Report on the Audit of Financial Statement Qualified Opinion
We have audited the financial statements of CARNATION INDUSTRIES LIMITED ("theCompany") which comprise the balance sheet as at March 31 2019 and the statementof Profit and Loss statement of changes in equity and the statement of cash flows for theyear then ended and notes to the financial statements including a summary of significantaccounting policies and other explanatory information.
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 section of our report the aforesaid financial statements give the informationrequired by the Companies Act 2013 in the manner so required and give a true and fair viewin conformity with the accounting principles generally accepted in India of the state ofaffairs of the Company as at March 31st 2019 and its loss changes in equity and its cashflows for the year ended on that date.
Basis for Qualified Opinion
a) We draw attention to Note No. 9 of the Financial Statements regarding TradeReceivables in respect of export sales made in earlier years amounting to Rs. 3673.19lakhs (including Rs. 1648.09 lakhs due from a related party exceeding 3 years) which inour opinion are doubtful of recovery and credit impaired. The company has neither carriedout impairment exercise of Trade Receivables nor provided for the same and continues toclassify it as current financial assets. Had the same been provided for the loss for theyear would have increased by Rs. 3673.19 lakhs and accordingly trade receivables andretained earnings would have reduced by equivalent amount. Further due to such delay inrealisation of export proceeds incentives received and accounted for in books consequentto such delay receipt also has not been reversed and accounted for.
b) Secured lenders viz. State Bank of India and Punjab National Bank has classifiedthe credit facilities extended to the company as Non-Performing Asset (NPA) and hasrecalled the said facilities and has served notice under section 13(2) of theSecuritisation and Reconstruction of Financial Assets and Enforcement of Security InterestAct (SARFAESI) 2002 and the outstanding balance there against is Rs. 2597.40 lakhs.Further interest on the said credit facilities has also not been accounted for which isnot in compliance with the requirement of Ind AS-23 "Borrowing Costs". Had thesame been accounted for the loss of the year would
have increased by Rs. 308.29 lakhs (interest calculated on the basis of sanction terms)and short-term borrowings by equivalent amount. Further penal interest and or otherlevies and charges if any that could be levied by the lending bank could not beascertained and provided for.
c) During the year under review the company has realised foreign trade receivablespertaining to related party against Bills purchased by banks amounting to Rs. 263.35 lakhswhich were credited in bank account other than the bank account maintained with the BillPurchasing bank (lending banks) without obtaining permission of the concerned bank.
Material Uncertainty Related to Going Concern
We draw attention to Note 34(xv) of the Financial Statement regarding preparation ofFinancial Statements on Going Concern basis for the reasons stated therein. The Companyhas incurred a net loss of Rs.468.48 lakhs (Previous Year: Rs. 653.45 lakhs) during theyear ended March 31 2019 and as of that date the Company's current liabilities exceededits current assets by Rs. 45.22 lakhs. The Company continues to incur losses andoperations of unit at Uluberia have been suspended and there is considerable decline inthe level of operations. Further the company has defaulted in paying the Consortium ofBank (State Bank of India and Punjab National Bank) which as on 31.03.2019 showsoutstanding of Rs. 2597.40 lakhs (Previous Year: Rs. 3040.85 lakhs).
As stated in Note 34(xv) the appropriateness of Going Concern is dependent upon variousinitiatives undertaken by the company including realisation of Trade receivablesadmittance and disbursement of ECGC Claim and amicable settlement of creditor who hasapproached NCLT and other forums and approvals including No Objection Certificate inrespect of assets mortgaged/ charged to consortium of banks as collateral for disposal.
These events or conditions as set forth herein above indicate that a materialuncertainty exists that may cast significant doubt on the Company's ability to continue asa going concern.
Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the financial statements of the financial year ended onMarch312019. These matters were addressed in the context of our audit of the financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. In addition to the matter described in the basis forqualified opinion paragraph and Material Uncertainty related to going concern paragraphherein above we have determined the matters described below to be the key audit mattersto be communicated in our report.
