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Mahanagar Telephone Nigam Ltd.

BSE: 500108 Sector: Telecom
NSE: MTNL ISIN Code: INE153A01019
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OPEN 29.20
PREVIOUS CLOSE 29.05
VOLUME 2006202
52-Week high 31.25
52-Week low 16.80
P/E
Mkt Cap.(Rs cr) 1,783
Buy Price 28.30
Buy Qty 5005.00
Sell Price 0.00
Sell Qty 0.00
OPEN 29.20
CLOSE 29.05
VOLUME 2006202
52-Week high 31.25
52-Week low 16.80
P/E
Mkt Cap.(Rs cr) 1,783
Buy Price 28.30
Buy Qty 5005.00
Sell Price 0.00
Sell Qty 0.00

Mahanagar Telephone Nigam Ltd. (MTNL) - Auditors Report

Company auditors report

TO

THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LIMITED

Report on the Standalone IND AS Financial Statements

We have audited the accompanying Standalone IND AS financial statements ofMahanagarTelephone Nigam Limited ("the Company') which comprise the Balance Sheet as at31st March 2017 the Statement of Profit and Loss (including Other Comprehensive Income)the Cash Flow Statement and the Statement of Changes in Equity for the year then endedand a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Standalone IND AS 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 IND AS financial statements that give a true and fair view of the Stateof Affairs (financial position) Profit or Loss (financialperformance including OtherComprehensive Income) Cash flows and Changes in Equity of the Company in accordance withthe accounting principles generally accepted in India including the Indian AccountingStandards (IND AS) prescribed under Section 133 of the Act. This responsibility alsoincludes maintenance of adequate accounting records in accordance with the provisions ofthe Act for safeguarding the assets of the Company and for preventing and detecting fraudsand other irregularities selection and application of appropriate accounting policies;making judgments and estimates that are reasonable and prudent; and design implementationand maintenance of adequate internal financial controls that are operating effectivelyfor ensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the Standalone IND AS financial statements that give atrue and fair view and are free from material misstatement whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these Standalone IND AS financialstatements based 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 accordancewith the Standards on Auditing specified under Section 143(10) of the Act. Those Standardsrequire that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the Standalone IND AS financial statements are freefrom material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the Standalone IND AS financial statements. The procedures selected dependon the auditor's judgment including the assessment of the risks of material misstatementof the Standalone INDAS financial statements whether due to fraud or error. In makingthose risk assessments the auditor considers internal financial control relevant to theCompany's preparation of the Standalone IND AS financialstatements that give a true andfair view in order to design audit procedures that are appropriate in the circumstances.An audit also includes evaluating the appropriateness of the accounting policies used andthe reasonableness of accounting estimates made by the Company's Directors as well asevaluating the overall presentation of the Standalone IND AS financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our qualified audit opinion on the Standalone IND AS financialstatements.

Basis for Qualified Opinion

(i) The Company has certain balances receivables from and payables to BSNL. The netamount recoverable of Rs. 3729.78 Crores is subject to reconciliation andconfirmation. In view of non reconciliation and non confirmation and also in view ofvarious pending disputes regarding claims and counter claims we are not in a position toascertain and comment on the correctness of the outstanding balances and resultant impactof the same on the Standalone IND AS financial statements of the Company. (Also referpoint no. (a) of note no. 65 to the Standalone IND AS financial statements).

(ii) The Company has certain balances receivables from and payables to Department ofTelecommunication (DOT). The net amount recoverable of Rs. 7263.61 Crores is subject toreconciliation and confirmation. In view of non reconciliation and non confirmation weare not in a position to ascertain and comment on the correctness of the outstandingbalances and resultant impact of the same on the Standalone IND AS financial statements ofthe Company. (Also refer point no. (a) of note no. 70 to the Standalone IND AS financialstatements).

