NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND EXPLANATORY STATEMENT 1. G ENERAL INFORMATION Elnet Technologies Limited (ETL) was incorporated in August 1990 as a Public Limited Company which is situated in the IT corridor, Rajiv Gandhi Salai, Taramani, Chennai. ETL’s core competence is to develop and manage Software Technology Park. ETL has pioneered the concept of Software Technology Park in India and also providing infrastructure to IT and ITES. 2. S IGNIFICANT ACCOUNTING POLICIES 2.1 Basis of Preparation of Financial Statements These financial statements are brpared in accordance with Indian Generally Accepted Accounting Principles ( GAAP ) under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values. GAAP comprises mandatory accounting standards as brscribed under Section 133 of the Companies Act,2013 ( “Act” ) read with Rule 7 of the Companies ( Accounts ) Rules 2014, the provisions of the Act ( to the extent notified ) and guidelines issued by the Securities and Exchange Board of India ( SEBI ). Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. 2.2 Accounting Estimates The brparation of financial statements in conformity with the generally accepted accounting principles {GAAP} requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Any difference between the actual result and estimates are recognized in the period in which the results are known / materialize. Any revision to accounting estimates is recognized prospectively in current and future periods. 2.3 Revenue Recognition Compensation Income and Electricity Income are accounted on accrual basis as and when they are due on monthly basis. Interest Income is also accounted on accrual basis. Income from Windmill is taken on a monthly basis upon credit given by Tamil Nadu Electricity Board for the units generated and supplied 2.4 Fixed Assets and Intangibles Fixed Assets are stated at historical cost less accumulated debrciation. Historical Cost includes expenditure of capital nature and valued at cost of acquisition inclusive of freight, duties, taxes, incidental charges relating to the acquisition and the cost of installation / erection as applicable. In respect of construction of assets forming part of expansion project, directly attributable costs including financing costs relating to specific borrowings are also capitalized. Cost of assets not put to use before the year end are shown under Capital Work – in – Progress. Land Lease deposit has also been shown under “Lease Hold Land” and not amortized over the period of lease, as the deposit is refundable after the expiry of period of 90 years Land Lease registration charges has been shown under “Lease Hold Land” and amortized over a period of ten years The Company has classified Accounting Software as Intangible. 2.5 Impairment of Assets An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value. An impairment loss is charged for when the asset is identified as impaired. The impairment loss recognised in prior accounting period is reversed if there has been a change in the estimate of recoverable amount. 2.6 Debrciation Debrciation on tangible assets are provided on Straight Line Method over the useful life of the assets. b) In respect of other assets, the useful life as provided under Schedule II of the Companies Act, 2013 is considered. c) Residual value for all assets is considered as Nil 2.7 Investments Investments are held as long term and are stated at Cost less provisions recorded to recognize any decline, other than temporary, in the carrying value of each investment. 2.8 Borrowing Costs Borrowing costs, that are attributable to the construction of a qualifying asset, forming part of the expansion project or otherwise are capitalized as part of such assets till such time where the assets are ready for its intended use. A qualifying asset is an asset that necessarily requires a substantial period of time to get ready for its intended use or sale. 2.9 Employee benefits i) Post –Employment Benefit Plans Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in full in the Statement of Profit and Loss for the period in which they occur. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognized in the balance sheet rebrsents the brsent value of the defined obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the brsent value of available refunds and reductions in future contributions to the scheme. ii) Short-term Employee Benefits The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service. 2.10 Taxation Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income Tax Act, 1961. Minimum Alternate Tax (MAT), if any, is paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantially enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets in respect of unabsorbed debrciation and carry forward of losses are recognised only if there is virtual certainty that there will be sufficient future taxable income available to realise such assets. Deferred tax assets are recognised for timing differences of other items only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each Balance Sheet date for their realisability. 2.11 Earnings Per Share Basic earnings per share is computed by dividing the profit / (loss) after tax (including the post tax effect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit / (loss) after tax (including the post tax effect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period brsented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits / reverse share splits and bonus shares, as appropriate. 2.12 Provisions and Contingent liabilities A provision is recognised when the Company has a brsent obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. Where no reliable estimate can be made, disclosure is made as Contingent liability. A disclosure for a contingent liability is also made if there is a possible or a brsent obligation that may, but probably will not result in outflow of resources. Contingent liabilities are disclosed in the additional information to financial statements. 