kitply industries ltd Auditors report


INDEPENDENCE AUDITORS

TO THE MEMBERS OF KITPLY INDUSTRIES LIMITED

Report on the Financial Statements

We have audited the accompanying financial statements of KITPLY INDUSTRIES LIMITED which comprise the Balance Sheet as at March 31, 2014 and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chattered Accountants of India, Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Option

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

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

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

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

Emphasis of Matter

We draw attention to the following Notes to the Financial Statements which describes the following matters related to the Company:

a) Note 40 which describes that the Company’s net worth has been fully eroded. Also considering below-mentioned point (b) and (c) under emphasis of matter paragraph along with this point, there is a clear indication that there is existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern, which is dependent on establishing profitable operations in line with the Company’s business plans, as well as satisfactory settlement of disputes and litigation in favour of the Company. Further, the Company has made a reference to the Hon’ble Board for Industrial & Financial Reconstruction (BIFR) pursuing to the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 and it has also been registered u/s 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985. As described in the above note, the Company is hopeful for working out a rehabilitation scheme, in view of which, the accompanying financial statements have been prepared under the going concern assumption, and consequently, no adjustments, if any, have been made in the financial statements.

b) Note 39(c) which descripes that no provision has been made for interest amounting to Rs. 425.27 lacs (including Rs. 84.36 lacs for the year) and liquidated damages of Rs.170.89 lacs claimed by certain lenders. In view of pending disposal of the suits filed by the above-mentioned lenders as well the Company in this matter, no liability thereof is considered payable.

c) Note 38 which descripes that no provision is made for demand from a lender amounting to Rs. 3,210.37 lacs towards principal and interest on withdrawal of One Time Settlement entered in earlier years, due to alleged non fulfillment of agreed conditions by the Company.

However, the above amount, in the opinion of the management is not payable as the Company has fully complied with payment term as per CDR (Corporate Debt Restructuring) terms and the Company has also been legally advised that the above demand is not tenable.

d) Note 42 which descripes that no provision has been made for interest amounting Rs. 60 lacs on loan of Rs. 400 lacs from an unsecured creditor since the same is disputed by the Company and the matter is subjudice. Moreover, according to BIFR’s (Board for Industrial and Financial Reconstruction) summary record of proceedings of the hearing held on 21.09.2012 and 11.02.2013 against Miscellaneous Application No. 341/2012, Case No. 23/2012 made by the Company, the company is restrained from making any payment to unsecured creditors without prior approval of the Board till next date of hearing. At present a stay order has been granted on the sickness of the company by Hon’ble AAIFR.

e) Note 4 (A) (b) to (g) of the financial statements which describes that the Company has failed to pay agreed installments towards redemption of various Debentures which were due in 2013-14 due to the sickness of the Company.

Our opinion is not qualified in respect of the above matters.

Report on Other Legal and Regulatory Requiremens

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

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

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

(b) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

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

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

(e) On the basis of the written representations received from the directors, as on March 31, 2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2014 from being appointed as a director in terms of clause (g) of subsection (1) of Section 274 of the Companies Act, 1956.

For Krishanu Bhattacharyya & Associates
Chartered Accountants
FRN: 324327E
CA Krishanu Bhattacharyya
Place : Kolkata Partner
Date: November 30, 2014 M. No. 059934

ANNEXURE TO THE AUDITORS’ REPORT

ANNEXURE REFERRED TO PARAGRAPH 1 OF THE REPORT DATED

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

(b) Fixed assets were physically verified by the management in the previous year in accordance with a planned programme of verifying them once in three years which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification.

(c) The Company has not disposed of any substantial part of its fixed assets so as to affect its going concern status.

(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year.

(b) The procedures of physical verfication of inventory followed by the Management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on such physical verification.

(iii) (a) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to Companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956

(b) The Company has taken loans inform of debentures from two parties covered in the register maintained under section 301 of the Act. The maximum outstanding amount of such loans during the year and the year-end balance due to such parties was Rs. 1,103.20 lacs (including Rs. 880 lacs not bearing interest).

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

(d) As per stipulations, the above loans have not become due for repayment and thus, there has been no default on the part of the company. Further, interest on the above loans, wherever applicable, was not due for payment during the year.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business, for the purchase of fixed assets, inventory and for the sale of goods. During the course of our audit, we have neither come across nor have we been infirmed of any major weakness or continuing failure to correct of major weaknesses in the aforesaid internal control systems of the company.

(v) (a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Act, that need to be entered into the register maintained under the above section, have been so entered.

(b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rupees five lacs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

(vi) In our opinion and according to the information and explanations given to us, directives issued by Reserve Bank Of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Act, and the rules framed there under, to the extent applicable, have not been complied with in respect of loan of Rs. 400 lacs taken from a party. We are informed by the management that no order has been passed by the Company Law Board, National Company Law Tribunal or Reserve Bank Of India or any Court or any other Tribunal.

(vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

(viii) We have broadly reviewed the books of accounts maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Act in respect of its products and are of the opinion that prima facia, the prescribed accounts and records have been made and maintained.