(iii) Up to financial year 2011-12 License Fee payable to the DOT on IUC charges toBSNL was worked out on accrual basis as against the terms of License agreements requiringdeduction for expenditure from the gross revenue to be allowed on actual payment basis.From financial year 2012-13 the license fee payable to the DOT has been worked outstrictly in terms of the license agreements. The Company continues to reflect thedifference in license fee arising from working out the same on accrual basis as aforesaidfor the period up to financial year 2011-12 by way of contingent liability of `140.36Crores instead of actual liability resulting in understatement of current liabilities andunderstatement of loss to that extent. (Also refer note no. 59 to the Standalone IND ASfinancial statements).

(iv) The Company continues to allocate the overheads towards capital works in a mannerwhich is not in line with the accepted accounting practices and Indian Accounting Standard16 "Property Plant and Equipment" prescribed under Section 133 of the Act thesame results into overstatement of capital work in progress/Property Plant and Equipmentand understatement of loss. The actual impact of the same on the Standalone IND ASfinancial (Also refer note no. 36 and 39 to the statements for year is not as certainedStandalone quantified. IND AS financial statements).

(v) Except for the impairment loss of assets of CDMA units no adjustment has beenconsidered on account of impairment loss if any during the year with reference toIndian Accounting Standard 36 "Impairment of Assets" prescribed under Section133 of the Act. In view of uncertainty in achievement of future projections made by theCompany we are unable to ascertain and comment on the provision required in respect ofimpairment in carrying value of cash generating units and its consequent impact on theloss for the year accumulated balance of reserve and surplus and also the carrying valueof the cash generating units. (Also refer note no. 72 to the Standalone IND AS financialstatements).

(vi) Amount receivables from and payables to the various parties are subject toconfirmation and reconciliation. Pending such confirmation and reconciliations the impactthereof on the Standalone IND AS financial statements are not ascertainable andquantifiable.(Also refer note no. 67 to the Standalone IND AS financial statements).(vii) Dues from the operators are not taken into account for making provision for doubtfuldebts. In the absence of any working the impact thereof on the Standalone IND ASfinancial statements cannot be ascertained and quantified. (Also refer clause no. l (ii)of note no. 3 to the Standalone INDAS financial statements).

(viii) (a) In Delhi Unit reconciliation of balances of subscriber's deposits as persubsidiary records with financial books (WFMS) is still in progress and the impact ifany of the differences arising out of such reconciliation on statements cannotbeascertainedandquantifiedat present. (Also refer point no.StandaloneINDASfinancial (a) ofnote no. 66 to the Standalone IND AS financial statements).

(b) Unlinked credit of `36.91 Crores on account of receipts from subscribersagainst billing by the Company which could not be matched with corresponding receivablesis appearing as liabilities in the balance sheet. To that extent trade receivables andother current liabilities are overstated. (Also refer point no. (c) of note no. 66 and 77to the Standalone IND AS financial statements).

(ix) In the absence of detailed information i.e. break up of amount received withrelation to the individual invoices raised through MACH; invoice wise reconciliation ofthe roaming debtors is pending in Delhi Unit. Pending such reconciliation the impact ofthe same on the Standalone IND AS financialstatements cannot be ascertained andquantified. (Also refer note no. 68 to the Standalone INDAS financial statements).

(x) Property Plant and Equipment are generally capitalized on the basis of completioncertificates issued by the engineering department or bills received by finance departmentin respect of bought out capital items. Due to delays in issuance of the completioncertificates or receipt of the bills there are cases where capitalization of the

Property Plant and Equipment gets deferred to next year. The resultant impact of thesame on the statement of profit and loss by way of depreciation and amount of PropertyPlant and Equipment capitalized in the balance sheet cannot be ascertained and quantified.

(xi) Certain Land and Buildings transferred to MTNL from DOT in earlier years have beenreflected as leasehold. In the absence of relevant records we are not in a position tocomment on the classification capitalization and amortization of the same as leaseholdand also the consequential impacts if any of such classification capitalization andamortization not backed by relevant records. In the absence of relevant records impact ofsuch classification on the Standalone IND AS financial statements cannot be ascertainedand quantified. (xii) Department of Telecommunication (DOT) had raised a demand of `3313.15Crores in 2012-13 on account of one time charges for 2G spectrum held by the Company forGSM and CDMA for the period of license already elapsed and also for the remaining validperiod of license including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA has been revised by Rs. 107.44Crores on account of rectification of actual usage. Also as explained pending finality ofthe issue by the Company regarding surrender of a part of the spectrum crystallization ofissue by the DOT in view of the claim being contested by the Company and because of thematter being sub-judice in the Apex Court on account of dispute by other private operatorson the similar demands the amount payable if any is indeterminate. Accordingly noliability has been created for the demand made by DOT on this account and Rs. 3205.71Crores has been disclosed as contingent liability.