|Key Audit Matter ||Auditor's Response |
|1. The company has made the provision for gratuity and leave encashment on the basis of report obtained from external experts. Refer Notes 17 and 34(v) to the Financial Statements ||Principal Audit Procedures Our Audit procedure was in accordance with Standard on Auditing issued by the Institute of Chartered Accountant of India in this respect; accordingly we have obtained the report of actuary for valuation of provision of gratuity and leave encashment. The report of actuarial valuation was done by one of fellow member of the Institute of Actuaries of India. We have also checked the input given to the expert by the company. The liabilities pertaining to that remains unfunded. |
|2 Non - Reversal of Input tax Credit in compliance to section 16 of Goods and Services Act 2017 where payment was not made to suppliers within the stipulated time. ||Principal Audit Procedures We have observed the company has claimed input tax credit on the basis of invoices received upto 31.05.2018. However as per the provision of GST Act the input tax credit has to be reversed if payment has not been made within 180 days. The same for the period from 01.07.2017 to 31.05.2018 has not been adhered to and consequently such input tax credits remains unreversed. |
|3 Verification of Trade Receivables ||Principal Audit Procedures As a part of our audit procedures related to Trade receivables we have sent mail to all the parties to confirm their balances. But we have not received any confirmation from the parties. However we have applied our additional audit procedures to audit the trade receivables and concluded the same. |
|4 Internal Audit ||Principal Audit Procedures The management has obtained internal audit report for the entire year at once consequently the frequency of the internal audit and the purpose for which the same is conducted is diluted. In our view scope and frequency of internal audit should be widened and timely report need to be obtained. |
Information other than the Financial Statements and Auditor's Report thereon
The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis and Director's Report including Annexures to Director's Report butdoes not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated. If based on the work we haveperformed we conclude that there is a material misstatement of this other information weare required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the FinancialStatements
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 financial statements that give a true and fair view of the financial positionfinancial performance changes in equity and cash flows of the Company in accordance withthe accounting principles generally accepted in India including the accounting Standardsspecified under section 133 of the Act. This responsibility also includes maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingof the assets of the Company and for preventing and detecting frauds and otherirregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error.
In preparing the financial statements the Board of Directors is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessthe Board of Directors either intends to liquidate the Company or to cease operations orhas no realistic alternative but to do so.
Those Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibility for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement whether due to fraud or errorand to issue an auditor's report that includes our opinion. Reasonable assurance is a highlevel of assurance but is not a guarantee that an audit conducted in accordance withStandards on Auditing will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if individuallyor in the aggregate they could reasonably be expected to influence the economic decisionsof users taken on the basis of these financial statements.
As part of an audit in accordance with Standards on Auditing we exercise professionaljudgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financialstatements whether due to fraud or error design and perform audit procedures responsiveto those risks and obtain audit evidence that is sufficient and appropriate to provide abasis for our opinion. The risk of not detecting a material misstatement resulting fromfraud is higher than for one resulting from error as fraud may involve collusionforgery intentional omissions misrepresentations or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances. Under section 143(3)(i)of the Companies Act 2013 we are also responsible for expressing our opinion on whetherthe company has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe financial statements or if such disclosures are inadequate to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our auditor'sreport. However future events or conditions may cause the Company to cease to continue asa going concern.
Evaluate the overall presentation structure and content of the financialstatements including the disclosures and whether the financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in ourauditor's report unless law or regulation precludes public disclosure about the matter orwhen in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 issued by the CentralGovernment of India in terms of sub-section (11) of section 143 of the Act ("theOrder") and on the basis of such checks of the books and records of the Company aswe considered appropriate and according to the information and explanations given to uswe give in the "Annexure A" a statement on the matters specified in paragraphs 3and 4 of the Order.
2. 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;
b. 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;
c. The Balance Sheet the Statement of Profit and Loss (including other comprehensiveincome)the Cash Flow Statement and the Statement of Changes in Equity dealt with by thisReport are in agreement with the books of account;
d. Except for the effects of the matter described in the Basis for Qualified Opinionparagraph above in our opinion the aforesaid financial statements comply with the IndianAccounting Standards (Ind AS) specified under section 133 of the Act;
e. On the basis of written representations received from the Directors taken on recordby the Board of Directors none of the Directors is disqualified as on March 312019 frombeing appointed as a Director in terms of Section 164 (2) of the Act;
f. With respect to the adequacy of the internal financial controls with reference tofinancial statements of the Company and the operating effectiveness of such controlsrefer to our separate Report in Annexure B;
g. In our opinion the managerial remuneration for the year ended March 312019 hasbeen paid/ provided by the Company to its directors in accordance with the provisions ofsection 197 read with Schedule V of the Act;
h. 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 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigation as at March 31 2019 onits financial position in its Financial Statements- Refer note 34(ii) to the FinancialStatements.
ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.
iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company. During the year unclaimeddividend amounting to Rs. 0.27 Lacs (Previous Year - Nil) relating to Financial year2010-11 has been transferred to Investor Education and Protection Fund by the company.
