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Mahanagar Telephone Nigam Ltd.

BSE: 500108 Sector: Telecom
NSE: MTNL ISIN Code: INE153A01019
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VOLUME 302060
52-Week high 40.85
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Mkt Cap.(Rs cr) 1,490
Buy Price 0.00
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OPEN 23.80
CLOSE 23.75
VOLUME 302060
52-Week high 40.85
52-Week low 16.70
P/E
Mkt Cap.(Rs cr) 1,490
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Mahanagar Telephone Nigam Ltd. (MTNL) - Auditors Report

Company auditors report

<dhhead>INDEPENDENT AUDITOR'S REPORT</dhhead>

To

The Members of

Mahanagar Telephone Nigam Limited

 

Report on the Audit of the Standalone Ind-AS Financial StatementsQualified

Opinion

We have audited the accompanying standalone Ind-AS financial statementsof MAHANAGAR TELEPHONE NIGAM LIMITED ("the Company") which comprise the BalanceSheet as at March 31 2022 the Statement of Profit and Loss (including OtherComprehensive Income) the Statement of Changes in Equity and the Statement of Cash Flowsfor the year then ended and notes to financial statements including a summary of thesignificant accounting policies and other explanatory information (hereinafter referred toas "the standalone Ind- AS financial statements").

In our opinion and to the best of our information and according to theexplanations given to us except for the effects of the matters described in the basis forQualified Opinion Section of our report the aforesaid standalone Ind- AS financialstatements give the information required by the Companies Act 2013 ("the Act")in the manner so required and give a true and fair view in conformity with the IndianAccounting Standards prescribed under section 133 of the Act read with the Companies(Indian Accounting Standards) Rules 2015 as amended ("Ind AS") and otheraccounting principles generally accepted in India of the state of affairs of the Companyas at March 31 2022 total comprehensive loss (comprising of loss and other comprehensiveloss) changes in equity and its cash flows for the year ended on that date.

 

Basis for Qualified Opinion

We conducted our audit of the standalone Ind-AS financial statements inaccordance with the Standards on Auditing specified under section 143(10) of the Act(SAs). Our responsibilities under those Standards are further described in theAuditor’s Responsibilities for the Audit of the Standalone Ind AS FinancialStatements section ofour report. We are independent ofthe Company inaccordance with theCode of Ethics issued by the Institute of Chartered Accountants of India (ICAI) togetherwith the ethical requirements that are relevant to our audit of the standalone Ind ASfinancial statements under the provisions of the Act and the Rules made there under andwe have fulfilled our other ethical responsibilities in accordance with these requirementsand the ICAI’s Code of Ethics. We believe that the audit evidence we have obtained

is sufficient and appropriate to provide a basis for our qualifiedaudit opinion on the standalone Ind AS

financial statements.

(i) The Net Worth of the Company has been fully eroded; The Company hasincurred net cash loss during the year ended March 31st 2022 as well as in the previousyear and the current liabilities exceeded the current assets substantially.

FurthermoreDepartmentof Public Enterprises vide its OfficeMemorandumNo.DPE/5(1)/2014- Fin. (Part-IX-A) has classified the status of the Company as"Incipient Sick CPSE". Department of Telecommunication (DOT) has also confirmedthe status vide its issue no. I/3000697/ 2017 through file no. 19-17/2017 - SU-II.

However the standalone financial statement of the Company have beenprepared on a going concern basis keeping in view the majority stake of the Government ofIndia.

Further Union Cabinet has also approved the "Revival plan of BSNLand MTNL" by reducing employee costs administrative allotment of spectrum for 4Gservices debt restructuring by raising of sovereign guarantee bonds monetization ofassets and in principle approval for merger of BSNL and MTNL. Further the Company hadimplemented the Voluntary Retirement Scheme in FY 2019-20 resulted into reduction inEmployees Cost and also raised funds by issuing Bonds for ' 6500 crore in FY 2020-21 inline with cabinet note. (Also refer note no. 78 to the standalone Ind-AS financialstatements)

(ii) Bharat Sanchar Nigam Limited (BSNL):

a) The Company has certain balances receivables from and payables toBharat Sanchar Nigam Limited (BSNL). The net amount recoverable of Rs. 3521.50 Crores issubject to reconciliation and confirmation. In view of non-reconciliation andnon-confirmation and also in view of various pending disputes regarding claims and counterclaims we are not in a position to ascertain and comment on the correctness of theoutstanding balances and resultant impact of the same on the standalone financialstatement of the Company.

b) The Company has not provided a provision for doubtful claims inrespect of lapsed CENVAT Credit due to non-payment of service tax to service providerswithin the period of 180 days and due to transition provision under Goods and Service Tax(GST) where the aforesaid CENVAT credit amounting to Rs. 115.97 Crores has not beencarried forward resulting in overstatement of Current Assets and understatement of loss tothat extent.

(iii) The Company has certain balances receivables from and payables toDepartment of Telecommunication (DOT). The net amount recoverable of Rs. 181.34 CroresOut of which Rs. 181.19 Crores is subject to reconciliation and confirmation. In view ofnon-reconciliation and non-confirmation we are not in a position to ascertain and commenton the correctness of the outstanding balances and resultant impact of the same on thestandalone financial statement of the Company. (Also refer point no. (a) of note no. 70 tothe standalone Ind-AS financial statements).

(iv) Up to financial year 2011-12 License Fee payable to the DOT on IUCcharges to BSNL was worked out on accrual basis as against the terms of License agreementsrequiring deduction for expenditure from the gross revenue to be allowed on actual paymentbasis. 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 201112 by way of contingent liability of Rs. 140.36Crores instead of actual liability resulting in understatement of current liabilities andunderstatement of loss to that extent. (Also refer note no. 83 to the standalone Ind-ASfinancial statements).

(v) The Company had allocated the overheads towards capital works in amanner which is not in line with the accepted accounting practices and Indian AccountingStandard - 16 "Property Plant and Equipment" prescribed under Section 133 ofthe Act the same results into overstatement of capital work in progress/ property plantand equipment and understatement of loss. The actual impact of the same on the standalonefinancial statement for year is not ascertained and quantified. (Also refer note no. 3839 and 41 to the standalone Ind-AS financial statements).

(vi) Except for the impairment loss of assets of CDMA units provided inearlier years no adjustment has been considered on account of impairment loss if anyduring the year with reference to Indian Accounting Standard - 36 "Impairment ofAssets" prescribed under Section 133 of the Act. In view of uncertainty inachievement of future projections made by the Company we are unable to ascertain andcomment on the provision required in respect of impairment in carrying value of cashgenerating units and its consequent impact on the loss for the year ended March 31st2022 accumulated balance of other equity and also the carrying value of the cashgenerating units. (Also refer note no. 72 to the standalone Ind-AS financial statements).