In view of the above we are not in a position to comment on the correctness of thestand taken by the Company and the ultimate implications of the same on the Standalone INDAS financial statements of the Company. (Also refer note no. 58 to the Standalone IND ASfinancial statements).

In the absence of information the effect of which can't be quantified we are unableto comment on the possible impact of the items stated in the point nos. (i) (ii) (iv)(v) (vi) (vii) (viii)(a) (ix) (x) (xi) and (xii) on the Standalone IND AS financialstatements of the Company for the year ended on 31st March 2017.

We further state that without considering the impact of items stated in preceding parathe effect of which could not be determined had the observations made by us in point nos(iii) and (viii)(b) been considered in the Standalone IND AS financialstatements loss forthe year would have been Rs. 3081.44 Crores as against the reported figure of` 2941.08

Crores in the Statement of Profit and Loss and Trade receivables under the head CurrentAssets would have been `454.67 Crores as against the reported figure of` 491.58 CroresOther Financial Liabilities would have been `1362.25 Crores as against the reported figureof`1258.80 Crores in the Balance Sheet.

Qualified Opinion

In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effects of the matters described in the Basis forQualified Opinion give the information required by the Act in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India including the Indian Accounting Standards (IND AS) of the state of affairs(financial position) of the Company as at 31st March 2017 and its losses (financialperformance including other comprehensive income) and its cash flows and the changes inequity for the year ended on that date.

Emphasis of Matters

We draw attention to the following notes on the Standalone IND AS financial statementsbeing matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us.Our opinion is not qualified in respect of these matters: (i) Note no. 79 to theStandalone IND AS financial statements regarding non provision of diminution in the valueof investments in joint ventures/subsidiary as these diminutions are considered temporaryin nature.

(ii) Note no. 62 to the Standalone IND AS financial statements regarding the adequacyor otherwise of the provision and / or contingency reserve held by the Company withreference to pending dispute with the Income Tax Department before the Hon'ble Courtsregarding deduction claimed by the Company u/s 80 IA of the Income Tax Act1961.

(iii) Point no.(a) of note no. 64 to the Standalone IND AS financial statementsregarding accounting of claims and counter claims of MTNL with M/S M&N PublicationsLtd. in a dispute over printing publishing and supply of telephone directories for MTNLin the year when the ultimate collection / payment of the same becomes reasonably certain.

(iv) Classification of trade receivables as unsecured without considering the securitydeposit which the Company has received from the subscribers. (Also refer note no. 15 tothe Standalone IND AS financial statements).

(v) Amount receivable from BSNL & Other Operators have been reflected as loans andother financial assets instead of bifurcating the same into trade receivables and otherreceivables. (Also refer note no. 15 to the Standalone IND AS financial statements).

(vi) Disclosure of consumption of imported and indigenous stores and spares andpercentage to the total consumption as required by Schedule III of the Companies Act 2013has not been made by the Company in the Standalone IND AS financial statements.

(vii) The Standalone IND AS financial statements of the Company reflectthat net worthof the Company has virtually eroded; The Company has incurred net cash loss during thecurrent year as well as in the previous year and the current liabilities exceeded thecurrent assets substantially. All these conditions indicate the existence of doubts aboutthe Company's ability materialuncertaintythatmaycastsignificant to continue as a goingconcern. However the Standalone IND AS financial statements of the Company have beenprepared on a going concern basis for the reasons stated in the note no. 78 to theStandalone IND AS financial statements.

