholly owned subsidiaries. |
36,500 |
35,227 |
b) Disputed demand of Service tax The demand for payment of service tax for the period from FY 2006-07 to FY 2012-13 on services received and consumed by UK branch of the company and a subsidiary company at USA, treating it as import of service, wrong availment of cenvat credit and usage of software services provided to subsidiary. The company had filed appeal before the Commissioner of Appeals and is confident of getting favorable outcome based on legal precedents which support its stand. |
1,028 |
1,028 |
c) Other claims against the Company not acknowledged as debt |
3,071 |
3,071 |
d) Disputed demands of Income-tax |
6,845 |
6,845 |
Details of disputed demands of Income-tax primarily relate to:
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").
For the financial year 2005-06 and 2006-07 R 4,570 (As at March 31, 2021 - R 4,570), the Company has received favorable order from Income-tax Appellate Tribunal (ITAT) and the Department has preferred an appeal before the Honorable High Court of Mumbai.
For financial year 2010-11 R 2,275 (As at March 31, 2021 R 2,275 ), Assessing Officer has re-opened the Assessment under section 148 of the Act and disallowed 10A benefit. The company has preferred an appeal before Commissioner of Income-tax (Appeals).
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.
The management assessed that fair value of cash and short-term deposits, trade receivables, trade payables, inter corporate deposits and other current assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
1. The fair value of the quoted mutual funds are based on price quotations at reporting date. The fair value of other financial liabilities and other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates.
2. The fair values of the unquoted equity and preference shares have been estimated using a discounted cash flow model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility, the probabilities of the various estimates whose range can be reasonably assessed and are used in management''s estimate of fair value for these unquoted equity investments.
3. The Company enters into derivative financial instruments with Banks. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing model, using present value calculations. The models incorporate various inputs including the credit quality of banks, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March 31, 2022, the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative bank default risk. The changes in bank credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognised at fair value.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The following table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring
basis as at March 31, 2022 and March 31, 2021.
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and forecasted cash flows denominated in foreign currency. The Company uses derivatives to hedge foreign currency assets/ liabilities and foreign currency forecasted cash flows. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material.
For movement in cash flow hedge reserve gain or loss - Refer note 9
The Company''s activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Company''s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''s policy that no trading in derivative for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below:
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.
One customer accounted for more than 10% of the revenue for the year ended March 31, 2022 and two of the customer accounted for more than 10% of the receivables for the year ended March 31, 2022. One customer accounted for more than 10% of the revenue for the year ended March 31, 2021 and two of the customer accounted for more than 10% of the receivables for the year ended March 31, 2021.
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks.
The Company''s corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management.
Foreign currency risk
The Company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. Dollar, British pound sterling and Euro). A significant portion of the Company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company''s revenues measured in rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company reviews on a periodic basis to formulate the strategy for foreign currency risk management.
Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward contracts are given under the derivative financial instruments section.
In respect of the Company''s forward contracts, a 1% decrease/ increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately ^ 160 lakhs increase and decrease in the Company''s net profit as at March 31, 2022;
b) an approximately ^ 592 lakhs increase and decrease in the Company''s net profit as at March 31, 2021.
For the year ended March 31, 2022, every 1% increase/decrease of the respective foreign currencies compared to functional currency of the Company would impact operating margins by 0.01%/ (0.01)%. For the year ended March 31, 2021, the impact on operating margins would be 0.11%/ (0.11)%.
29. Capital management
The Company''s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company''s objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
i) Defined contribution plans
a) Provident fund
Until the end of April 2021 the eligible employees of Sonata Software Limited received benefits from a provident fund, which is a defined benefit plan. Both the eligible employee and the Company made monthly contributions to the provident fund plan equal to a specified percentage of the covered employee''s salary. The Company has contributed a portion to the Sonata Software Provident Fund Trust (Trust). Trust invests in specific designated instruments as permitted by Indian law. The remaining portion is contributed to the government administered pension fund. The rate at which the annual interest is payable to the beneficiaries by the trust is being administered by the Government. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the Trust and the notified interest rate.
During the year the Sonata Provident Fund Trust has surrendered the exemption granted and transferred the provident fund accumulation of employees to the Employees'' Provident Fund Organisation (EPFO), Mumbai. Accordingly from May 2021 onwards the company remits the monthly contribution of provident fund to EPFO.
Provident fund contributions amounting to T 1,249 lakhs (for the year ended March 31, 2021 T 1,447 lakhs) has been charged to the Statement of Profit and Loss (as part of Contribution to Provident Fund and other Funds in Note 19 Employee benefits expense).
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 optimize 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.
The Company has established an income tax approved irrevocable trust fund to which it regularly contributes to finance liabilities of the plan. The fund''s investments are managed by insurance company as per the mandate provided to them by the trustees and the asset allocation is within the permissible limits prescribed in the insurance regulations.
a) Employee share option plan of the Company
i) Details of the employee share option plan of the Company
The Company has a stock option plan for employees of the Company and its subsidiaries, authorized by the nomination and remuneration committee . In accordance with the terms of the plan, as approved by shareholders at its annual general meeting dated August 19, 2014. Eligible employees are granted to get stock option with graded vesting period of four years. The quantum of stock option is decided by the Nomination and Remuneration Committee. The shares are transferred to employees from the Sonata Software Ltd Employee Welfare Trust based on approval.