(vii) The Company does not follow a system of obtaining confirmationsand performing reconciliation of balances in respect of amount receivables from tradereceivables deposits with Government Departments and others claim recoverable fromoperators and others parties and amount payables to trade payables claim payable tooperators and amount payable to other parties. Accordingly amount receivables from andpayables to the various parties are subject to confirmation and reconciliation. Pendingsuch confirmation and reconciliations the impact thereof on the standalone financialstatement are not ascertainable and quantifiable. (Also refer note no. 67 to thestandalone Ind-AS financial statements).

(viii) Unlinked credit of Rs. 71.08 Crores on account of receipts fromsubscribers against billing by the Company which could not be matched with correspondingreceivables is appearing as liabilities in the balance sheet. To that extent tradereceivables and current liabilities are overstated. Pending reconciliations the impactthereof on the standalone financial statement are not ascertainable and quantifiable.(Also refer note no. 66 and 77 to the standalone Ind-AS financial statements).

(ix) Property Plant and Equipment are generally capitalized on thebasis of completion certificates issued by the engineering department or bills received byfinance department in respect of bought out capital items or inventory issued from theStores. Due to delays in issuance of the completion certificates or receipt of the billsor receipt of inventory issue slips there are cases where capitalization of the PropertyPlant and Equipment gets deferred to next year. We are unable to comment whether theCapital Work-in-progress (CWIP) shown in books in the current year are actually part ofCWIP or have already been commissioned. The resultant impact of the same on the standalonefinancial statement by way of depreciation and amount of Property Plant and Equipmentcapitalized in the balance sheet cannot be ascertained and quantified.

(x) Department of Telecommunication (DOT) had raised a demand of Rs.3313.15 Crores in 201213 on account of one time charges for 2G spectrum held by theCompany for GSM and CDMA for the period of license already elapsed and also for theremaining valid period of license including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA for Rs 107.44Crores has been withdrawn by DOT on account of rectification of actual usage.

Also as explained pending finality of the issue by the Companyregarding surrender of a part of the spectrum crystallization of issue by the DOT in viewof the claim being contested by private operators and because of the matter beingsub-judice in the Apex Court on account of dispute by other private operators on thesimilar demands the amount payable if any is indeterminate. Accordingly no liabilityhas been created for the demand made by DOT on this account and Rs. 3205. 71 Crores hasbeen disclosed as contingent liability till FY 2018-19 although no further demand is therefrom DOT till date. However as explained further the TDSAT while setting aside the levyof OTSC on spectrum allotted beyond 6.2 Mhz directed Govt. to review the demand forspectrum allotted after 1-7-2008 and that too wef 1-1-2013 in case the spectrum beyond 6.2Mhz was allotted before 1-1-2013. As explained as per the TDSAT orders also no furtherdemand is raised till now and as per management based on TDSAT direction the demand ifany cannot be more than Rs 455.15 crores the same is considered as contingent liability.

In view of the above we are not in a position to comment on thecorrectness of the stand taken by the Company and the ultimate implications of the same onthe standalone financial statement of the Company. (Also refer note no. 61 to thestandalone Ind-AS financial statements).

(xi) The company has recovered Electricity Charges from the tenants onwhich liability for Goods and Services Tax (GST) has not been considered as the expensesrecovered without installing sub meter in some of the cases. The actual impact of the sameon the standalone financial Statement for the year ended March 31st 2022 has not beenascertained and quantified.

(xii) The TDS on provision for Expenses (Accrued Liability) has notbeen deducted under chapter XVII- B of Income Tax Act 1961. The actual impact of the sameon the standalone financial statement for the year ended March 31st 2022 hasnot been ascertained and quantified.

(xiii) The Company is making the provision for interest forlate/non-payment to MSME vendors which is subject to deduction of tax under section 194Aof Income Tax Act 1961.The actual impact of the same on the standalone financialstatement for the year ended March 31st 2022 is not ascertained andquantified.

(xiv) The income arising on account of rental income in respect ofproperty occupied by the BSNL amounting to Rs. 33.52 Crores accrued during the year endedMarch 31st 2022 has not been recognized in Delhi unit in the Standalonefinancial statement. Further the Goods and Services

Tax (GST) has also not been considered in respect of income arising onaccount of rented property occupied by the BSNL for both Delhi and Mumbai unit. Theaccumulated impact on the standalone financial statement of such income and liabilityunder Goods and Services Tax (GST) for the current year and preceding years is notascertained and quantified.

The above basis for qualified opinion referred to in Para no. (i) to(xiv) were subject matter of qualification in the Auditor’s Report for the year endedon March 3lst 2021.

In the absence of information the effect of which can’t bequantified we are unable to comment on the possible impact of the items stated in thepoint nos. (i) (ii)(a) (iii) (v) (vi) (vii)(viii) (ix) (x) (xi) (xii) (xiii)and (xiv) on the standalone Ind-AS financial statements of the Company for the year endedon 31st March 2022.

 

Emphasis of Matters

We draw attention to the following notes on the standalone IND-ASfinancial statements being matters pertaining to Mahanagar Telephone Nigam Limited requiringemphasis by us. Our opinion is not qualified in respect of these matters:

(i) Refer note no. 63 to the standalone Ind-AS financial statementsregarding 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 Act 1961 we areunable to comment on the adequacy or otherwise of the provision and / or contingencyreserve held by the Company

(ii) Point no. (a) of note no. 64 to the standalone Ind-AS financialstatements regarding impact of accounting of claims and counter claims of MTNL with M/SM&N Publications Ltd. in a dispute over printing publishing and supply of telephonedirectories for MTNL will be given in the year when the ultimate collection / payment ofthe same becomes reasonably certain.

(iii) Amount receivable from BSNL & Other Operators have beenreflected as other financial assets instead of bifurcating the same into trade receivablesand other financial assets (Also refer note no. 15 and 19 to the standalone Ind-ASfinancial statements).

(iv) The Amounts recoverable from Department of Telecommunication (DOT)in respect ofsettlement of General Provident Fund (GPF) of Combined Service Opteesabsorbed employees in MTNL and the matter has been under review with DOT and the fullamount of GPF including interest thereon claimed of the Company in respect of whichcorrespondence is going on between the Company and DOT are continued to be shown asrecoverable from DOT and payable to GPF in the standalone Ind-AS financial statements andfurther explained in point no. (d) of Note no. 70 to the standalone Ind-AS financialstatements.

(v) The payables towards license fees and spectrum usage charges havebeen adjusted with excess pension payouts to Combined Pensioners Optees recoverable fromDOT in respect of which matter is under consideration and correspondence in going onbetween the Company and DOT

(vi) The License agreement between Company and DOT does not have anyguidance on change in method of calculation of Adjusted Gross Revenue (AGR) due tomigration to Ind-AS from

I-GAAP. Provisioning and payment of liability in respect of licensefees and spectrum usage charges payable to DOT has been done on the basis of Ind-AS basedfinancial statements. The amount of difference in computation of Adjusted Gross Revenue(AGR) is under consideration of DOT

(vii) Certain immovable properties transferred from Department ofTelecommunications (‘DoT’) to MTNL in earlier years which were taken on leaseby DoT prior to incorporation of MTNL. On 30 March 1987 both DoT and MTNL entered into asale deed for transfer of the several movable and immovable assets from DoT to MTNL. Thesaid transfer includes the leasehold lands and buildings which are now in possession ofMTNL since the execution of the sale deed. These leasehold immovable properties have notbeen mutated or renewed in the name of MTNL till date. However considering MTNL is aPublic Sector Undertaking (‘PSU’) the sale deed not registered at that time andexecuted by DOT is deemed to have been registered for the purpose of transfer of all suchassets in terms of section 90 of the Indian registration act 1908 as considered by theMTNL and stamp duty payable if any will be borne and paid by Government as and when anysuch occasion arises as per sale deed. (Also refer note no.58 (E) to the standalone Ind-ASfinancial statements).