For Jain Saraogi & Co.
FRN : 305004E
Place : 1 Crooked Lane
Kolkata - 700 069
Dated : 29th May 2019
Annexure "A" to Independent Auditors' Report of even date to the members ofCARNATION
INDUSTRIES LIMITED on the financial statements as of and for the year ended March312019.
I. (a) The Company is maintaining proper records showing full particulars includingquantitative
details and situation of fixed assets.
(b) As informed to us fixed assets of the company have been physically verified by themanagement and no material discrepancies were noticed on such verification. In ouropinion the frequency of verification of the fixed assets is reasonable having regard tothe size of the company and the nature of its assets.
(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the immovable properties are held in the nameof the company and the relevant tittle deeds are deposited with the bank. However periodicconfirmation from bank as regards retaining title deed has not been obtained.
II. The physical verification of inventory has been conducted by the management atreasonable intervals and no material discrepancies were noticed on such physicalverification.
III. In our opinion and according to the information and explanations given to us thecompany has not granted any loans secured or unsecured to companies firms limitedliability partnership or other parties covered in the register maintained under section189 of the Companies act 2013. Accordingly the provisions of Caluses 3(iii) (a)3(iii)(b) and 3(iii)(c) of the Order are not applicable to the company.
IV. In our opinion and according to the information and explanations given to us thecompany has not granted any loans or made any investments or provided any guarantees orsecurity to the parties covered under Section 185 and 186. Therefore the provisions ofclause 3(iv) of the said order are not applicable to the Company.
V. According to the information and explanations given to us the Company has notaccepted any deposits from the public within the meaning of Section 73 74 75 and 76 ofthe Act and the Rules framed thereunder.
VI. The Central Government has prescribed the maintenance of cost records under section148(1) of the Companies Act 2013 for the products of the company. We have broadlyreviewed such records maintained by the company and are of the opinion that prima faciethe prescribed records have made and maintained. We have however not made any detailedexamination of the said records with a view to determine whether they are accurate orcomplete.
VII. (a)According to the information and explanations given to us and on the basis ofour examinations of the books of account the Company has not been regular in depositingundisputed statutory dues including provident fund employees' state insuranceincome-tax goods and services tax and other material statutory dues as applicable withthe appropriate authorities and the following undisputed dues were outstanding as on 31stMarch2019 for a period of more than six months from the date they became payable.
|Name of the statute ||Nature of Dues ||Period to which the amount relates ||Amount (Rs. in lacs) ||Remarks |
|The Income Tax Act 1961 ||Dividend Distribution Tax ||F.Y. 2016-17 ||2.82 ||Company has paid the amount on 13.05.2019. |
(b) According to the information and explanations given to us the following dues ofincome-tax duty of excise and Value Added Tax have not been deposited by the Company onaccount of disputes:
|Name Of Statue ||Nature of Dues ||Amount (Rs. in Lacs) ||Forum where Dispute is Pending |
|West Bengal Value Added Tax Act 203 ||Value Added Tax for the Financial Year 2007-2008 ||100.13 ||Before the West Bengal Commercial Taxes Appellate & Revision Board |
|Central Excise Act1944 ||Duty and Penalty for the Financial Year 2007-08 ||136.55 ||Before the Commissioner (Appeals- 1 & II) of Central Excise. |
VIII. Based on our audit procedures and on the information and explanation given to usthe Company did not have any outstanding debentures loans or borrowings from thegovernment during the year. However the Company has defaulted in repayment of followingdues to the financial institution/ banks:
|Bank/ Financial Institution ||Period of Default ||Amount of Default (Rs. in Lacs) |
|ICICI Bank ||For the month of April 2018 : 1 day ||2.11 Lakhs (each Instalment) |
| ||For the month of July 2018 : 21 days || |
| ||For the month of August 2018 : 18 days || |
| ||For the month of September 2018 : 18 days || |
| ||For the month of October 2018 : 15 days || |
| ||For the month of November 2018 : 11 days || |
| ||For the month of December 2018 : 21 days || |
| ||For the month of January 2019 : 19 days || |
| ||For the month of February 2019 : 16 days || |
| ||For the month of March 2019 : 17 days || |
|State Bank of India ||For the financial Year 2018-19 ||Opening balance- 2295.74 Lacs * Closing balance- 2119.54 Lacs * |
|Punjab National Bank ||For the financial Year 2018-19 ||Opening balance- 745.11 Lacs * Closing balance- 477.86 Lacs * |
*Refer Note 19.3 to the notes to the financial statements.