2.13 Service Tax Input Credit Service Tax input credit is accounted for in the books in the period in which the underline service received is accounted and when there is no uncertainty in availing/utilizing the credits. 3. EXPLANATORY STATEMENT 3.1 Retirement benefits to employees (i) Defined Contribution Plan Provident fund In respect of defined contributions schemes, contributions to Provident Fund and Family Pension they are charged to the statement of Profit and Loss as incurred. (ii) Defined benefit plan Gratuity The Company provides for gratuity, a defined benefit retirement plan (the “Gratuity Plan”) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment. Vesting occurs upon completion of five years of service. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation as of the balance sheet date, based upon which, the company contributes all the ascertained liabilities to the Elnet Technologies Ltd Employees’ Gratuity Fund Trust (the “Trust”). Trustees administer contributions by means of a group gratuity policy with Life Insurance Corporation of India. iii L eave encashment The employees of the Company are entitled to compensated absence. The employees can carry forward a portion of the unutilized accrued compensated absence and utilize it in future periods or receive cash compensation at retirement or termination of employment for the unutilized accrued compensated absence for a maximum of 180 days. The Company records an obligation for compensated absences in the period in which the employee renders the services that increase this entitlement. The Company measures the expected cost of compensated absence as the additional amount that the Company expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuations which is non funded. 4.7 C laim by Department of Telecommunications: The Department of Telecommunications (DoT) filed a claim against the company for Rs. 20,82,233/- before the Sole Arbitrator in the matter of payment towards license fees and interest thereon. The Arbitrator’s award was made in June 2005 according to which a sum of Rs. 5,48,288 and interest there on was payable by the company to DoT. The company accepted the award and decided to effect the payment after waiting for the appeal period. However, DoT had filed an appeal in the High Court of Delhi against the Arbitrator’s award which has since been dismissed by the Honourable High Court of Delhi by an order dated 21 Dec 2015 thereby reinstating the order passed by the Honourable Arbitral Tribunal. Accordingly, in line with said award, the company has effected the payment along with interest of 6% p.a. upto date on 31 Mar 16 in discharge of its obligation. 4.8 Contingent Liabilities in respect of: Claims against the Company not acknowledged as debt (i) Income Tax demand There is a dispute with regard to the treatment of income of the company by the Income Tax Department as “Income from House Property”, whereas in the opinion of the Company, the income should be treated as “Income from Business”, which has been confirmed by the Income Tax Appellate Tribunal. In respect of Assessment Years 1996-97,1998-99, 2000-01 & 2001-02, the Madras High Court has decided the case in favour of the Company. The Department has filed a special leave petition with the Subrme Court. In the event the Subrme Court reverses the order of the High Court of Madras, there will be a contingent liability of Rs. 100.58 Lakhs. In respect of Assessment Years 2003-04, the Income Tax Department had brferred an appeal before the High Court of Madras against the orders issued by the Income Tax Appellate Tribunal which was passed in favour of the company. In the event there is a reversal of the order, there will be a contingent liability of Rs. 389.22 Lakhs. In respect of Assessment Years 2007-08 and 2009-10, the case is pending with the Commissioner of Income Tax –Appeals. The contingent liability in this regard amounts to Rs. 11.78 Lakhs. (ii) Service Tax: The company had received show cause notice from the Office of the Commissioner of Service Tax on the applicability of service tax on Electricity charges reimbursed from the occupants including generation from Generator for the period April 2006 – March 2012. As per legal opinion, the company has been advised that, it is not liable for service tax on this issue. The company had obtained an interim stay from the High Court of Madras against the show cause notice which was modified by the High Court. The company filed a fresh Writ Petition for stay and an order was received in September 2014 directing the company to rebrsent before the Service tax department and the same has been complied. In view of this, there is a contingent liability of Rs. 282.64 Lakhs. (iii) L ease Rent : The Company had received a communication from ELCOT claiming a sum of Rs. 9.56 crores towards difference in the computation of Lease Rent for the period from 14.02.1991 to 14.01.1999. The Company prima-facie has a strong reason that the claim is not tenable and is evaluating various options, including legal recourse. Pending any such actions no provision has been made. Previous year’s figures have been re-grouped / re-classified wherever necessary to correspond with the current year’s classification / disclosure. As per our report attached For S.H.Bhandari & Co Chartered Accountants FRN000438S Sreedhar Sreekakulam Partner M.No.026474 For and on behalf of the Board of Directors Unnamalai Thiagarajan Managing Director G. Chellakrishna Director P. Manivannan Director T.K.Karthik Chief Financial Officer S.Lakshmi Narasimhan Company Secretary Place : Chennai Date : 06.05.2016 |