(viii) In certain cases of freehold and leasehold land the company ishaving title deeds which are in the name of the Company but the value of which are notlying in books of accounts of the Company.

(ix) Income arising on account of Revenue Sharing with BSNL in respectof lease circuits provided has not been recognized in terms of Memorandum of Understanding(MOU) between BSNL and MTNL. As per MOU revenue and expenditure will be based on theprice offered to the customers after applying the discount if any at the time ofacquiring the business. However Revenue has been recognized on the basis of availableinformation which is either based on the Company Card Rates or Old rates of BSNL. In SomeCases BSNL has given the information in respect of updated rated but the same has notbeen considered at the time of booking of revenue sharing with BSNL. In the absence ofrelevant updated records we are not in a position to comment on the impact thereof on thestandalone financial statements.

(x) Dues from the Operators being on account of revenue sharingagreements are not treated as debtors and consequently are not taken into account formaking provision for doubtful debts. (Also refer clause no. (k) of note no. 3 to thestandalone Ind-AS financial statements).

(xi) In pursuance DoT letter No. F.No. 30-04/2019-PSU Affairs dt. 29October 2019 and decision of Board of Directors of MTNL through circular regulation on4th November 2019 the MTNL Voluntary Retirement Scheme has been introduced with effectfrom 4th November 2019 under which 14387 number of MTNL employees opted for VRS and theexpenditure of ex-gratia on account of compensation to be borne by the DOT/Government ofIndia through budgetary supports as per approval of cabinet. Balance amount payable to VRSopted employees as on 31 March 2022 is shown in the financial statements of the company asreceivable from DOT and payable to VRS retirees to reflect the actual position withreference to VRS scheme of 2019 of MTNL. (Also refer note no. 78 to the standalone Ind ASfinancial statements).

(xii) In the absence of requisite information regarding details of eachproject disclosure in respect of CWIP as per Division II Schedule III of the act is notadequate. (Also refer note 58 (A) to the consolidated Ind-AS financial statements).

Our opinion is not modified in respect of aforesaid matters.

 

Material uncertainty related to going concern

We draw attention to Note no. 78 in the financial statements whichindicates that the company has accumulated losses and its net worth has been fully/substantially eroded the company has incurred net loss/net cash loss during the currentand previous year(s) and the company’s current liabilities exceeded its currentassets as at the balance date. These events or conditions along with other matter as setforth in Note 78 indicate that a material uncertainty exists that may cast significantdoubt on the company’s ability to continue as a going concern.

Further Union Cabinet has also approved the "Revival plan of BSNLand MTNL" by reducing employee costs administrative allotment of spectrum for 4Gservices debt restructuring by raising of sovereign guarantee bonds monetization ofassets and in principle approval for merger of BSNL and MTNL. Further the Company hasimplemented the Voluntary Retirement Scheme in FY 2019-20 resulted into reduction inEmployees Cost and also raised funds by issuing Bonds for Rs. 6500 crores in FY 2020-21in line with cabinet note.

Our opinion is not modified in respect of this matter.

 

Key Audit Matters

Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone Ind-AS financial statements ofthe current period. These matters were addressed in the context of our audit of thestandalone Ind-AS financial statements as a whole and in forming our opinion thereon andwe do not provide a separate opinion on these matters.

In addition to the matters described in the basis of qualified opinionsection we have determined the matters described below to be the key audit matters to becommunicated in our report

Sr. No. Key Audit Matter

How our audit Addressed the key Audit Matter

1 Revenue Recognition:
There is an inherent risk around the accuracy of revenue recorded given the complexity of systems and the impact of changing pricing models to revenue recognition (tariff structures incentive arrangements discounts etc.)

We assessed the Company's process to identify the impact of adoption of the new revenue accounting standard.

Refer Notes no. 57 to the Standalone Ind-AS Financial Statements.

Our audit approach including controls testing and substantive procedures covering in particular:

• Testing the IT environment in which billing rating and other relevant support systems reside including the change control procedures in place around systems that bill material revenue streams.

• Testing the end to end reconciliation from business support systems to billing and rating systems to the general ledger. This testing includes validating material journals processed between the billing system and general ledger.

• Performing tests on the accuracy of customer bill generation on sample basis and testing of a sample of the credits and discounts applied to customer bills: and testing receipts for a sample of customers back to customer invoice.

2 Uncertain Taxation Matters:
The Company has material uncertain tax matters under dispute which involves significant judgment to determine the possible outcome of these disputes.

We have obtained details of completed tax assessments and demands up to March 31 2022 from management.

Refer Notes no. 50 and 63 to the Standalone Ind-AS Financial Statements.

We assessed the management's underlying assumptions in estimating the tax provisions and the possible outcome of the disputes.

We also considered legal precedence and other rulings including in the company’s own cases in evaluating management's position on these uncertain tax positions.

3 The Company holds investments comprising investments in Associates Joint Ventures and subsidiaries of Rs 106.13 Crores

We assessed the net assets values of the investments as at 31 March 2022 with the Company’s investment carrying values.

Investments in Associates Joint Ventures and subsidiaries accounted for at cost less any provision for impairment Investments are tested for impairment annually. If impairment exists the recoverable amounts of the investment in Associates Joint Ventures and subsidiaries are estimated in order to determine the extent of the impairment loss if any. Any such impairment loss is recognized in the income statement.

As a result of our work we agreed with management that the carrying values of the investments held by the Company are supportable in the context of the Company’s standalone Ind-AS financial statements taken as a whole.

Refer to Note no.9 of standalone Ind-AS Financial statements.
4 Contingent liabilities
There are number of litigations pending before various forums against the company and the management’s judgement is required for estimating the amount to be disclosed as contingent liability.

We have obtained an understanding of the Company’s internal instructions and procedures in respect of estimation and disclosure of contingent liabilities and adopted the following audit procedures.

We identified this as a key audit matter because the estimates on which these amounts are based involve a significant degree of management judgement in interpreting the cases and it may be subject to management bias. (Refer to Note no. 50 of standalone Ind-AS Financial statements.)

- understood and tested the design and operating effectiveness of controls as established by the management for obtaining all relevant information for pending litigation cases;

- discussed with the management any material developments and latest status of legal matters;

- read various correspondences and related documents pertaining to litigation cases and relevant external legal opinions obtained by the management and performed substantive procedures on calculations supporting the disclosures of contingent liabilities;

- examined management’s judgements and assessment whether provisions are required;

- considered the management assessments of those matters that are not disclosed as the probability of material outflow is considered to be remote;

- reviewed the adequacy and completeness of disclosures;

Based on the above procedures performed the estimation and disclosures of contingent liabilities are considered to be adequate and reasonable. (Refer to note no. 50 of the Standalone Ind-AS financial statements).