Other Matters

The comparative financial information of the Company for the transition date openingbalance sheet as at 01st April 2015 included in these Standalone IND AS financialstatements are based on the previously issued statutory financial statements prepared inaccordance with the Companies (Accounting Standard) Rules 2006 audited by predecessorauditor whose report for the year ended 31st March 2015 dated 30th May 2015 expressedqualified opinion on those standalone financial statements as adjusted for thedifferences in accounting principles adopted by the Company on transition to the IndianAccounting Standard (IND AS) which have been audited by us.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government of India in terms of sub-section (11) of section 143 ofthe Act we give in the Annexure - ‘A' a statement on the matters specified inparagraphs 3 and 4 of the Order to the extent applicable.

2. As required by Section 143(5) of the Act we give in Annexure ‘B' a statementon the matters specified Comptroller and Auditor-General of India for the Company.

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

(a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purpose of our audit except for thematters described in point nos. (i) (ii) (iv) (v) (vi) (vii) (viii)(a) (ix) (x)(xi) and (xii) of the paragraph on Basis of Qualified Opinion given above ;

(b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books except for our commentsunder the head ‘Basis for Qualified Opinion' stated above;

(c) The Balance Sheet the Statement of Profit and Loss (including Other ComprehensiveInformation) the Cash Flow Statement and the Statement of Changes in Equity dealt with bythis Report are in agreement the books of account;

(d) In our opinion and based on our comments in point nos. (iii) (iv) (v) (x) (xi)and (xii) of the paragraph on Basis for Qualified Opinion given above the aforesaid withthe Indian Accounting Standards prescribed under Section 133 of the Act except for IND AS16 regarding Property Plant and Equipment IND AS 36 regarding Impairment of Assets andIND AS 37 on Provisions Contingent Liabilities and Contingent Assets;

(e) In view of the Government notification No. GSR 463 (E) dated 5th June 2015government companies are exempt from the applicability of Section 164 (2) of the Act; (f)With respect to the adequacy of internal financialcontrols over financial reporting of theCompany and operating effectiveness of such controls refer to our separate report in"Annexure C":

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

(h) With respect to the other matters to be included in the Auditors 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;

i. the Company has disclosed the impact of pending litigations whereverquantifiableon its financial position in its Standalone IND AS financial statements.Refer Note no. 48 to the Standalone IND AS financial statements.

ii. the Company is not required to make any provision for any material foreseeablelosses under any law or accounting standards on long terms contracts. Also the Company isnot dealing into derivatives contracts.

Refer Note no. 76 to the Standalone IND AS financial statements.

iii. There has been no delay in transferring any amount to the Investor Education andProtection Fund during the year. Refer Note No. 75 to the Standalone IND AS financialstatements.

iv. The Company has provided requisite disclosures in the Standalone IND AS financialstatements as to holding as well as dealings in specified Bank Notes during the periodfrom 08th November 2016 to 30th December 2016. Based on audit procedures and relying onthe management representations we report that the disclosures are in accordance withbooks of accounts maintained by the Company and as produced to us by the management. Referpoint no. (iv) of Note No. 16 to the Standalone IND AS financial statements.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(NITISH KUMAR CHUGH) (ROOPA GARG)
PARTNER PARTNER
Membership No.: 512742 Membership No.: 500677
PLACE : NEW DELHI
DATED : May 30 2017

ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT

REFERRED TO IN OUR INDEPENDENT AUDITORS' REPORT OF EVEN DATE TO THE MEMBERS OFMAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE IND AS FINANCIAL STATEMENTS FOR THEYEAR ENDED 31ST MARCH 2017.

(i) (a) Delhi unit has maintained records of fixed assets. However in MS unit-Delhiidentification numbers are not mentioned. It has been noticed that records of the EstatesDepartment in respect of land and building do not match with the records as per financialbooks. In case of Mumbai unit (both basic and WS) fixed assets registers have beenmaintained w.e.f. 01.04.2002. However the fixed assets records maintained by the Mumbaiunit are not updated and reconciled with the financial records. Also identificationnumbers are not mentioned in respect of most of the items. The corporate office hasmaintained fixed assets records showing full particulars including quantitative detailsand situation of fixed assets.

