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Aruna Hotels Ltd.

BSE: 500016 Sector: Services
NSE: ARUNASUGAR ISIN Code: INE957C01019
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Aruna Hotels Ltd. (ARUNASUGAR) - Auditors Report

Company auditors report

TO THE MEMBERS OF ARUNA HOTELS LIMITED

Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of Aruna HotelsLimited which comprise the Balance Sheet as at 31st March 2016 the Statement of Profitand Loss the Cash Flow Statement and a summary of the signihcant accounting policies andother explanatory information for the year then ended.

Management's Responsibility for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Companies Act 2013 ("the Act") with respect to the preparation ofthese standalone financial statements that give a true and fair view of the financialposition financial performance and cash hows of the Company in accordance with theaccounting principles generally accepted in India including the Accounting Standardsspecihed under Section 133 of the Act read with Rule 7 of the Companies (Accounts) Rules2014. This responsibility also includes maintenance of adequate accounting records inaccordance with the preparation of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these standalone financial statementsbased on our audit.

We have taken into account the provisions of the Act the\ accounting and auditingstandards and matters which are required to be included in the audit report under theprovisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specihed underSection 143(10) of the Act. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the financial statements. The procedures selected depend on theauditor's judgment including the assessment of the risks of material misstatement of thefinancial statements whether due to fraud or error. In making those risk assessments theauditor considers internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances but not for the purpose of expressing anopinion on whether the Company has in place an adequate internal financial control systemover financial reporting and the operating effectiveness of such controls. An audit alsoincludes evaluating the appropriateness of the accounting policies used and thereasonableness of the accounting estimates made by the Company's Directors as well asevaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our qualihed audit opinion on the standalone financial statements.

*Basis for Qualified Opinion

i) Company has received advances towards share capital but shares were not issued sinceit is under listing process and will issue shares after listing at stock exchange. Thesame is not in conformity with the provisions of the Companies Act 2013.

ii) The closing balances of parties from whom loan was taken and from creditors anddebtors are subject to con- hrmation and reconciliation.

iii) The company is in the process of updating the details of various litigations filedby the third parties; hence we cannot ascertain the liability arising on thoselitigations.

iv) During our audit we have come across several notices / demand notes issued byvarious statutory authorities

Following are the notices and demand issued to the company during the financial year2015-16:

a. Income Tax notice received for AY 2009-10&2012-13. Outstanding dues being -Rs451445 for AY 09-10 and Rs 27332590 for AY 12-13 against which appeal has been filedand outcome is pending.

b. The company has received a Show Cause Notice from the Service Tax Department for FY2008-09 to FY 2013-14. The company has received a demand of Service Tax amounting to Rs25953777/-. Following points may be noted in this regard:

i. Payment of an amount of Rs 18160816/- has already been made by the assessee.

ii. The company plans to approach the Service Tax Settlement Commission to get waiverof the penalties & pending dues upto FY 2013-14imposed by the Service Tax authorities

c. Sales Tax notice was issued for FY 2006-07 to FY 2011-12on account on non-payment ofoutstanding Sales tax & Luxury Tax. The company has appealed against the order withthe Hon'ble High Court of Madras which has set aside the Assessment Order and hasinstructed the Sales Tax Department to conduct a fresh assessment of the outstanding Salestax & Luxury taxes payable. The company has then received a provisional assessmentnotice from the Sales tax department mentioned as under. Contingent liability arises of Rs78.33 Lakhs under TNLTH Act 1981 (Luxury Tax) andRs 1.24 Crores under TNVAT Act 2006(VAT):

TNLTH Act 1981 TNVAT Act 2006
Year Balance yet to be paid Balance yet to be paid
2006-07 50005 936638
2007-08 1634704 1760205
2008-09 1108621 1460448
2009-10 77037 1935867
2010-11 754051 910601
2011-12 56655 3777943
2012-13 4152735 1694491
Total 7833808 12476184

The Company has not disclosed any contingent liability likely to arise on account ofvarious claims/ litigations to be raised by the third parties which is uncertain andcannot be reasonably valued. In the absence of sufficient details we cannot quantify thesame.

v) The contingent liability of the company towards the pending cases is notascertainable as on date but if the decision is unfavorable it would materially impactthe cash flow of the company.