 

Information Other than the Standalone Ind-AS Financial Statements andAuditor's Report Thereon

The Company’s Board of Directors is responsible for thepreparation of the other information. The other information comprises the informationincluded in the management discussion and analysis Director’s Report CorporateGovernance report and Other Information included in Company’s Annual Report but doesnot include the standalone Ind-AS financial statements and our auditor’s reportthereon.

Our opinion on the standalone Ind-AS financial statements does notcover the other information and we do not express any form of assurance conclusionthereon.

In connection with our audit of the standalone Ind-AS financialstatements our responsibility is to read the other information and in doing so considerwhether the other information is materially inconsistent with the standalone Ind-ASfinancial statements or our knowledge obtained during the course of our audit or otherwiseappears to be materially misstated.

If based on the work we have performed we conclude that there is amaterial misstatement of this other information we are required to report that fact. Wehave nothing to report in this regard.

 

Responsibilities of the Management and those charged with governancefor the Standalone Ind-AS Financial Statements

The Company’s Board of Directors is responsible for the mattersstated in section 134(5) of the Act with respect to the preparation of these standaloneInd-AS financial statements that give a true and fair view of the financial positionfinancial performance total comprehensive loss changes in equity and cash flows of theCompany in accordance with the Ind AS and other accounting principles generally acceptedin India. This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions 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 standaloneInd-AS financial statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.

In preparing the standalone Ind-AS financial statements management isresponsible for assessing the Company’s ability to continue as a going concerndisclosing as applicable matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Company or to ceaseoperations or has no realistic alternative but to do so.

The Board of Directors are responsible for overseeing theCompany’s financial reporting process.

 

Auditor's Responsibilities for the Audit of the Standalone Ind-ASFinancial Statements

Our objectives are to obtain reasonable assurance about whether thestandalone Ind-AS financial statements as a whole are free from material misstatementwhether due to fraud or error and to issue an auditor’s report that includes ouropinion. Reasonable assurance is a high level of assurance but is not a guarantee that anaudit conducted in accordance with SAs will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material ifindividually or in the aggregate they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these standalone Ind-AS financialstatements.

As part of an audit in accordance with SAs we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of thestandalone Ind-AS financial statements

whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.

• Obtain an understanding of internal financial controls relevantto the audit in order to design audit procedures that are appropriate in thecircumstances. Under section 143(3)(i) of the Act we are also responsible for expressingour opinion on whether the Company has adequate internal financial controls system inplace and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany’s ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor’s report to therelated disclosures in the standalone Ind-AS financial statements or if such disclosuresare inadequate to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor's report. However future events or conditions maycause the Company to cease to continue as a going concern.

• Evaluate the overall presentation structure and content of thestandalone Ind-AS financial statements including the disclosures and whether thestandalone Ind-AS financial statements represent the underlying transactions and events ina manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone Ind-ASfinancial statements that individually or in aggregate makes it probable that theeconomic decisions of a reasonably knowledgeable user of the financial statements may beinfluenced. We consider quantitative materiality and qualitative factors in (i) planningthe scope of our audit work and in evaluating the results of our work; and (ii) toevaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.

We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.

From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the standaloneInd-AS financial statements of the current period and are therefore the key audit matters.We describe these matters in our auditor’s report unless law or regulation precludespublic disclosure about the matter or when in extremely rare circumstances we determinethat a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.

 

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order 2020("the Order") issued by the Central Government of India in term of sub section(11) of section 143 of the Companies Act

2013 we give in the "Annexure A" a statement on the mattersspecified in paragraph 3 and 4 of the Order to the extent applicable.

2. As required by section 143(5) of the Act we give in "AnnexureB" a statement on the matters specified by the Comptroller and Auditor General ofIndia for the Company.

3. As required by Section 143(3) of the Act based on our audit wereport that:

a) We have sought and obtained all the information and explanationswhich to the best of our knowledge and belief were necessary for the purposes of ouraudit.

b) In our opinion proper books of account as required by law have beenkept by the Company so far as it appears from our examination of those books.

c) The Balance Sheet the Statement of Profit and Loss including OtherComprehensive Income Statement of Changes in Equity and the Statement of Cash Flow dealtwith by this Report are in agreement with the relevant books of account.

d) In our opinion the aforesaid standalone Ind-AS financial statementscomply with the IND AS specified under Section 133 of the Act.

e) Being the Government Company pursuant to the Notification No. GSR463(E) dated 5 June 2015 issued by the Ministry of Corporate Affairs Government of Indiaprovisions of subsection (2) of section 164 of the Act are not applicable to the Company.

f) The going concern matter described in material uncertainty relatedto going concern paragraph above in our opinion may have an adverse effect on thefunctioning of the company.

g) With respect to the adequacy of the internal financial controls overfinancial reporting of the Company and the operating effectiveness of such controls referto our separate Report in "Annexure C"..

h) As per the Notification No. GSR 463(E) dated 5 June 2015 issued bythe Ministry of Corporate Affairs Government of India Section 197 is not applicable tothe Government Companies. Accordingly reporting in accordance with requirement ofprovisions of section 197 (16) of the Act is not applicable on the Company.

i) With respect to the other matters to be included in theAuditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors)Rules 2014 as amended in our opinion and to the best of our information and according tothe explanations given to us:

i) The Company has disclosed the impact of pending litigations on itsfinancial position in its standalone Ind-AS financial statements. (Refer to note no. 50 ofthe Standalone Ind-AS financial statements).

ii) The Company has made provision as required under the applicablelaw or accounting standards for material foreseeable losses if any on long-termcontracts including derivative contracts; and

iii) There has been no delay in transferring amounts required to betransferred to the Investor Education and Protection Fund by the Company.

iv) (a) The Management has represented that to the best of itsknowledge and belief no funds (which are material either individually or in theaggregate) have been advanced or loaned or invested (either from borrowed funds or sharepremium or any other sources or kind of funds) by the Company to or in any other person orentity including foreign entity ("Intermediaries") with the understandingwhether recorded in writing or otherwise that the Intermediary shall whether directlyor indirectly lend or invest in other persons or entities identified in any mannerwhatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provideany guarantee security or the like on behalf of the Ultimate Beneficiaries;

(b) The Management has represented that to the best of its knowledgeand belief no funds (which are material either individually or in the aggregate) havebeen received by the Company from any person or entity including foreign entity("Funding Parties") with the understanding whether recorded in writing orotherwise that the Company shall whether directly or indirectly lend or invest inother persons or entities identified in any manner whatsoever by or on behalf of theFunding Party ("Ultimate Beneficiaries") or provide any guarantee security orthe like on behalf of the Ultimate Beneficiaries;

(c) Based on the audit procedures that have been considered reasonableand appropriate in the circumstances nothing has come to our notice that has caused us tobelieve that the representations under sub-clause (i) and (ii) of Rule 11(e) as providedunder (a) and (b) above contain any material misstatement.

v) The company has not declared or paid any dividend during the year.Accordingly the provisions of Section 123 of the Act is not applicable.