Each vested stock option shall convert into one equity share of the Company upon exercise. The exercise price of the stock option shall be the closing market price of the share on National Stock Exchange of India Ltd on the trading day immediately preceding the date of the grant . The stock options carry neither rights to dividends nor voting rights unless the transfer of shares from the Sonata Software Ltd Employee Welfare Trust to the employee is duly registered by the company . Options may be exercised at any time from the date of vesting to the date of their expiry.
v) Share options outstanding at the end of the year
The share options outstanding at the end of the year had a weighted average exercise price of T 264.64 (as at March 31, 2021 T 269.98)
During the year, the amount recognised as expense for employee Stock Options is T 34 Lakhs (for the year ended March 31, 2021 is -T 53 Lakhs)
b Other Stock Based Compensation Arrangements
Stock Appreciation Rights Plan provides the certain employee with the right to receive cash that is equal to the increase in the value of the company''s shares from the date the right was granted and the right was exercised. They are not entitled to any shares or dividend. Plan 1 and 2 of 2018 has been approved by the Board vide Board Meeting dated May 29, 2017 subsequently amended dated August 13, 2018. Plan of 2019 and 2020 has been approved by the Board vide Board meeting dated August 13, 2018 and August 4, 2021 respectively.
The company has cancelled the existing Stock Appreciation Rights Plan (SAR) during the year and introduced the Bonus plan in lieu of SAR effective from June 30, 2021.
The Company publishes this financial statement along with the consolidated financial statements. In accordance with Ind AS 108, Operating Segments, the Company has disclosed the segment information in the consolidated financial statements.
33. Consolidation of Employee Welfare Trust
Ind AS 110 - Consolidated financial statements defines control and establishes control as the main basis for consolidating the entities. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, in view of which the company has consolidated Sonata employee welfare trust accounts.
34. Corporate Social Responsibility
As per Section 135 of Companies Act, 2013 a company meeting the applicability threshold, needs to spend atleast 2% of its average net profit of the immediately preceding three financial years on Corporate Social Responsibility (CSR) activities. A CSR committee has been formed by the Company as per the Companies Act, 2013. The CSR initiatives are focused towards those programme directly or indirectly, benefit the community and society at large. The Company''s CSR activities primarily focuses on programs that promote education, gender equality empowering women and traditional Arts & Handicrafts..
(i) Gross amount required to be spent by the Company during the year is ^ 393 lakhs (Previous year is ^ 374 lakhs).
(ii) Amount spent during the year is ^ 396 lakhs (Previous year is ^ 376 lakhs).
36. There is no amount due and outstanding as at Balance Sheet date to be credited to the Investor Education and Protection Fund
37. Distributions made and proposed :
The Board of Directors at their meeting held on October 19, 2021 had declared an interim dividend of 800% (^ 8 per equity share of par value of ^ 1 each). Further, the Board of Directors at its meeting held on April 29, 2022 have recommended a final dividend of 1,300 % (^ 13 per equity share of par value ^ 1 each), which is subject to approval of shareholders.
The Board of Directors at their meeting held on November 06, 2020 had declared an interim dividend of 400% (^ 4 per equity share of par value of ^ 1 each). Further, the Board of Directors at its meeting held on May 12, 2021 have recommended a final dividend of 1,000% (^ 10 per equity share of par value ^ 1 each), was approved by shareholders on 16th August 2021.
The Company has adopted Ind AS 116 ''Leases'' with the date of initial application being April 1, 2020. Ind AS 116 replaces Ind AS 17 - Leases and related interpretation and guidance. The Company has applied Ind AS 116 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at April 1, 2019.
The aggregate amortization expense of ^ 1,315 lakhs (March 31, 2021 ^ 1,338 lakhs) on ROU assets is included under depreciation and amortization expense in the statement of Profit and Loss.
Sonata Software Limited has acquired 100% stake in Encore India Private Limited on Aug 1, 2021 for an investment of USD 1.2 million (INR 893 lakhs). Encore India Private Limited provides customized software development and testing, and related IT consulting services. It offers services in the areas of application management, quality assurance, analytics, information security, cloud enablement, cloud migration, and mobility. The entire consideration has been paid in cash.
Explanation for variances exceeding 25%:
1 Debt service coverage ratio improved on account of increase in EBIT during the year ended March 31, 2022
2 Net profit ratio improved on account of increase in Dividends received from subsidiary during the financial year 2021-22
3 Return on investment improved on account of increase in Dividends received from subsidiary during the financial year 2021-22
42. During the year the Company has received ^ Nil (for the year ended March 31, 2021 is ^ 937 Lakhs) from governments of various countries on compliance of certain conditions consequent to the outbreak of COVID-19 pandemic and accordingly, accounted as a credit to employee benefits expense (refer note 19).
43. No funds have been advanced or loaned or invested from borrowed funds by the Company to or in any other persons or entities, including foreign entities (Intermediaries), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company (Ultimate Beneficiaries) or provide any guarantee, security or the like on behalf of the ultimate beneficiaries.
No funds have been received by the Company from any persons or entities including foreign entities. Since SSL has not received any funding either in current year or in prior years.
Mar 31, 2018
1. CORPORATE INFORMATION
Sonata Software Limited (âSSLâor theâCompanyâ) is a Company primarily engaged in the business of providing Information Technology Services and Solutions to its customers in the United States of America, Europe, Middle East and India.
The Company is a public limited company incorporated in India with its registered office at Mumbai and operationally headquartered at Bengaluru. The Company is listed on The National Stock Exchange Limited and The BSE Limited. The financial statements were authorised for issuance by the Companyâs Board of Directors on May 22, 2018.
The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION & PRESENTATION OF FINANCIAL STATEMENTS
a. Statement of compliance
The financial statements have been prepared in accordance with Indian Accounting Standards (âInd ASâ) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (India Accounting Standards) Amendment Rules, 2016 as applicable.