(ix) (a) According to the information and explanations given to us, the Company is not regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income tax, Sales tax, Wealthtax, service tax, Customs duty, Excise duty, Cess and other material statutory dues as applicable with the appropriate autorities. Moreover there have been serious delays in a large number of cases and also certain amounts are not yet paid as indicated in (b) below.

(b) According to the information and explanations given to us, undisputed dues in respect of Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income tax, Wealth tax, Service tax, Sales tax, Customs duty, Excise duty, Cess and other material statutory dues which were outstanding, at 31st March, 2014 for a period of more than six months from the date they became payable are as follows :

Name of the Statute Nature of the Dues Amount (Rs. in lacs) Period to which the amount relates Due Date
Central Sales Tax/Maharashtra Sales Tax Act Sales Tax Liability 35.54 2002-03 to 2004-05 & 2009-10 to 2011-12
Entry Tax Act Chhattisgarh Entry Tax Liability 0.83 2010-11 & 2011-12 Subsequent month after accrual
Uttar Pradesh Sales Tax Act Purchase Tax Liability 2.63 2002-03
Income Tax Act, 1961 Tax Deducted at Source (TDS) & Interest thereon 102.57 2008-09 to 2013-14
Fringe Benefit Tax & Interest thereon 49.54 2007-08 to 2013-14 (only interest part) Quarterly after accrual
Employees Provident Fund Act Provident Fund Dues 76.39 2009-10 to 2013-14 Subsequent month after accrual
Employees State Insurance Act ESI 4.53 2010-11 to 2013-14
Sales Tax on Employment Professional Tax 3.58 2004-05 to 2013-14 Subsequent month after accrual
Central Excise and Customs Act, 1944 Excise Duty & Interest thereon 1499.56 1995-96 to 1999-2000 & 2002-03 to 2013-14
Value Added Tax Value Added Tax Payable 173.61 2005-06 to 2013-14

(c) According to the records of the Company, the dues outstanding in respect of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Service Tax, Excise Duty & Cess on account of any dispute, are as follows : -

Name of the Statute Nature of the Dues Amount (Rs. in lacs) Period to which the amount relates Forum where dispute is pending
Central Excise and Customs Act, 1944 Differential Excise Duty 559.17 1980-81 to 1984-85 & 1994-95 to 1996-97 CESTAT, Kolkata
Denial of benefit of Exemption 330.02 2007-08 to 2010-11 CESTAT, Kolkata
Service Tax on GTA 35.21 2004-05 to 2005-06 CESTAT, Kolkata
Cenvat Credit reversal on Non-Excisable Product 18.25 2000-01 CESTAT, Delhi
Differential Excise Duty 5.07 2005-06 This case was pending under CESTAT, Meerut until imediately preceding previous year but as explained by the Management such case was decided in previous year
U.P. Sales Tax / U.P. VAT Act / Central Sales Tax Act, 1956 Purchase Tax/Form C & F Pending / Various Other matters 107.75 Various Years Asst. Comm/Dy. Comm./Joint Comm./ Member Tribunal Bench/High Court

(x) The Company’s accumulated losses at the end of the financial year are more than fifty percent of its net worth and it has incurred cash losses in the current and immediately preceeding financial year.

(xi) Dues of Rs. 41.64 lacs (including interest on debentures aggregating to Rs. 31.10 lacs recalled by the lenders, have been disputed by the Company as stated in Note 38 to the accompanying financial statements and hence we are unable to comment whether there is a default in respect of the above recalled dues. Read with the above, based on our audit procedures and as per the information and explanations given by the management, the Company has not defaulted in repayment of dues to financial institutions, banks or debenture holders except Rs. 3,780.88 lacs (including interest Rs. 1,758.48 lacs) towards certain debentures which have become due for repayment on 31st March, 2014.

(xii) According to the information and explanations given to us and based on the documents and records produced to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a Nidhi/ Mutual Benefit Fund/society and therefore, the provisions of sub clause (a), (b), (c) and (d) of clause (xiii) of paragrapg 4 of the Order are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor’s Report) Order 2003 are not applicable to the Company.

(xv) According to the information and explanations provided to us, the Company has not granted any Guarantee for loans taken by others from banks or financial institutions.

(xvi) Based on the information and explanations given to us by the management, the term loans raised during the immediately preceeding previous years by the Company have been were applied for the purpose for which these loans were obtained, where such end use has been stipulated by the lenders. However, during the previous year, no term loans were raised by the Company

(xvii) According to the information and explantions given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment.

(xviii) According to the information and explantions given to us, the Company has not made any preferential allotment of shares to parties covered in the Register maintained under section 301 of the Companies Act, 1956. Accondingly the provision of clause (xviii) of paragraph 4 of the Order is not applicable to the Company.

(xix) According to the information and explanations given to us, the Company had created security in respect of debentures issued in earlier years and outstanding during the year.

(xx) The Company has not raised any money through a public issue during the year. Therefore, the provision of clause (xx) of paragraph 4 of the Order is not applicable to the Company.

(xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the the Company has been noticed or reported during the year.

For Krishanu Bhattacharyya & Associates
Chartered Accountants
FRN: 324327E
CA Krishanu Bhattacharyya
Place : Kolkata Partner
Date: November 30, 2014 M. No. 059934