For Vinod Kumar & Associates

For SPMG & Co.

Chartered Accountants

Chartered Accountants

Firm Registration No.: 002304N

Firm Registration No.: 509249C

CA Mukesh Dadhich

CA Vinod Gupta

Partner

Partner

Membership No.: 511741

Membership No.: 090687

UDIN: 22511741AJXFNP3115

UDIN: 22090687AJXIPR8149

Place: New Delhi
Date: 30th May 2022

 

ANNEXURE-A TO THE INDEPENDENT AUDITORS' REPORT

Referred to in our Independent Auditor's Report of even date to themembers of Mahanagar Telephone Nigam Limited on the Standalone Ind-AS Financial Statementsfor the year ended 31st March 2022.

(i) (a) 1. Delhi unit (Both basic and Wireless) has maintained recordsof Property Plant and Equipment. However identification numbers cost of acquisition andlocation of the Property Plant and Equipment are not mentioned.

a) In case of Mumbai units (both basic and WS) fixed assets registershave been maintained w.e.f. 01.04.2002. However the fixed assets records maintained bythe Mumbai units are not updated with respect to identification numbers cost ofacquisition of individual assets and location of Property Plant and Equipment.

b) Corporate office has maintained fixed assets register howeveridentification numbers and location of Property Plant and Equipment are not mentioned.

2. The Company has maintained proper records showing full particularsof intangible assets however sufficient description of intangible assets identificationnumbers and location of intangible assets are not maintained.

(b) As per the accounting policy of the Company Property Plant andEquipment are required to be physically verified by the management on rotation basis oncein three years which in our opinion is reasonable and adequate in relation to the size ofthe Company and the nature of its business. Physical verification of Property Plant andEquipment was conducted by the management during the year ended on March 31 2022 exceptCorporate office of Delhi region. According to the information and explanation given tous no material discrepancies were noticed on such verification. The accuracy reliabilityand completeness of the fixed assets verification procedure could not be verified by us.

(c) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the title deeds of immovableproperties (other than immovable properties where the Company is the lessee and the leasesagreements are duly executed in favour of the lessee) disclosed in the standalonefinancial statements are held in the name of the Company except for the following whichare not held in the name of the Company:

 

In respect of Delhi Units:

According to the information and explanations given by the company inNote No. 58E(1) and 58E (2) of the notes to accounts of the standalone financial statementto us and on the basis of our examination of the records of the Company we express noopinion on the validity of the title of the company of immovable properties disclosed inthe financial statements and held as Property Plant and Equipment or as investmentproperty.

Further according to the information and explanations given to us inDelhi one leasehold property have been encroached. (Refer note no 58(3)

The value of the immovable properties as per title deeds are subject toreconciliation with books of accounts.

 

In respect of Mumbai Units:

Description of Property

Type of properties

Gross carrying value (Amount in Rs.)*

Held in the name of

Whether promoter director or their relative or employee

Period held - Range (In Years)

Reason for not being held in name of company/ Remarks

Plot No.11. Near Lokhandwala Complex Akurli Road Kandivali (E) Mumbai- 400 101

Leasehold Land

6389373

MHADA

No

More than 20 years

MHADA Allotment letter is available on records for allotment of land. No sale/lease deed is available for verification.

Plot -1 MIDC Taloja Navi Mumbai-400 218

Leasehold Land

196200

President of India

No

More than 30 years

Lease Agreement executed by MTNL on behalf of President of India is available on record.

Panvel Tel Exchange Plot No.229-B Panvel Mumbai

Leasehold Land

Nil

President of India (P&T)

No

More than 30 years

Permission letter from Panvel Municipal Corporation is available on records. Lease agreement executed between president of india and City and Industrial development corporation of Maharashtra Limited is also available in records.

Juhu Danda Complex Santa Cruz - West Mumbai Freehold Land

Nil

GOI/P&T

No

More than 20 years

Letter of DOT is available on records for use of plot in favour of MTNL. No sale deed is available for verification.

Bandra Reclamation Opposite Leelavati Hospital Bandra(W) Mumbai-400 050 Freehold Building

10983418

Bombay Housing and Area Development Board

No

More than 30 years

MHADA Allotment letter is available on records for allotment. No sale deed is available for verification.

Magathane Borivali(E) HIG Colony Magathane Borivali(E) Mumbai-400 066 Freehold Building

4270028

Bombay Housing and Area Development Board

No

More than 30 years

MHADA Allotment letter is available on records for allotment. No sale deed is available for verification.

 

*Not reflected in the documents produced before us.

The value of the immovable properties as per title deeds are subject toreconciliation with books of accounts.

Furthermore in respect of 9 cases of freehold and leasehold land havebeen encroached by the various persons in respect of which matter is either pending incourt or perusing with the various authorities for clearing the encroachment.

According to the information and explanations given by the company inNote No. 58 E(1) of the notes to accounts of the standalone financial statement to us andon the basis of our examination of the records of the Company we do not express opinionon the validity of the title of the company of said immovable properties disclosed in thefinancial statements and held as Property Plant and Equipment or as investment property.

(d) The According to the information and explanations given to us andon the basis of our examination of the records of the Company the Company has notrevalued any of its

Property Plant and Equipment (including rightof-use assets) orintangible assets or both during the year.

(e) According to the information and explanations given to us and onthe basis of our examination of the records of the Company no proceedings have beeninitiated during the year or are pending against the Company as at March 31 2022 forholding any benami property under the Benami Transactions (Prohibition) Act 1988 (asamended in 2016) and rules made thereunder

(ii) (a) In respect of Delhi Units:

In our opinion physical verification of inventory has been conductedby the management at reasonable intervals.

 

In respect of Mumbai Units:

In our opinion physical verification of inventory has been conductedby the management at reasonable intervals except in case of Area Stores of Zone-4 .

In our opinion the frequency of such verification is reasonable andprocedures and coverage as followed by management is need to be strengthened. Nodiscrepancies were noticed on verification between the physical stocks and the bookrecords that were 10% or more in the aggregate for each class of inventory.

(b) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the Company has beensanctioned working capital limits in excess of five crore rupees in aggregate from bankswhich is not on the basis of security of current assets. Thus clause 3(iii) of the Orderis not applicable.

(iii) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the Company has not made anyinvestments provided guarantee or security or granted any advances in the nature ofloans secured or unsecured to companies firms limited liability partnerships or anyother parties during the year. Thus clause 3(iii) of the Order is not applicable

(iv) According to the information and explanations given to us and onthe basis of our examination of the records the Company has not given any loans orprovided any guarantee or security as specified under Section 185 of the Companies Act2013 and the Company has not provided any guarantee or security as specified under Section186 of the Companies Act 2013. Thus clause 3(iv) of the Order is not applicable.