Upto the year ended March 31, 2017, the Company prepared and presented its financial statements in accordance with the accounting standards notified under section 133 of the Companies Act, 2013 (Indian GAAP), which includes Standards notified under the Companies (Accounting Standards) Rules, 2006.
These are the Companyâs first Ind AS financial statements. The Company has adopted all applicable standards and the adoption was carried out in accordance with Ind AS 101 - âFirst Time Adoption of Indian Accounting Standardsâ. An explanation of how the transition to Ind AS has affected the reported financial position, financial performance and cash flows of the Company are provided in Note no 38 - First Time Adoption. The date of transition to Ind AS is April 1, 2016.
b. Basis of measurement
The financial statements have been prepared on a historical cost convention and on an accrual basis, except for certain financial instruments which are measured at fair value at end of the each reporting period, as explained in the accounting policies below.
c. Use of judgement, estimates and assumptions
The preparation of the financial statements in conformity with Ind AS requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities and disclosure relating to contingent liabilities as at the date of financial statement and the reported amounts of income and expenditure during the reported year. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialize.
The areas involving critical estimates or judgements are:
i. Depreciation and amortisation: Depreciation and amortisation is based on management estimates of the future useful lives of certain class of property, plant and equipment and intangible assets. Estimates may change due to technological developments, competition, changes in market conditions and other factors and may result in changes in the estimated useful life and in the depreciation and amortisation charges.
ii. Impairment testing: Investments in subsidiaries, goodwill and intangible assets are tested for impairment annually and when events occur or changes in circumstances indicate that the recoverable amount of the asset or cash generating units to which these pertain is less than its carrying value. The recoverable amount of cash generating units is higher of value-in-use and fair value less cost to dispose. The calculation of value in use of a cash generating unit involves use of significant estimates and assumptions which includes turnover and earnings multiples, growth rates and net margins used to calculate projected future cash flows, risk-adjusted discount rate, future economic and market conditions.
iii. Employee Benefits : The present value of the employee benefits obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) includes the discount rate, wage escalation and employee attrition. Any changes in these assumptions will impact the carrying amount of obligations. The discount rate is based on the prevailing market yields of Indian Government securities as at the Balance Sheet date for the estimated term of the obligations.
iv. Provision and contingencies : Provisions and contingencies are based on the Managementâs best estimate of the liabilities based on the facts known at the Balance Sheet date.
v. Expected credit losses on financial assets: The impairment provisions of financial assets are based on assumptions about risk of default and expected timing of collection. The Company uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Companyâs past history, customerâs creditworthiness, existing market conditions as well as forward looking estimates at the end of each reporting period.
vi. Other estimates: The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period.
The stock compensation expense is determined based on the Companyâs estimate of equity instruments that will eventually vest.
Fair valuation of derivative hedging instruments designated as cash flow hedges involves significant estimates relating to the occurrence of forecast transaction.
2.2 Functional and presentation currency : The functional and presentation currency of the Company is Indian Rupee (Rs.). The functional currency of its Branches is as per its respective domicile currency.
(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 (âActâ).
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.5,001, (As at March 31, 2017 - Rs.5,001) for financial years 2007-08 to 2009-10. The company received favourable order from CIT(A) and the Department has preferred an appeal before Income-tax Appellate Tribunal (ITAT).
For the financial year 2006-07 Rs.2,368 (As at March 31, 2017- â Nil), the Company has received favorable order from Income-tax Appellate Tribunal (ITAT) and the Department has preferred an appeal before the Honorable High Court of Mumbai.
For the financial year 2001-02, ITAT 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 Honorable High Court of Mumbai Rs.149 (As at March 31, 2017 - Rs.149).
For the financial year 2013-14 Rs.43 (As at March 31, 2017 - Nil), the Company has preferred an appeal before CIT(A) .
(ii) 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 benefits under Section 10A of the Income Tax Act on such support services and assessed the same as normal business income and raised demand of Rs.2,337 (As at March 31, 2017 - Rs.2,337) for financial years 2001-02 to 2004-05. The Company had received favorable orders from ITAT. However, the department preferred an appeal on the said orders before the Honorable High Court of Mumbai.
Rs.116 (As at March 31, 2017- Rs.116) for the financial year 2010-11. The Company had filed an appeal before the CIT(A) The Company has received favorable orders and the Department has preferred an appeal before ITAT.
(iii) Transfer Pricing Adjustment
Rs.1,072 (As at March 31, 2017 - Rs.1,162) for the financial year 2011-12 and 2013-14. The Income-tax department has recommended the upward adjustment in the value of Investment in subsidiary and sale of services to associated enterprises as Transfer Pricing Adjustment in the International transactions in order to consider them to be at armâs length price. The Company had preferred an appeal before CIT(A) heard and partly allowed. For the financial year 2011-12, the Company has preferred an appeal before ITAT. For the financial year 2013-14, the company has preferred an appeal before CIT(A).
(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 âRoyaltyâ and hence had to withhold Income-tax on the same as per the Income Tax Act and had raised demand of Rs.2,842 (As at March 31, 2017- Rs.2,842) from the financial year 1999-00 to 2001-02. The Companyâs contention has been that the payments were made for purchase of âGoodsâ and hence was under no obligation to withhold Income-tax on the same. The Company had received favorable orders from the ITAT 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.879 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 O
Prior to the enactment of Section 10A of the Act, the Company claimed deduction for exports made, under Section 80 O 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.83 (As at March 31, 2017 - Rs.83) for the financial year 1994-95. The Company had received favorable orders from ITAT. 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.