vi) Based on our verification information and documents provided for ourverificationthe company has recorded a loss during the year. Further its total currentliabilities exceed total current assets as on balance sheet date. The company is currentlynot operating and hence no income has been recorded. The validity of the going concernassumption on which the financial statements are prepared depends on the continuance ofthe ability of the company to generate sufficient cash flows from their operations. We donot have sufficient evidence to access whether the company's plans/projection wouldmaterialize.

vii) The company has shown an amount of inventory as Rs 28.63 lacs which is the same ascompared to FY 2014-15. However based on our opinion the net realizable value of theinventory as on 31.3.2016 is negligible and needs to be written off.

"Qualified Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us except for the effects of the matter described in the Basis for QualifiedOpinion paragraph the financial statements give the information required by the Act inthe manner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India:

(a) In the case of the Balance Sheet of the state of affairs of the Company as atMarch 312016;

(b) In the case of the Profit and Loss Account of the profit/ loss for the year endedon that date; and

(c) In the case of the Cash Flow Statement of the cash flows for the year ended on thatdate

Report on Other Legal and Regulatory Requirements

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

a) As required by the Companies (Auditor's Report) Order 2015 issued by the CentralGovernment of India in terms of section 143(11) of the Companies Act 2013 we enclose inthe Annexure a statement on the matters specified in the paragraph 3 and 4 of the orderto the extent applicable.

b) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

c) Except for the effects of the matter described in the Basis for Qualified Opinionparagraph above in our opinion proper books of account as required by law have been keptby the Company so far as it appears from our examination of those books

d) The Balance Sheet the Statement of Profit and Loss and the Cash Flow Statementdealt with by this Report are in agreement with the books of account.

e) Except for the effects of the matter described in the Basis for Qualified Opinionparagraph above in our opinion the aforesaid standalone financial statements comply withthe Accounting Standards specified under Section 133 of the Act read with Rule 7 of theCompanies (Accounts) Rules 2014.

f) The matter described in the Basis for Qualified Opinion paragraph above in ouropinion may have an adverse effect on the functioning of the Company.

g) On the basis of the written representations received from the directors as on 31stMarch 2016 taken on record by the Board of Directors none of the directors isdisqualified as on 31st March 2016 from being appointed as a director in terms of Section164 (2) of the Act.

h) The qualification relating to the maintenance of accounts and other mattersconnected therewith are as stated in the Basis for Qualified Opinion paragraph above.

i) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure B".

j) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinionand to the best of our information and according to the explanations given to us:

a. The Company has not disclosed the impact of pending litigations on its financialposition in its financial statements hence we are unable to comment on this.

b. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.

c. There has been no transfer of amounts to the Investor Education and Protection Fundby the Company. For Bala & Co.

Chartered Accountants FRN No: 000318S

P.S. Devasenapathy Partner M.No:024740 Place: Chennai Date: 30/05/2016

"Annexure A" to the Independent Auditor's Report

The annexure referred to in our report to the members of Aruna Hotels Limited for theyear ended on 31st March 2016. We report that:

i. a. The company has not maintained proper records of the quantitative details andsituation of hxed assets. The new management is in the process of updating the FixedAssets Register.

b. The hxed assets have been physically Verified by the management during the year andsome discrepancies have been noted.

c. The management has confirmed that the tittle deeds of immovable properties are heldin the name of the company

ii. Physical Verification of inventory was conducted by the Management during theperiod. In our opinion the frequency was reasonable. However given the fact that most ofthe stock of inventories have a negligible realizable value we are unable to comment onthe procedures of physical Verification of stocks followed by the Management. The Companyis not maintaining proper records of Inventory. The new management is in the process ofupdating the Inventory Register.

iii. In our opinion and according to the information and explanations given to us theCompany has not granted loans secured or unsecured to companies hrms or other partiescovered in the register maintained under section 189 of the Companies Act 2013.Accordingly the provisions of clauses (iii) of the Order are not applicable.

iv. In our opinion and according to the information and explanations given to us theprovisions of section 185 and 186 of the Act with respect to the loans and investmentsmade are not applicable to the company.