(v) The Company has not accepted any deposits from the public withinthe meaning of Section 73 to Section 76 or any other relevant provisions of the CompaniesAct 2013 or rules framed there under. Accordingly clause 3(v) of the Order is notapplicable.

(vi) As per information and explanation given to us Company isrequired to maintain the cost records under Section 148(1) of the Companies Act 2013. Asexplained the Company has not yet maintained the required cost records for year 2021-22.

(vii) a) According to the information and explanations given to us andon the basis of our examination of the records of the Company amounts deducted/ accruedin the books of account in respect of undisputed statutory dues including Goods andServices Tax provident fund employees’ state insurance income-tax sales-taxservice tax duty of customs duty of excise value added tax cess and other materialstatutory dues wherever applicable have generally been regularly deposited with theappropriate authorities except the following:-

(i) The TDS on provision for Expenses has not been deducted underchapter XVII- B of Income Tax Act 1961.

(ii) The Company is making the provision for interest forlate/non-payment to MSME vendors which is subject to deduction of tax under section 194Aof Income Tax Act 1961.

(iii) The company has recovered Electricity Charges from the tenantson which liability for Goods and Services Tax (GST) has not been considered as theexpenses recovered without installing sub meter.

(iv) The Goods and Services Tax (GST) has also not been considered inrespect of income arising on account of rented property occupied by the BSNL for bothDelhi and Mumbai unit.

According to the information and explanations given to us noundisputed amounts payable in respect of Goods and Services Tax provident fundemployees’ state insurance income-tax sales-tax service tax duty of customs dutyof excise value added tax cess or other statutory dues were in arrears as at 31stMarch 2022 for a period of more than six months from the date they became payable.

b) According to the information and explanations given to us there areno dues of Goods and Services Tax provident fund employees’ state insuranceincome-tax sales-tax service tax duty of customs duty of excise value added tax cessor other material statutory dues which have not been deposited with the appropriateauthorities on account of any dispute except for the following dues:

 

In respect of Delhi Units:

i) Sales Tax:

Name of the Statute

Amount (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the 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 (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the dispute is pending

Finance Act 1994

8.12

2005-06

Commissioner of Central Excise and Service Tax

Finance Act 1994

0.13

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

1.36

2008-12

Commissioner of Central Excise and Service Tax

Total

9.69

 

iii) LabourCess:

Name of the Statute

Amount (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the dispute is pending

Building and other Construction Workers Welfare Cess Act 1996.

9.73

1996 to 2001

Deputy Labour Commissioner

 

In respect of Mumbai Basic Units:

i) Income Tax:

Name of the Statute

Amount (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the dispute is pending

Income Tax Act 1961

Nil

2000-08

Hon’ble Supreme Court of India

Total

Nil

Sales Tax:
Name of the Statute

Amount (Rs. in Cr.) (Net)

Period 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 of Bombay

Name of the Statute

Amount (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the dispute is pending

Bombay Sales Tax Act 1959

352.35

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

Maharashtra Sales Tax Tribunal Mumbai

Bombay Sales Tax Act 1959

14.97

2009-10

Maharashtra Sales Tax Tribunal Mumbai

Bombay Sales Tax Act 1959

6.11

2011-12

Maharashtra Sales Tax Tribunal Mumbai

Bombay Sales Tax Act 1959

26.47

2012-13

Hon'ble High Court of Bombay

Bombay Sales Tax Act 1959

2.27

2014-15

Deputy Commissioner of Sales tax

Total

724.94

ii) Service Tax:
Name of the Statute

Amount (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the dispute is pending

Finance Act 1994

2.91

2012-13 to 2016-17

Custom Excise and Service Tax Appellate Tribunal

Total

2.91

 

In respect of Mumbai MS Unit: Central Excise:

Name of the Statute

Amount (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the dispute is pending

Central Excise Act 1944

Nil

2004-05

Commissioner of Central Excise

Central Excise Act 1944

Nil

2006-07

Commissioner of Central Excise

Central Excise Act 1944

Nil

2013-14

Commissioner of Central Excise

Central Excise Act 1944

Nil

2006-07

Commissioner of Central Excise

Central Excise Act 1944

Nil

2005-06

Commissioner of Central Excise

Total

Nil

 

In respect of Corporate Office: Income Tax:

Name of the Statute

Amount (Rs. in Cr.) (Net)

Period to which amount relates

Forum where the dispute is pending

Remarks

Income Tax Act 1961

Nil

A.Y 1998-99 to A.Y 2006-07

Hon'ble High Court of Delhi

Total disputed demand of Rs. 740.90 Crores either paid by the Company or deducted by the Income Tax Department from refund due to the Company

Income Tax Act 1961

Nil

A.Y 2007-08 to A.Y 2009-10

Hon'ble Income Tax Appellant Tribunal and Commissioner of Income Tax (Appeal)

Total

Nil

 

(viii) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the Company has notsurrendered or disclosed any transactions previously unrecorded as income in the books ofaccount in the tax assessments under the Income-tax Act 1961 as income during the year.

(ix) (a) According to the information and explanations given to us andon the basis of our

examination of the records of the Company the Company has notdefaulted in the repayment of loans or other borrowings or in the payment of interestthereon to any lender.

(b) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the Company has not beendeclared a wilful defaulter by any bank or financial institution or other lender

(c) According to the information and explanations given to us and onthe basis of our examination of the records of the Company term loans have been generallyapplied for the purposes for which they were raised.

(d) According to the information and explanations given to us and on anoverall examination of the balance sheet of the Company funds raised on short term basishave not been utilized for long term purposes.

(e) According to the information and explanations given to us and on anoverall examination of the financial statements of the Company we report that the Companyhas not taken any funds from any entity or person on account of or to meet the obligationsof its subsidiaries as defined under the Companies Act 2013. Accordingly clause 3(ix)(e)of the Order is not applicable.

(f) According to the information and explanations given to us andprocedures performed by us we report that the Company has not raised loans during theyear on the pledge of securities held in its subsidiaries as defined under the CompaniesAct 2013. Accordingly clause 3(ix)(f) of the Order is not applicable.

(x) (a) The Company has not raised any money by way of initial publicoffer or further public offer

(including debt instruments) during the year. Accordingly clause3(x)(a) of the Order is not applicable.

(b) According to the information and explanations given to us and onthe basis of our examination of the records of the Company the Company has not made anypreferential allotment or private placement of shares or fully or partly convertibledebentures during the year. Accordingly clause 3(x)(b) of the Order is not applicable.

(xi) (a) Based on examination of the books and records of the Companyand according to the

information and explanations given to us considering the principles ofmateriality outlined in Standards on Auditing we report that no fraud by the Company oron the Company has been noticed or reported during the course of the audit.

(b) According to the information and explanations given to us noreport under sub-section (12) of Section 143 of the Companies Act 2013 has been filed bythe auditors in Form ADT-4 as prescribed under Rule 13 of Companies (Audit and Auditors)Rules 2014 with the Central Government.