3 Financial instruments
The carrying value and fair value of financial instruments by categories as at March 31, 2018, March 31, 2017 and April 1, 2016 is as follows:
The management assessed that fair value of cash and short-term deposits, trade receivables, trade payables, inter corporate deposits and other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
1. The fair value of the quoted mutual funds are based on price quotations at reporting date. The fair value of loans from banks and other financial liabilities, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. In addition to being sensitive to a reasonably possible change in the forecast cash flows or discount rate, the fair value of the equity instruments is also sensitive to a reasonably possible change in the growth rates. The valuation requires management to use unobservable inputs in the model, of which the significant unobservable inputs are disclosed in the tables below. Management regularly assesses a range of reasonably possible alternatives for those significant unobservable inputs and determines their impact on the total fair value.
2. The fair values of the unquoted equity and preference shares have been estimated using a discounted cash flow model. The valuation requires management to make certain assumptions about the model inputs, including forecast cash flows, discount rate, credit risk and volatility, the probabilities of the various estimates whose range can be reasonably assessed and are used in managementâs estimate of fair value for these unquoted equity investments.
3. The Company enters into derivative financial instruments with Banks. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing model, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves etc. As at March 31, 2018, the marked-to-market value of derivative asset positions is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationship and other financial instruments recognised at fair value.
4. Fair value hierarchy
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The following table presents the fair value measurement hierarchy of financial assets and liabilities measured at fair value on recurring basis as at March 31, 2018, March 31, 2017 and April 1, 2016.
(i) Quantitative disclosures of fair value measurement hierarchy for financial assets is as under:
There have been no transfers among Level 1, Level 2 and Level 3 during the year.
(ii) Reconciliation of fair value measurement of investment in unquoted preference shares classified as FVTPL (Level 3):
Derivative financial instruments
The Company is exposed to foreign currency fluctuations on foreign currency assets/ liabilities and forecasted cash flows denominated in foreign currency. The Company uses derivatives to hedge foreign currency assets/ liabilities and foreign currency forecasted cash flows. The counter party in these derivative instruments is a bank and the Company considers the risks of non-performance by the counterparty as non-material.
For movement in cash flow hedge reserve gain or loss - Refer note 10
The following table presents the aggregate contracted principal amounts of the Companyâs derivative contracts outstanding:
5. Financial risk management
The Companyâs activities expose it to a variety of financial risks: credit risk, liquidity risk, foreign currency risk and interest rate risk. The Companyâs primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Companyâs policy that no trading in derivative for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below:
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companyâs receivables from customers and investment securities. Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.
Trade and other receivables
The Companyâs exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.
The following table gives details in respect of revenues generated from top customer and top 5 customers (excluding Inter-company):
One customer accounted for more than 10% of the revenue for the year ended March 31, 2018, however none of the customers accounted for more than 10% of the receivables for the year ended March 31, 2018. One customer accounted for more than 10% of the revenue for the year ended March 31, 2017, however none of the customers accounted for more than 10% of the receivables for the year ended March 31, 2017.
Investments
The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counterparties, and does not have any significant concentration of exposures to specific industry sectors.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. Also, the Company has unutilized credit limits with banks.
The Companyâs corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management.
Foreign Currency risk
The Companyâs exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. dollars, British pound sterling and euros). A significant portion of the Companyâs revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Companyâs revenues measured in rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. The Company reviews on a periodic basis to formulate the strategy for foreign currency risk management.
Consequently, the Company uses derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward contracts are given under the derivative financial instruments section.
In respect of the Companyâs forward contracts, a 1% decrease / increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:
a) an approximately Rs.77 lakhs increase and decrease in the Companyâs net profit as at March 31, 2018;
b) an approximately Rs.67 lakhs increase and decrease in the Companyâs net profit as at March 31, 2017.
*Others include currencies such as Singapore $, Australian $, Swiss Franc, etc
For the year ended March 31, 2018, every 1% increase / (decrease) of the respective foreign currencies compared to functional currency of the Company would impact operating margins by 0.19% / (0.19)%. For the year ended March 31, 2017, the impact on operating margins would be 0.16%/ (0.16)%.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companyâs exposure to the risk of changes in market interest rates relates primarily to the Companyâs debt obligations with floating interest rates and investments. The Companyâs borrowings and investments are primarily short-term, which do not expose it to significant interest rate risk.
6. Capital management
The Companyâs policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Companyâs objective when managing capital is to maintain an optimal structure so as to maximize shareholder value.
The capital structure of the Company consists of net debt (borrowings offset by cash and bank balances) and total equity.
The capital structure is as follows:
The Company is predominantly equity financed which is evident from the capital structure table. Further, the Company has generally been a net cash Company with cash and bank balances along with investment which is predominantly investment in liquid and short term mutual funds being far in excess of debt.
7 Employee benefit plans
i) Defined contribution plans
a) Provident fund
The Company makes contributions towards 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 Companyâs Provident Fund administered by the Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employeesâ Provident Fund by the Government under para 60 of the Employeesâ 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.1,132 lakhs (for the year ended March 31, 2017 Rs.976 lakhs) has been charged to the Statement of Profit and Loss (as part of Contribution to Provident Fund and other Funds in Note 18 Employee benefits expense).
b) During the year the Company has recognised the following amounts in the Statement of Profit and Loss towards Employers contribution to:
ii) Defined benefit plans - Gratuity
As per valuation
The principal assumptions used for the purposes of the actuarial valuations were as follows.
Amounts recognised in statement of profit and loss in respect of these defined benefit plans are as follows:
The current service cost and the net interest expense for the year are included in the âEmployee benefits expenseâ line item in the statement of profit and loss.