IX. The company did not raise monies by way of initial public offer or further publicoffer (including debt instruments) and term loans during the year under review.
X. During the course of our examination of the books and records of the companycarried out in accordance with the generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyinstance of material fraud by the Company or on the Company by its officers or employeesnoticed or reported during the year nor have we been informed of any such case by themanagement.
XI. According to the information and explanation given 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 of the Companies Act 2013.
XII. According to the information and explanations given to us the Company is not aNidhi Company. Accordingly provisions of clause 3(xii) of the Order are not applicable.
XIII. According to the information and explanations provided by the managementtransactions with related parties are in compliance with the provisions of Sections 177and 188 of the Companies Act where applicable and the details have been disclosed in thefinancial statements as required by the applicable Ind AS.
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. Accordingly the provisions of Clause 3(xiv) of the Order is not applicable.
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 them. Accordingly the provisions ofClause 3(xv) of the Order is not applicable.
XVI. The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934.
For Jain Saraogi & Co.
FRN : 305004E
Place : 1 Crooked Lane
Kolkata - 700 069
Dated : 29th May 2019
"Annexure B" to the Independent Auditor's Report of even date to the membersof CARNATION
INDUSTRIES LIMITED on the financial statements for the year ended March 312019.
Independent Auditor's Report on the Internal Financial Controls under Clause (i) ofSubsection 3 of Section 143 of the Companies Act 2013 ("the Act")
We have audited the internal financial controls with reference to financial statementsof CARNATION INDUSTRIES LIMITED ("the Company") as of March 312019 inconjunction with our audit of the financial statements of the Company for the year endedon 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 (ICAI'). Theseresponsibilities include the design implementation and maintenance of adequate internalfinancial controls that were operating effectively for ensuring the orderly and efficientconduct of its business including adherence to company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Act.
Our responsibility is to express an opinion on the Company's internal financialcontrols with reference to financial statements based on our audit. We conducted our auditin accordance with the Guidance Note on Audit of Internal Financial Controls OverFinancial Reporting (the "Guidance Note") and the Standards on Auditing deemedto be prescribed under section 143(10) of the Act to the extent applicable to an audit ofinternal financial controls both applicable to an audit of Internal Financial Controlsand both issued by the Institute of Chartered Accountants of India. Those Standards andthe Guidance Note require that we comply with ethical requirements and plan and performthe audit to obtain reasonable assurance about whether adequate internal financialcontrols over financial reporting was established and maintained and if such controlsoperated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system with reference to financial statements and theiroperating effectiveness. Our audit of internal financial controls with reference tofinancial statements included obtaining an understanding of internal financial controlswith reference to financial statements assessing the risk that a material weaknessexists and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. The procedures selected depend on the auditor'sjudgement including the assessment of the risks of material misstatement of the Ind ASfinancial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemwith reference to financial statements.
Meaning of Internal Financial Controls over Financial Reporting
A company's internal financial controls with reference to financial statements is aprocess designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of Ind AS financial statements for external purposes inaccordance with generally accepted accounting principles. A Company's internal financialcontrols with reference to financial statements includes those policies and proceduresthat
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 Ind AS financial statements in accordance with generally acceptedaccounting principles and that receipts and expenditures of the company are being madeonly in accordance with authorisations of management and directors of the company; and
3. provide reasonable assurance regarding prevention or timely detection ofunauthorised acquisition use or disposition of the company's assets that could have amaterial effect on the Ind AS financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting
Because of the inherent limitations of internal financial controls with reference tofinancial statements including the possibility of collusion or improper managementoverride of controls material misstatements due to error or fraud may occur and not bedetected. Also projections of any evaluation of the internal financial controls withreference to financial statements to future periods are subject to the risk that theinternal financial controls with reference to financial statements may become inadequatebecause of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate.
In our opinion apart from the matter describe in "Basis of qualifiedopinion" and "Key audit matter" paragraph; the Company has in all materialrespects an adequate internal financial controls system with reference to financialstatements and such internal financial controls with reference to financial statementswere operating effectively as at March 312019 based on the internal control overfinancial reporting criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note on Audit of Internal FinancialControls Over Financial Reporting issued by the Institute of Chartered Accountants ofIndia.
For Jain Saraogi & Co.
FRN : 305004E
Place : 1 Crooked Lane
Kolkata - 700 069
Dated : 29th May 2019