(b) As per the accounting policy of the company fixed assets are required to bephysically verified by the management on rotation basis once in three years which in ouropinion is reasonable and adequate in relation to the size of the Company and the natureof its business. As certified by the management Electrical Appliances Furniture andFixtures Lines & Wires and Computers were physically verified in accordance withprogramme of verification by the management during the year and no material discrepancieswere noticed on such verification.

(c) Title deeds of most of the immovable properties recorded in the books of theCompany are not held in the name of the Company. Details of such properties are givenhereunder:

(Rs. in Crores)
PARTICULARS DELHI UNIT MUMBAI UNIT
Free Hold Land
-Total Number of Cases 1 16
-Gross Block 0.06 ` 3.13
Lease Hold Land
-Total Number of Cases 89* 6
-Gross Block 219.53 ` 3.45
-Net Block 156.46 ` 2.44
Building
-Total Number of Cases 53** NIL
-Gross Block 32.37 NIL
-Net Block 4.92 NIL

* In respect of 43 cases out of 89 where the lease hold land acquired from DOT havebeen capitalized by MTNL and no data is available in respect of depreciation and net WDVof such assets as the same is not identifiable from the fixed assets register.

** No information is available in respect of lease hold buildings allotted by thevarious govt. authorities to MTNL but the same has been capitalized by MTNL and due to nonavailability of information the aforesaid cases has not been included in the abovedetails.

(ii) In our opinion physical verification of inventory has been conducted by themanagement at reasonable intervals except Sub-stores of Basic Unit Delhi Store of WS UnitDelhi ANC Area Stores of West 1 Unit Mumbai during the year. Discrepancies noticed onphysical verification of inventory as compared to book records were material and have beenproperly dealt with in the books of accounts.

(iii) The Company has not granted any secured or unsecured loans to companies firmslimited liability partnerships or other parties covered in the register maintained undersection 189 of the Companies Act 2013 (‘the Act'). Thus paragraph 3(iii) of theOrder is not applicable

(iv) The Company has not entered any transaction involving compliance with theprovisions of Section 185 and 186 of the Companies Act 2013. Thus paragraph 3(iv) of theOrder is not applicable (v) The Company has not accepted any deposits from the publicwithin the meaning of Section 73 to Section 76 or any other relevant provisions of theCompanies Act 2013 or rules framed there under.

(vi) As per information and explanation given to us Company is required to maintainthe cost records under Section 148(1) of the Companies Act 2013. As explained the Companyhas not yet maintained the required cost records for year 2016-17.

(vii) (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company amounts deducted/ accrued in the books ofaccount in respect of undisputed statutory dues including provident fund employees' stateinsurance income tax sales tax service tax duty of customs duty of excise valueadded tax cess and other material statutory dues wherever applicable have generallybeen regularly deposited with the appropriate authorities though there has been a slightdelay in few cases. According to the information and explanations given to us noundisputed amounts payable in respect of provident fund employees' state insuranceincome tax sales tax service tax duty of customs duty of excise value added tax cessor other material statutory dues were in arrears as at 31 March 2017 for a period of morethan six months from the date they became payable.

(b) According to the information and explanations given to us there are no dues ofincome tax sales tax service tax duty of customs duty of excise value added tax whichhave not been deposited with the appropriate authorities on account of any dispute exceptfor the following dues::

Delhi Unit i. Sales Tax

Name of Amount Period Authority where Forum where the
the Statute (Rs. in Crores) (Net) dispute is pending
Delhi Value Added Tax Act 2004 12.21 2007-08 Delhi Value Added Tax Tribunal
Delhi Value Added Tax Act 2004 62.60 2009-10 & 2010-11 (CWG 2010) Delhi Value Added Tax Tribunal
Central Sales Tax Act 1956 0.04 2012-13 Addl. Comm. Sales Tax
TOTAL 74.85

ii. Service Tax

Name of the Statute Amount (` in Crores) (Net) Period Forum where the dispute is pending
Finance Act 1994 8.45 2005-06 Commissioner of Central Excise and Service Tax
Finance Act 1994 22.13 2006-08 Custom Excise and Service Tax Appellate Tribunal
Finance Act 1994 0.08 2000-03 Commissioner of Central Excise and Service Tax
Finance Act 1994 0.71 2008-12 Commissioner of Central Excise and Service Tax
TOTAL 31.37

iii. Labour Cess

Name of the Statute Amount (` in Crores) (Net) Period Forum where the dispute is pending
Building and other Construction Workers Welfare Cess Act 1996. 9.73 1996 to 2001 Deputy Labor Commissioner