v. The company has not accepted any deposits from the public covered under section 73to 76 of the Companies Act 2013.

vi. To the best of our knowledge and belief the Central Government has not prescribedthe maintenance of cost records under sub-section (1) of Section 148 of the Companies Act2013 in respect of services carried out by the Company. Accordingly the provisions ofclause (vi) are not applicable.

vii. a. Undisputed statutory dues including provident fund; investors education andprotection fund employees state insurance income-tax sales-tax wealth-tax.Service-tax Customs duty Excise Duty cess have not been regularly deposited with theappropriate authority and there have been delays in large number of cases. The managementis in the process of identifying quantifying and settling the pending undisputedstatutory dues. The exact amount cannot be quantihed due to lack of information.

b. There are dues of income tax sales tax and service tax on accounts of variousdisputes which have been enlisted in Point iv) of our auditor's report above.

viii. Based on the audit procedures and on the information and explanations given bythe Management we are of the opinion that there has been no defaultin repayment of duesto Financial Institutions or Banks.

ix. Based on the audit procedures and on the information and explanations given by theManagement themoneys raised by way of initial public offer or further public offer(including debt instruments) and term loans where ever applicable were applied for thepurposes for which those are raised.In our opinion and according to information andexplanations given to us no term loans taken by the company during the period underaudit.

x. No fraud on or by the company or by its Officers or Employees has been noticed orreported during the year covered by our audit.

xi. According to the information and explanations give to us and based on ourexamination of the records of the Company the Company has paid/provided for managerialremuneration in accordance with the requisite approvals mandated by the provisions ofsection 197 read with Schedule V to the Act.

xii. In our opinion and according to the information and explanations given to us theCompany is not a nidhi company. Accordingly paragraph 3(xii) of the Order is notapplicable.

xiii. According to the information and explanations given to us and based on ourexamination of the records of the Company transactions with the related parties are incompliance with sections 177 and 188 of the Act where applicable and details of suchtransactions have been disclosed in the financial statements as required by the applicableaccounting standards.

xiv. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not made any preferentialallotment or private placement of shares or fully or partly convertible debentures duringthe year.

xv. According to the information and explanations given to us and based on ourexamination of the records of the Company the Company has not entered into non-cashtransactions with directors or persons connected with him. Accordingly paragraph 3(xv) ofthe Order is not applicable.

xvi. The company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934 and hence this clause is not applicable.

For Bala& Co.

Chartered Accountants FRN No: 000318S

P.S. Devasenapathy Partner M.No:024740 Place: Chennai Date: 30/05/2016

"Annexure B" to the Independent Auditor's Report of even date on theStandalone Financial Statements of Aruna Hotels Limited

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of ArunaHotels Limited as of March 31 2016 in conjunction with our audit of the standalonefinancial statements of the Company for the year ended on that date.

Management's Responsibility for Internal Financial Controls

The Company's management is responsible for establishing and maintaining internalfinancial controls based on "the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India".These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of itsbusiness including adherence to company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.

Auditors' Responsibility

Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting(the "Guidance Note") and the Standards on Auditing issued by ICAI and deemedto be prescribed under section 143(10) of the Companies Act 2013 to the extentapplicable to an audit of internal financial controls both applicable to an audit ofInternal Financial Controls and both issued by the Institute of Chartered Accountants ofIndia. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate internal financial controls over financial reporting was established andmaintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over h- nancial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

Except for the effects of the matter described in the Basis for Qualihed Opinionparagraph above we believe that the

audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion on the Company's internal financial controls system over financialreporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly rehect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion except for the effects of the matter described in the Basis forQualihed Opinion paragraph the Company has in all material respects an adequateinternal financial controls system over financial reporting and such internal financialcontrols over financial reporting were operating effectively as at March 31 2016 basedon "the internal control over financial reporting criteria established by the Companyconsidering the essential components of internal control stated in the Guidance Note onAudit of Internal Financial Controls Over Financial Reporting issued by the Institute ofChartered Accountants of India".

For Bala & Co.

Chartered Accountants FRN No: 000318S

P. S.DEVASENAPATHY

Partner

M. No: - 024740 FRN : 000318S

Place : Chennai Date : 30/05/2016