(c) According to the information and explanations given to us nowhistle blower complaints has been received by the Company during the year

(xii) According to the information and explanations given to us theCompany is not a Nidhi Company. Accordingly clause 3(xii) of the Order is not applicable.

(xiii) In our opinion and as per the information and explanation givento us the company has not entered into any transaction requiring compliance with Section177 and 188 of the Companies Act 2013. Hence clause 3 (xiii) of the Order is notapplicable to the Company.

(xiv) (a) In our opinion the Internal Audit System of the company isnot commensurate with the

size of the company and the nature of its business. Moreover extent ofcoverage of the areas of operations frequency / quality of reporting/ timeliness of thereporting and the follow up of internal audit observations need to be strengthened.

(b) We have considered the internal audit reports of the Company issuedtill date for the period under audit. However the Internal Audit Reports of some of theunits/zone of the company were provided at short notice or only partly provided hence notconsidered.

(xv) In our opinion and according to the information and explanationsgiven to us the Company has not entered into any non-cash transactions with its directorsor persons connected to its directors and hence provisions of Section 192 of theCompanies Act 2013 are not applicable to the Company.

(xvi) (a) In our opinion the Company is not required to be registeredunder section 45-IA of the

Reserve Bank of India Act 1934. Hence reporting under clause3(xvi)(a) (b) and (c) of the Order is not applicable.

(b) In our opinion there is no core investment company within theGroup (as defined in the Core Investment Companies (Reserve Bank) Directions 2016) andaccordingly reporting under clause 3(xvi)(d) of the Order is not applicable.

(xvii) The Company has incurred cash losses of Rs 1858.22 crores andRs. 1525.39 crores in the current and in the immediately preceding financial yearrespectively.

(xviii) There has been no resignation of the statutory auditors duringthe year. Accordingly clause 3(xviii) of the Order is not applicable.

(xix) According to the information and explanations given to us and onthe basis of the financial ratios ageing and expected dates of realization of financialassets and payment of financial liabilities other information accompanying the financialstatements the auditor’s knowledge of the Board of Directors and management plans.Further the company has accumulated losses and its net worth has been fully/substantially eroded the company has incurred net loss/net cash loss during the currentyear and the company's current liabilities exceeded its current assets as at the balancesheet date. In our opinion these events or conditions along with other matter indicatethat a material uncertainty exists as on the date of the audit report and the company isnot capable of meeting its liabilities existing at the date of balance sheet as and whenthey fall due within a period of one year from the balance sheet date.

(Also refer Qualified opinion paragraph (i) of our IndependentAuditor’s Report and note no. 78 to the standalone Ind-AS financial statements.)

(xx) In our opinion and according to the information and explanationsgiven to us there is no amount required to be spent by the company in accordance withsection 135 of the companies act 2013. Accordingly clause 3 (xx) of the Order is notapplicable to the Company.

For Vinod Kumar & Associates

For SPMG & Co.

Chartered Accountants

Chartered Accountants

Firm Registration No.: 002304N

Firm Registration No.: 509249C

CA Mukesh Dadhich

CA Vinod Gupta

Partner

Partner

Membership No.: 511741

Membership No.: 090687

UDIN: 22511741AJXFNP3115

UDIN: 22090687AJXIPR8149

Place: New Delhi
Date: 30th May 2022

 

ANNEXURE-B TO THE INDEPENDENT AUDITORS' REPORT

 

Referred to in our Independent Auditors' Report of even date to themembers of Mahanagar Telephone Nigam Limited on the Standalone Ind-AS Financial Statementsfor the year ended 31st March 2022.

Directions indicating the areas to be examined by the StatutoryAuditors during the course of audit of annual accounts of Mahanagar Telephone NigamLimited (Standalone) for the year 2021-22 issued by the Comptroller & AuditorGeneral of India under section 143(5) of the Companies Act 2013.

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

Sr. No. Areas Examined

Observation / Finding

1 Whether the company has system in place to process all the accounting transactions through IT system? If yes the implications of processing of accounting transactions outside IT system on the integrity of the accounts along with the financial implications if any may be stated.

Yes Majority of the accounting transactions are done through the IT system. Although manual intervention is prevalent. Adequate security measures for manual intervention need to be strengthened with supervisory sanction only and properly documented.

However the billing of following services is not integrated with WFMS (accounting software):-

1) Lease Circuit

2) Toll Free

3) IUC

4) Post Paid

5) GSM IUC

2 Whether there is any restructuring of an existing loan or cases of waiver/write off of debts/loans/ interest etc. made by lender to a company due to the company's inability to repay the loan? If yes the financial impact may be stated. Whether such cases are properly accounted for?

As certified by the management and those charged with governance we have been informed that there is no restructuring of loan/ wavier/ write off of debts/ loan/ interest during the financial year 2021-22.

3 Whether funds (grants/subsidy etc) received/ receivable from the specific schemes from central/ state government or its agencies were properly accounted for/ utilized as per its term and conditions? List the cases of deviation.

Yes the company has received the Swachh Action Plan contribution during FY 2017-18 is Rs. 21 Lakh FY 2018-19 is Rs. 35.39 Lakh FY 201920 is Rs 35Lakh out of which Rs. 24.27Lakh is pending utilization with the company. Further the company has not received any contribution under Swachh Action Plan during FY2020-21 and 2021-2022.

4 Whether the amount of revenue of share (License fees and Spectrum Usage charges) recognized in the financial statement is in accordance with the License conditions agreed by the company with DoT? If so detailed statement & calculation sheet may be attached.

Yes AGR Audit Report and Calculation sheet attached herewith.

 

We have conducted the audit of accounts of Mahanagar Telephone NigamLimited for the year ended 2021-22 in accordance with the directions issued by theC&AG of India under section 143(5) of the Companies Act 2013 and certify that we havecomplied with the all directions issued to us.

For Vinod Kumar & Associates

For SPMG & Co.

Chartered Accountants

Chartered Accountants

Firm Registration No.: 002304N

Firm Registration No.: 509249C

CA Mukesh Dadhich

CA Vinod Gupta

Partner

Partner

Membership No.: 511741

Membership No.: 090687

UDIN: 22511741AJXFNP3115

UDIN: 22090687AJXIPR8149

Place: New Delhi
Date: 30th May 2022

 

ANNEXURE-C TO THE INDEPENDENT AUDITORS' REPORT

 

(Referred to in paragraph (f) under 'Report on Other Legal andRegulatory Requirements' section of our report of even date)

Report on the Internal Financial Controls under Clause (i) ofsub-section 3 of section 143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financialreporting of Mahanagar Telephone Nigam Limited ("the Company") as of 31stMarch 2022 in conjunction with our audit of the standalone Ind-AS financial statements ofthe Company for the year ended on that date.

 

Management's Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing andmaintaining internal financial controls based on the internal control over financialreporting criteria established by the Company considering the essential components ofinternal control stated in the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting issued by the Institute of Chartered Accountants of India(‘ICAI’). These responsibilities include the design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the orderly and efficient conduct of its business including adherence tocompany’s policies the safeguarding of its assets the prevention and detection offrauds and errors the accuracy and completeness of the accounting records and the timelypreparation of reliable financial information as required under the Companies Act 2013.