Mumbai Basic Unit i. Income Tax:

Name of the Statute Amount (Rs. in Crores) (Net) Year to which amount relates Forum where the dispute is pending
Income Tax Act 1961 0.02 2000-01 Commissioner of Income Tax
Income Tax Act 1961 0.64 2001-02 Commissioner of Income Tax
Income Tax Act 1961 0.05 2002-03 Commissioner of Income Tax
Income Tax Act 1961 0.28 2003-04 Commissioner of Income Tax
Income Tax Act 1961 0.03 2006-07 Commissioner of Income Tax
Income Tax Act 1961 0.01 2007-08 Commissioner of Income Tax
Total 1.03

ii. Sales Tax:

Name of the Statute Amount (` in Crores) (Net) Year to which amount relates Forum where the dispute is pending
Bombay Sales Tax Act 1959 0.17 1993-94 Maharashtra Sales Tax Tribunal Mumbai
Bombay Sales Tax Act 1959 5.27 1996-97 Hon'ble High Court
Bombay Sales Tax Act 1959 351.85 1997-98 Hon'ble Supreme Court of India
Bombay Sales Tax Act 1959 216.01 2003-04 Maharashtra Sales Tax Tribunal Mumbai
Bombay Sales Tax Act 1959 101.32 2004-05 Joint Commissioner of Sales Tax Mumbai
Bombay Sales Tax Act 1959 14.97 2009-10 Joint Commissioner of Sales Tax Mumbai
Bombay Sales Tax Act 1959 6.11 2011-12 Joint Commissioner of Sales Tax Mumbai
Total 695.70

iii. Luxury Tax

Name of the Statute Amount (` in Crores) (Net) Year to which amount relates Forum where the dispute is pending
Luxury Tax Act 1987 0.64 2007-08 Joint Commissioner of Sales Tax (Appeal)- IV Mumbai
Luxury Tax Act 1987 1.11 2008-09 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Luxury Tax Act 1987 0.26 2009-10 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Luxury Tax Act 1987 0.51 2010-11 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Luxury Tax Act 1987 0.93 2011-12 Joint Commissioner of Sales Tax (Appeal) IV Mumbai
Total 3.45

iv. Service Tax:

Name of the Statute Amount (Rs. in Crores) (Net) Year to which amount relates Forum where the dispute is pending
Finance Act 1994 0.20 2004-05 Custom Excise and Service Tax Appellate Tribunal
Finance Act 1994 2.44 2006-14 Custom Excise and Service Tax Appellate Tribunal
Total 2.64

Mumbai MS Unit

Central Excise:

Name of the Statute Amount Year to Which Forum where the dispute is pending
(Rs. in Crores) (Net) Amount Relates
Central Excise Act 1944 0.58 2004-05 Commissioner of Central Excise
Central Excise Act 1944 0.32 2006-07 Commissioner of Central Excise
Central Excise Act 1944 0.53 2013-14 Commissioner of Central Excise
Central Excise Act 1944 0.11 2006-07 Commissioner of Central Excise
Central Excise Act 1944 4.75 2005-06 Commissioner of Central Excise
Total 6.29

(viii) The Company has not defaulted in the repayment of loans or borrowings to afinancial institution bank Government or dues to debenture holders.