The remeasurement of the net defined benefit liability is included in other comprehensive income.
The amount included in the balance sheet arising from the entityâs obligation in respect of its defined benefit plans is as follows:
The Company expects to contribute Rs.460 lakhs to its defined benefit plans during the next fiscal year.
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 optimize 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.
The Company has established an income tax approved irrevocable trust fund to which it regularly contributes to finance liabilities of the plan. The fundâs investments are managed by insurance company as per the mandate provided to them by the trustees and the asset allocation is within the permissible limits prescribed in the insurance regulations.
8. Share-based payments
a) Employee share option plan of the Company
i) Details of the employee share option plan of the Company
The Company has a stock option plan for employees of the Company and its subsidiaries, authorized by the nomination and remuneration committee. In accordance with the terms of the plan, as approved by shareholders at its annual general meeting dated August 19, 2014. Eligible employees are granted to get stock option with graded vesting period of four years. The quantum of stock option is decided by the Nomination and Remuneration Committee. The shares are transferred to employees from the Sonata Software Ltd Employee Welfare Trust based on approval.
Each vested stock option shall convert into one equity share of the Company upon exercise. The exercise price of the stock option shall be the closing market price of the share on National Stock Exchange of India Ltd on the trading day immediately preceding the date of the grant . The stock options carry neither rights to dividends nor voting rights unless the transfer of shares from the Sonata Software Ltd Employee Welfare Trust to the employee is duly registered by the company . Options may be exercised at any time from the date of vesting to the date of their expiry.
The following share-based payment arrangements were in existence during the current and prior years:
v) Share options outstanding at the end of the year
The share options outstanding at the end of the year had a weighted average exercise price of Rs.62.06 (as at March 31, 2017 Rs.49.80)
b) Other Stock Based Compensation Arrangements
Stock Appreciation Rights Plan provides the certain employee with the right to receive cash that is equal to the increase in the value of the companyâs shares from the date the right was granted and the right was exercised. They are not entitled to any shares or dividend. This plan has been approved by the Board vide Board Meeting dated May 29, 2017.
The Company has also granted stock appreciation rights plan to certain employees during the year which is subject to certain vesting conditions. Details of the grant/issue as at March 31, 2018 are given below:
9 Segment reporting
The Company prepares consolidated financial statements, hence as per Ind AS 108 on Segment Reporting, segment information has not been provided in the standalone financial statements.
10 Consolidation of Employee Welfare Trust
Ind AS 110 - Consolidated financial statements defines control and establishes control as the main basis for consolidating the entities. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, in view of which the company has consolidated Sonata employee welfare trust accounts.
11 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 3 to 99 months and may be renewed based on mutual agreement of the parties.
12. Corporate Social Responsibility
As per Section 135 of 2013 Act, a company meeting the applicability threshold, needs to spend atleast 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities. A CSR committee has been formed by the Company as per the 2013 Act. The CSR initiatives are focused towards those programme directly or indirectly, benefit the community and society at large.
(i) Gross amount required to be spent by the Company during the year is Rs.258 lakhs (Previous year is Rs.190 lakhs)
(ii) Amount spent during the year is Rs.210 lakhs (Previous year is Rs.176 lakhs)
(iii) Amount unspent is Rs.48 lakhs (Previous year is Rs.14 lakhs)
13. Earnings Per Share
Reconciliation of number of equity shares used in the computation of basic and diluted earnings per share is set out below:
14. There is no amount due and outstanding as at Balance Sheet date to be credited to the Investor Education and Protection Fund.
15. Distributions made and proposed
The amount of per share dividend recognized as distributions to equity shareholders for the year ended March 31, 2018 and year ended March 31, 2017 was Rs.10.50 and Rs.9 respectively.
The Board of Directors at their meeting held on November 13, 2017 had declared an interim dividend of 375% (Rs.3.75 per equity share of par value of Rs.1 each). Further, the Board of Directors at its meeting held on May 22, 2018 have recommended a final dividend of 675% (Rs.6.75 per equity share of par value Rs.1 each) which is subject to approval of shareholders. If approved, this would result in a cash outflow of approximately Rs.8,557 lakhs inclusive of dividend distribution tax.
The Board of Directors at their meeting held on November 2, 2016 had declared an interim dividend of 350% (Rs.3.5 per equity share of par value of Rs.1 each). The Board of Directors at its meeting held on May 29, 2017 had recommended a final dividend of 550% ( Rs.5.5 per equity share of par value Rs.1 each). The proposal was approved by shareholders at the Annual General Meeting held on August 16, 2017, this has resulted in a cash outflow of Rs.6,961 lakhs, inclusive of dividend distribution tax .
* The above post employment benefits excludes gratuity and compensated absences which cannot be separately identified from the composite amount advised by the actuary.
Transactions with WOS and Subsidiaries
(i) Maximum balance outstanding during the year is Rs.12,105 lakhs (for the year ended March 31, 2017 Rs.8880 lakhs)
(ii) These inter corporate deposits were given for working capital purposes.
Transactions with key management personnel
(i) Dividends paid to key managment personnel during the year ended March 31, 2018 amounts to Rs.52 lakhs (year ended March 31, 2017 - Rs.122 lakhs);
(ii) During the year ended March 31, 2018, 60,000 shares (year ended March 31, 2017 - Nil) were granted to the key management personnel under the Employees Stock options Plan;
(iii) During the year ended March 31, 2018, 165,000 units (year ended March 31, 2017 - Nil) were granted to the key management personnel under the Stock Appreciation Rights Plan.