 

Auditors' Responsibility

Our responsibility is to express an opinion on the Company’sinternal financial controls over financial reporting based on our audit. We conducted ouraudit in accordance with the Guidance Note on Audit of Internal Financial Controls overFinancial Reporting (the "Guidance Note") and the Standards on Auditing issuedby ICAI and deemed to be prescribed under section 143(10) of the Companies Act 2013 tothe extent applicable to an audit of internal financial controls both applicable to anaudit of Internal Financial Controls and both issued by the Institute of CharteredAccountants of India. Those Standards and the Guidance Note require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether adequate 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 aboutthe adequacy of the internal financial controls system over financial reporting and theiroperating effectiveness. Our audit of internal financial controls over financial reportingincluded obtaining an understanding of internal financial controls over financialreporting assessing the risk that a material weakness exists and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Theprocedures selected depend on the auditor’s judgment including the assessment of therisks of material misstatement of the standalone Ind-AS financial statements whether dueto fraud or error.

We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the Company’s internalfinancial controls system over financial reporting.

 

Meaning of Internal Financial Controls over Financial Reporting

A company’s internal financial control over financial reporting isa process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of standalone Ind-AS financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal financial control over financial reporting includes those policies and proceduresthat:

1. pertain to the maintenance of records that in reasonable detailaccurately and fairly reflect the transactions and dispositions of the assets of thecompany;

2. provide reasonable assurance that transactions are recorded asnecessary to permit preparation of standalone Ind-AS financial statements in accordancewith generally accepted accounting principles and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directorsof the company; and

3. provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition use or disposition of the company’s assetsthat could have a material effect on the standalone Ind-AS financial statements.

 

Inherent Limitations of Internal Financial Controls over FinancialReporting

Because of the inherent limitations of internal financial controls overfinancial reporting 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 overfinancial reporting to future periods are subject to the risk that the internal financialcontrol over financial reporting may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures may deteriorate.

 

Qualified Opinion

According to the information and explanations given to us and based onour audit the following material weaknesses have been identified in the operatingeffectiveness of the Company’s internal financial controls over financial reportingas at March 31 2022:

(i) The Company does not have an appropriate internal control systemfor identification of overheads to be capitalized with the cost of Property Plant andEquipment which could potentially result into under /over capitalization of PropertyPlant and Equipment and corresponding impact on the operational results of the Company.

(ii) The Company does not have appropriate internal control system forensuring capitalization of Property Plant and Equipment as and when the same is ready foruse due to delayed issue of completion certificate by engineering department or due todelay in receipt of bills from the vendors for bought out items or due to delay ofinventory issue slip by stores. Hence the

date of capitalization is not reliable. This could potentially resultinto delayed capitalization and corresponding impact on the operational results due tolower charge of depreciation.

(iii) The Company does not have appropriate internal control system forensuring de-commissioning and de-capitalization of Property Plant and Equipment inrespect of assets which are no longer in use and held for disposal as scrap. This couldpotentially result into overstatement of gross block and corresponding impact on theoperational results due to higher charge of depreciation and lower provision forimpairment of assets.

(iv) The Company does not have an appropriate internal control systemto ensure that provisions made pending receipt of bills from vendors / contractors /operators / government departments at the quarter end and year end are duly reversed whenactual bills are received and accounted for. This could potentially result in the samebeing accounting twice.

(v) The Company does not have an appropriate internal control system totrack open purchase orders work orders agreements and contracts which have been enteredwith vendors / contractors / operators / government departments and are lying open. Thiscould have a bearing on efficiency of operations and recording of financial liabilitiesand provisions pertaining to the same.

(vi) The Company does not have an integrated ERP system. Differentsoftware packages used by the company are interfaced through software links or manualintervention leaving gaps between them. This could potentially result into impairedfinancial reporting.

(vii) The Company does not have an appropriate internal control systemfor reconciliation of vendors / contractors / operators / government departments accountswhich could potentially result in some changes in the standalone Ind-AS financialstatements. The cases identified by us have been appropriately qualified at various placesin our report.

(viii) The Company does not have effective internal audit system so asto cover all major areas with extensive scope. The extent and depth of coverage manner ofconduct and reporting in respect of internal audit is very weak. This could potentiallyresult into weak checks and balances and unreported financial irregularities ultimatelyresulting into distorted financial reporting.

(ix) The Company does not have an appropriate internal control systemfor reconciliation of items of unlinked debits and credits because of receipts from thesubscriber and the amount debited by the banks. This could potentially lead unreportedfinancial adjustments ultimately resulting into distorted financial reporting.

(x) The Company does not have an appropriate internal control systemfor invoicing which are due and payable based on manual invoicing. The invoicing systemsdoes not have reliability of measurement and reconciliation of items. This leads tomultiple revisions and errors in invoicing. This could potentially lead errors in revenuerecognition.

(xi) The Company does not have appropriate internal control system forensuring end use of issued inventory. The accounting is done based on the requisitionstatement of item and not actual

installation or commission of item. This could potentially result intonon-identification of pilferage and also early capitalization of equipment.

(xii) The Company does not have appropriate internal control system forensuring billing and recovery of water and electricity charges from the lessee. This couldpotentially result into nonrecovery and delayed recovery of such charges causing financialloss of the absolute expenses and also finance cost on the delay in realization. Thiscould also result in inaccurate expense values in the financial statements of the company.

(xiii) The company does not have appropriate internal control systemtowards renewals of the expired Rent/Lease agreements. Eventhough in some of the caseswhere lease agreements has been expired company is receiving rentals on the terms andconditions mentioned in the expired agreement with the parties.

In some cases company is recognising rentals on the terms andconditions mentioned in the expired agreements with the parties and not receving anyamount from such parties for more than one year. However the company has not providedprovision for doubtful debts for all such cases.

A 'material weakness' is a deficiency or a combination ofdeficiencies in internal financial control over financial reporting such that there is areasonable possibility that a material52 misstatement of the company's annual or interimfinancial statements will not be prevented or detected on a timely basis.

In our opinion except for the effects / possible effects of thematerial weaknesses described above on the achievement of the objectives of the controlcriteria the Company has maintained in all material respects adequate internalfinancial controls over financial reporting and such internal financial controls overfinancial reporting were operating effectively as of March 31 2022 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.

We have considered the material weaknesses identified and reportedabove in determining the nature timing and extent of audit tests applied in our audit ofthe March 31 2022 standalone Ind-AS financial statements of the Company and thesematerial weaknesses do not affect our opinion on the standalone Ind-AS financialstatements of the Company.

For Vinod Kumar & Associates

For SPMG & Co.

Chartered Accountants

Chartered Accountants

Firm Registration No.: 002304N

Firm Registration No.: 509249C

CA Mukesh Dadhich

CA Vinod Gupta

Partner

Partner

Membership No.: 511741

Membership No.: 090687

UDIN: 22511741AJXFNP3115

UDIN: 22090687AJXIPR8149

Place: New Delhi
Date: 30th May 2022

 

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