(ix) The Company has not raised any money by way of initial public offer or furtherpublic offer (including debt instruments) during the year and term loans has been appliedfor the purposes for which they were raised. (x) Based on audit procedures applied andaccording to the information and explanations given to us we report that no fraud on orby the Company has been noticed or reported during the course of our audit for the yearended on 31st March 2017 except for the following case:

Nature of Fraud Amount Remarks
(Rs. in Crores)
Misappropriation of cable store item in Transmission ` 1.076 FIR Lodged
Unit

(xi) In view of the Government notification No. GSR 463 (E) dated 5th June 2015Government Companies are exempt from the applicability of Section 197 of the Companies Act2013. Accordingly clause 3 (xi) of the Order is not applicable to the Company.

(xii) In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company. Hence Clause 3 (xii) of the Order is not applicable tothe Company.

(xiii) In our opinion and as per the information and explanation given to us thecompany has not entered into any transaction requiring compliance with Section 177 and 188of the Companies Act 2013. Hence Clause 3 (xiii) of the Order is not applicable to theCompany.

(xiv) Based on the information and explanation given to us the Company has not madeany preferential allotment or private placement of shares or fully or partly convertibledebentures during the year under review requiring compliance with Section 42 of theCompanies Act 2013. Hence Clause 3 (xiv) of the Order is not applicable to the Company.

(xv) Based on the information and explanation given to us the Company has not enteredinto any non-cash transactions with directors or persons connected with him. Hence Clause3 (xv) of the Order is not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to usCompany is not required to register under Section 45 IA of the Reserve Bank of India Act1934. Hence Clause 3 (xvi) of the Order is not applicable to the Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(NITISH KUMAR CHUGH) (ROOPA GARG)
PARTNER PARTNER
Membership No.: 512742 Membership No.: 500677
PLACE : NEW DELHI
DATED : May 30 2017

ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT

REFERRED TO IN OUR INDEPENDENT AUDITORS' REPORT OF EVEN DATE TO THE MEMBERS OFMAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE IND AS FINANCIAL STATEMENTS FOR THEYEAR ENDED 31ST MARCH 2017.

Directions indicating the areas to be examined by the Statutory Auditors during thecourse of audit of annual accounts of Mahanagar Telephone Nigam Limited (Standalone)for the year 2016-17 issued by the Comptroller & Auditor General of India undersection 143(5) of the Companies Act 2013.

Based on the information and explanations given to us we report as under:

Areas Examined Observation / Finding
1 Whether the company has clear title/lease deeds for freehold and leasehold respectively? If not please state the area of freehold and leasehold land for which title/lease deeds are not available. The Company does not have clear title/lease deeds in a number of cases. Summarized position of such cases is as under :
DELHI UNIT
The Company does not have clear title deeds in respect of 1 land property at Minto Road Delhi and classified as freehold. Also Company does not have any lease deed in respect of 89 cases of land properties spread across Delhi and classified as Leasehold.
MUMBAI UNIT
The Company does not have clear title deeds in respect of 16 cases of land properties spread across Mumbai and classified as freehold. Also Company does not have lease deeds in respect of 6 cases of land properties spread across Mumbai and classified as Leasehold.
2 Please report whether there are any cases of waiver / write off of debts / loans / interest etc. if yes the reason therefore and the amount involved. The details of cases of waiver / write off of debts / loans / interest by the Company during the year are as under:

 

Particulars (Rs. in Crores)
Write off of debts 25.87
Due to non recoverability Waiver of penalty & interest 0.00
TOTAL 25.87

 

Areas Examined Observation / Finding
3 Whether proper records are maintained for inven- tories lying with third parties & assets received as gift from Govt. or other authorities. a. There are no inventories lying with third parties.
b. The Company has not received any assets as gifts from Government or other authorities during the year.
4 Amount of Revenue Share (License Fee and Spec- trum Usage Charges) appearing in the Financial Statements should be thoroughly checked for its correctness. The details have been verified by us.

 

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(NITISH KUMAR CHUGH) (ROOPA GARG)
PARTNER PARTNER
Membership No.: 512742 Membership No.: 500677
PLACE : NEW DELHI
DATED : May 30 2017

ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT

(Referred to in paragraph (f) under ‘Report on Other Legal and RegulatoryRequirements' section of our report of even date)

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 ofMahanagarTelephone Nigam Limited ("the Company") as of 31st March 2017 in conjunctionwith our audit of the Standalone IND AS financial statements of the Company for the yearended on that date.