16. Transition to Ind AS
The Companyâs financial statements for the year ended March 31, 2018 are prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015. The adoption of Ind AS was carried out in accordance with Ind AS 101, using April 1, 2016 as the transition date. Ind AS 101 requires that all Ind AS standards and interpretations that are effective for the Ind AS financial statements for the year ended March 31, 2018, be applied consistently and retrospectively for all fiscal years presented. All applicable Ind AS have been applied consistently and retrospectively wherever required. The resulting difference between the carrying amounts of the assets and liabilities in the financial statements under both Ind AS and Indian GAAP as at the transition date have been recognized directly in equity at the transition date.
In preparing these financial statements, the Company has availed itself of certain exemptions and exceptions in accordance with Ind AS 101 as explained below:
(i) Exceptions from full retrospective application
Estimates exception: Upon an assessment of the estimates made under Indian GAAP, the Company has concluded that there was no necessity to revise such estimates under Ind AS, except where estimates were required by Ind AS and not required by Indian GAAP.
ii) Exemptions from retrospective application:
Share-based payment exemption: The Company has availed exemption available under Ind AS 101 on application of Ind AS 102, âShare Based Paymentâ; to equity instruments that vested before the date of transition to Ind AS.
Notes
i. Business combination:
Under Ind AS, the acquireeâs identifiable assets, liabilities and contingent consideration payable on business combination that meet the condition for recognition are considered at their fair value. This has resulted in the recognition of intangible assets and consequently their amortisation in the Statement of Profit and Loss. while under previous GAAP, the assets & liabilities of the acquiree are recognised at cost.
ii. Fair valuation of investments:
Under Ind AS, financial assets and financial liabilities are required to be measured at fair value. The resulting fair value change of these investments has been recognised in the retained earnings as at the date of transition and subsequently in the profit or loss for the year ended March 31, 2017. Mutual fund investments have been classified as FVTPL. Consequently, increase in fair value of such investments in quoted mutual funds has resulted in a gain. Under previous GAAP, investments in equity instruments and Mutual funds were classified as long-term investments or current investments based on the intended holding period and its realisability. Long term investments were carried at cost less provision for other than temporary decline in the value of such investments. Current investments were carried at lower of cost and fair value.
iii. Security deposits:
Under previous GAAP, Lease security deposits (that are refundable in cash on completion of the lease term) are recorded at their transaction value. Under Ind AS, the difference between the Fair value and transaction value of the security deposits has been recognised as prepaid rent. The lease rentals paid in advance are charged to the statement of profit and loss over the lease term.
iv. Deferred Tax:
Under Ind AS, deferred taxes has been recognised on the adjustments made on transition to Ind AS and the items considered under other comprehensive income.
v. Consolidation of Employee Welfare Trust:
Under Ind AS, the company is required to consolidate Sonata Employee Welfare Trust Accounts, which is under common control. Under previous GAAP, the same was not consolidated.
vi. Hedge Accounting/Forward contracts:
Under Ind AS the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in Other Comprehensive Income. The ineffective portion of changes in the fair value of the derivative is recognised in the Statement of Profit and Loss. Under previous GAAP, the gain or loss on the hedging instrument that is determined to be an effective hedge was recognized directly in the appropriate equity account.
vii. Employee stock option plan:
Under the previous GAAP, the cost of equity-settled employee share-based plan were recognised using the intrinsic value method. Under Ind AS, the cost of equity-settled share based plan is recognised based on the fair value of the options as at the grant date.
viii. Remeasurement of Defined benefit obligations:
Under previous GAAP, actuarial gains and losses were recognised in the statement of Profit and Loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability/ asset which is recognised in Other Comprehensive Income. Consequently, the tax effect of the same has also been recognised in Other Comprehensive Income under Ind AS instead of the Statement of Profit and Loss.
Mar 31, 2017
1. Details of rights, preferences and restrictions attached to each class of shares
The Company has equity shares having a par value ofRs.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 dividends proposed by the Board and approved by the shareholders.
In the event of liquidation by the Company, the holders of the equity shares will be entitled to receive in proportion to the number of equity shares held by them, the remaining assets of the Company.
The shareholders have all other rights as available to equity shareholders as per the provisions of the 2013 Act, read together with the Memorandum of Association and Articles of Association of the Company, as applicable.
Details of disputed demands of Income-tax by issue and by year are as below:
2. 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 ofRs.336,003,062, (As at 31.03.2016 -Rs.336,003,062) for financial years 2007-08 and 2009
3. During the year, the Company received favorable orders from Commissioner of Income-tax (Appeals) and the Department has preferred an appeal before Income-tax Appellate Tribunal (ITAT).
For the Financial Year 2006-07,Rs.Nil (As at 31.03.2016-Rs.Nil), the Company has received favorable order from Commissioner of Income-tax (Appeals) and the Department has preferred an appeal before the Honorable High Court of Mumbai which is yet to be admitted.
For the Financial Year 2008-09, ''164,128,231 (As at 31.03.2016-Rs.Nil), the Department has preferred an appeal before Income-tax Appellate Tribunal (ITAT).
For the Financial Year 2001-02, ITAT 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 Honorable High Court of MumbaiRs.14,863,703 (As at 31.03.2016 -Rs.14,863,703).
4. 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 Honorable High Court of Mumbai which is yet to be admitted for financial years 2002-03, 2003-04 and 2004-05 and hence there is no contingent liability.
5. 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 benefits under Section 10A of the Income Tax Act on such support services and assessed the same as normal business income and raised demand ofRs.233,708,329 (As at 31.03.2016 -Rs.233,708,329) for financial years 2001-02, 2002-03, 2003-04 and 2004-05. The Company had received favorable orders from ITAT. However, the department preferred an appeal on the said orders before the Honorable High Court of Mumbai.