Management's Responsibility for Internal Financial Controls

The Company's management is responsible for establishing and maintaining internalfinancial internal control over financial reporting criteria established by internalcontrol stated in the Guidance Note on Audit of Internal Financial Controls over FinancialReporting issued by the Institute of Chartered Accountants of India (‘ICAI'). Theseresponsibilities include the design implementation and that were operating effectivelyfor ensuring the orderly and efficient maintenanceofadequateinternalfinancial conduct ofits business including adherence to company's policies the safeguarding of its assetsthe prevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the CompaniesAct 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 Auditingissued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act2013 to the extent applicable to an audit of internal financial controls both applicableto an audit of Internal Financial Controls and both issued by the Institute of CharteredAccountants of India.

Those Standards and the Guidance Note require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance aboutwhetheradequateinternalfinancialcontrols 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 financial reporting includedobtainingfinancialcontrols over financial reporting assessing the understanding ofinternal risk that a material weakness exists and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor's judgment including the assessment ofthe risks of material misstatementoftheStandaloneINDASfinancialstatements whether due tofraud or error.

We believe that the audit evidence we have obtained is sufficientand appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemover financial reporting.

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 Standalone IND AS financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of Standalone IND AS financial statements in accordance with generallyaccepted accounting principles and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of thecompany; and

(3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition use or disposition of the company's assets that could have amaterial effect on the Standalone IND AS 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 projectionsofanyevaluationoftheinternalfinancialcontrols over financial reporting tofuture periods are subject to the risk that the internal financial control over financialreporting may become inadequate because of changes in conditions or that the degree ofcompliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit thefollowing material weaknesses have been identified in the operating effectiveness of theCompany's internal financial controls over financial reporting as at March 31 2017:

(i) The company did not have an appropriate internal control system for identificationof overheads to be capitalized with the cost of Property Plant and Equipment which couldpotentially result into under /over capitalization of Property Plant and Equipment andcorresponding impact on the operational results of the Company. (i) The company did nothave appropriate internal control system for ensuring capitalization of Property Plantand Equipment as and when the same isreadyforuseduetodelayedissueofcompletioncertificateby engineering department or due todelay in receipt of bills from the vendors for bought out items. This could potentiallyresult into under capitalization and corresponding impact on the operational results dueto lower charge of depreciation.

(ii) The company did not have an appropriate internal control system to ensure thatprovisions made pending receipt of bills from vendors/contractors at the quarter end andyear end are duly reversed when actual bills are received and accounted for. This couldpotentially result in the same being accounting twice.

(iii) The company did not have an integrated ERP system. Different software packagesused by the company are interfaced through software links or manual intervention leavinggaps between them. This could potentially result into impaired financial reporting.

(iv) The company did not have an appropriate internal control system for reconciliationof vendor/contractor accounts which could potentially result in some changes in theStandalone IND AS financial statements

(v) The company did not have effective internal audit system so as to cover all majorareas with extensive scope. This could potentially result into weak checks and balancesand unreported financialirregularities ultimately resulting into distorted financialreporting.

A ‘material weakness' is a deficiency or a combination of deficiencies ininternal financial such that there is a reasonable possibility that a materialmisstatement of the company's annual or interim financial statements will not be preventedor detected on a timely basis.

In our opinion except for the effects / possible effects of the material weaknessesdescribed above on the achievement of the objectives of the control criteria the Companyhas maintained in all material respects adequate internal financial controls overfinancial reporting and such internal financial controls over financial reporting were asof March 31 2017 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 Reporting issued by the Institute of Chartered Accountants ofIndia.

We have considered the material weaknesses identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the March 31 2017Standalone IND AS financial statements of the Company and these material weaknesses donot affect our opinion on the Standalone IND AS financial statements Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.
CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS
Firm Registration No.: 000517N Firm Registration No.: 007814N
(NITISH KUMAR CHUGH) (ROOPA GARG)
PARTNER PARTNER
Membership No.: 512742 Membership No.: 500677
PLACE : NEW DELHI
DATED : May 30 2017