Rs. 11,635,577 (As at 31.03.2016-Rs.11,635,577) for the Financial Year 2010-11. The Company had filed an appeal before the Commissioner of Income-tax (Appeals) The Company has received favorable orders and the Department has preferred an appeal before ITAT.
6. Transfer Pricing Adjustment
Rs. 116,162,422 (As at 31.03.2016 -Rs.116,162,422) for the Financial Year 2011-12. The Income-tax department has recommended the upward adjustment in the value of Investment in subsidiary and sale of services to associated enterprises as Transfer Pricing Adjustment in the International transactions in order to consider them to be at arm''s length price. The Company has preferred an appeal before Commissioner of Income-tax (Appeals).
7. 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 Income Tax Act and had raised demand ofRs.284,187,956 (As at 31.03.2016 -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 ITAT 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 ofRs.87,904,913 out of the above demand. The amount included as disputed demand is excluding the amount paid by the supplier.
8. Deductions claimed under Section 80 O
Prior to the enactment of Section 10A of the Act, the Company claimed deduction for exports made, under Section 80 O 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 ofRs.8,283,288 (As at 31.03.2016 -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.
9. 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.
10 : Details on derivative instruments and unhedged foreign currency exposures
11. Objective of Company''s hedges is to minimize the impact of Foreign exchange rate variations on INR value of the committed receipts and payments in foreign currencies .The company hedges majority of cash flows expected to arise from its future one-year firm commitments/ highly probable forecasted transactions on rolling month basis through simple forward exchange contracts. On every reporting date, Company obtains the Mark to Market valuation report of all the outstanding derivative contracts from the Foreign Exchange Authorized Dealers. Extent of fair value gains/(losses) recognized in the statement of profit and loss in the current year isRs.75,344,968 (for the year ended 31.03.2016Rs.19,740,900) and recognized as Hedge Reserve as at 31.03.2017 isRs.93,654,686 (as at 31.03.2016 isRs.71,823,122).
12. 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.
13 : Employee benefit plans
14. Defined contribution plans
15. Provident fund
The Company makes contributions towards 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.
Provident fund contributions amounting toRs.97,558,911 (for the year ended 31.03.2016Rs.86,742,578) has been charged to the Statement of Profit and Loss (as part of Contribution to Provident Fund and other Funds in Note 21 Employee benefits expense).
16: 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.
17 : Details of leasing arrangements
18. 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 3 to 99 months and may be renewed based on mutual agreement of the parties.
19 : Corporate Social Responsibility
As per Section 135 of 2013 Act, a company meeting the applicability threshold, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility (CSR) activities. A CSR committee has been formed by the Company as per the 2013 Act. The CSR initiatives are focused towards those programmes directly or indirectly, benefit the community and society at large.
20. Gross amount required to be spent by the Company during the year isRs.19,016,013 (Previous year isRs.12,956,987)
21. Amount spent during the year isRs.17,595,701 (Previous year isRs.12,753,723)
22. Amount unspent isRs.1,420,312 (Previous year isRs.203,264)
23 : The Company did not have any holdings or dealings in Specified Bank Notes as defined in the Notification S.O. 3407(E) dated the 8th November, 2016 of the Ministry of Finance, during the period from 8th November, 2016 to 30th December, 2016
24 : There is no amount due and outstanding as at Balance Sheet date to be credited to the Investor Education and Protection Fund.
25: The Board of Directors recommended a final dividend ofRs.5.50 (550%) on per value ofRs.1) per equity share to the Financial Year ended March 31, 2017. The payment is subject to the approval of the shareholders in the ensuring Annual General Meeting of the Company.
26 : Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure.
1. Disallowance of Inter-Company service charges and costs for deputation of personnel.
Sonata Software Limited, the holding company charges the Company for certain support services rendered and for the cost of project personnel deputed. These support services and costs for deputation are being disallowed by the Income-tax department while computing taxable profits of the Company. The Company has challenged these disallowances and consequent demands at appellate levels and is confident of a favorable outcome.
Details of demands and forums where they are pending are:
2. Rs.402,964,082 (As at 31.03.2016 -Rs.402,964,082) for the financial years 2001-02, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08. The Company has received favorable orders from the Income-tax Appellate Tribunal (ITAT). The Income-tax department has preferred an appeal to the Honorable High Court of Mumbai.
3. Rs.44,659,336 (As at 31.03.2016 -Rs.44,659,336) for the Financial Year 2002-03. The Income-tax department''s appeal to the Honorable High Court of Mumbai was time barred and hence dismissed. The Income-tax department had preferred a Special Leave Petition on the said dismissal to the Honorable Supreme Court of India which had referred the petition back to the Honorable High Court of Mumbai to reconsider its decision. The Honorable High Court of Mumbai admitted the appeal.
4. Rs.111,904,892 (As at 31.03.2016 -Rs.111,904,892) for the Financial Year 2010-11. The Company has received favorable order from the Commissioner of Income-tax (Appeals) (CIT(A)). The Income-tax Department has preferred an appeal to the ITAT.
5. Rs. Nil (As at 31.03.2016 -Rs.101,094,655) for the Financial Year 2011-12. The Company has preferred an appeal with the CIT(A) and during the year, the Company has received favorable orders from CIT(A).
6. Rs.294,414,600 (As at 31.03.2016 - ''159,262,831) for the financial years 2012-13 and 2013-14. The Company has preferred an appeal to the CIT(A).
7. Withholding tax demand
The Company is 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 Income-tax Act, 1961, and had raised demands ofRs.218,239,587 (As at 31.03.2016
-Rs.218,239,587) for the financial years 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 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 ofRs.128,598,266 out of the above demand. The amount included as disputed demand is excluding the amount paid by the supplier.
8. Disallowance of payments made for purchase of software on which Income-tax was not withheld.
Payment in the nature of Royalty on which Income-tax have not been deducted at source are subject to disallowance as an ''expense'' as per Sections 40(a)(i) and 40(a)(ia) while computing taxable profits of the Company. Consequent to issue described in (ii) above, the Income-tax department, holding payments for purchase of software as "Royalty" disallowed the same while computing taxable profits of the Company.
The Honorable High Court of Karnataka had given an unfavorable decision on the issue covered in (ii) above. However, the said demands which are consequential and penal in nature do not arise automatically and there are multiple legal precedents in favor of the Company. Based on legal opinions and feedback from its legal counsels, the Company is confident of a favorable outcome on these consequential demands.
Details of demands raised and the forum where these are pending are:
9. Rs.2,364,309,742 (As at 31.03.2016 -Rs.2,364,309,742) of tax demand for the financial years 2001-02, 2002-2003, 2006-07 and 2007-08. The Company had received a favorable order from ITAT. The Income-tax department had preferred an appeal to the Honorable High Court of Mumbai.
10. Rs.12,665,134 (As at 31.03.2016 -Rs.9,751,543) for the financial years 2012-13 and 2013-14 the Company has preferred an appeal to the CIT (A).
11. 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.
12: Details on derivative instruments and unhedged foreign currency
13. Objective of Company''s hedges is to minimize the impact of Foreign exchange rate variations on INR value of the committed receipts and payments in foreign currencies. The company hedges majority of cash flows expected to arise from its future one-year firm commitments/ highly probable forecasted transactions on rolling month basis through simple forward exchange contracts. On every reporting date, Company obtains the Mark to Market valuation report of all the outstanding derivative contracts from the Foreign Exchange Authorized Dealers. Extent of fair value gains/(losses) recognized in the statement of profit and loss in the current year isRs.1,747,934 (for the year ended 31.03.2016 is Rs. 6,797,308) and recognized as Hedge Reserve as at 31.03.2017 isRs.26,249,035 (as at 31.03.2016 isRs.6,362,500).
14. 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.
15 : Employee benefit plans
16. Defined contribution plans
17. 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 toRs.5,125,411 (for the year ended 31.03.2016 Rs.4,501,362) has been charged to the Statement of Profit and Loss (as part of Contribution to Provident Fund and other Funds in Note 22 Employee benefits expense).
Mar 31, 2016
1: 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 final 86,742,578 (for the year ended 31.03.2015 final 71,245,461) has been charged to
the Statement of Profit and Loss (as part of Contribution to Provident Fund and other Funds in Note 21 Employee benefits
expense).
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.
Mar 31, 2010
31.3.2010 31.3.2009
1. Contingent Liabilities not provided for
(I) Disputed Income Tax
demands as explained below :
(Inclusive of Interest Charged) 1,294,841,611 26,837,461
(a) An amount of Rs. 28.42 crores has arisen on account of an adverse
decision given by the High Court of Karnataka holding that the Company
failed to deduct tax at source on amounts paid to overseas suppliers on
purchase of software. Based on legal opinion of a Senior Counsel, the
Company has preferred an appeal before the Supreme Court and the same
has been admitted and stay granted on the demand. Subsequently, the
Delhi High Court and the Authority on Advance Ruling have on similar
set of facts has taken a view which is favourable to the Company.
Further, one of the principal suppliers of software to the Company has
paid Rs 8.79 crores out of above mentioned demand thus reducing the
Companys liability.
(b) An amount of Rs 77.38 crores represents demands relating to the
financial years 1996-1997, 1997-1998, 1998-1999 and 1999-2000 on which
the Income Tax Department has gone on appeal to the Income Tax
Appellate Tribunal against favourable orders received by the Company.
These demands have arisen on account of disallowance of expenditure on
which tax has not been deducted at source. This issue is in principle
connected to (a) above.
(c) An amount of Rs. 23.68 crores represents demands raised by the
Income-tax officer at the initial assessment level for the financial
year 2005-06. The Company has preferred an appeal to the Commissioner
of Income Tax (Appeals) against the aforementioned demand. Further,
the substantial issues giving rise to the demand have been adjudicated
in earlier years, and the Company has received favourable orders from
the Income Tax Appellate Tribunal on the same.
(IV) (a) The Company has given corporate guarantee to IBM Ltd on behalf
of Sonata Information Technology Limited for a 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 loss on account of exchange
fluctuation of Rs. 40,692,853 for the current year ended 31st March,
2010 (Previous year gain Rs. 27,714,181 )
3. The working capital facility of the company are secured by
hypothecation of inventories and book debts both present and future and
second charge on the fixed assets of the company.
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) ÃFinancial Instruments: Recognition and
MeasurementÃ.
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 2010, the Company recognized Rs. 1871.21 lacs
(Previous year Rs.1031.06 lacs ) into ÃHedging Reserveà due to changes
in fair value of the effective cash flow hedges.
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:
5. Employee Benefits :
(a) 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.
(b) 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.
(c) 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.
(d) Estimated Contribution for the next year on account of gratuity is
Nil (Rs. 12,132,766)
(e) Contribution/Provisions to superannuation and other funds stated
under defined contribution plan is Rs.18,582,192 (Rs 15,376,579)
6. 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.
7. Operating Leases:
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 Income statements for the year is Rs 70,428,748 (Rs.
64,402,105).
8. Previous years figures are shown in brackets and have been
regrouped, wherever necessary to conform to current years
classification.