To the Members of VIP Clothing Limited
Report on the Audit of the Standalone Financial Statements
We have audited the standalone financial statements of VIP Clothing Limited (the'Company') which comprise the Balance Sheet as at March 31 2020 and the Statement ofProfit and Loss the Statement of Changes in Equity and the Statement of Cash Flows forthe year then ended and notes to the Standalone financial statements including a summaryof the significant accounting policies and other explanatory information.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Companies Act 2013 (the 'Act') in the manner so required and give a true and fairview in conformity with the accounting principles generally accepted in India of thestate of affairs of the Company as at March 31 2020 and loss changes in equity and itscash flows for the year ended on that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs) specifiedunder Section 143(10) of the Act. Our responsibilities under those Standards are furtherdescribed in the Auditor's Responsibilities for the Standalone Financial Statementssection of our report. We are independent of the Company in accordance with the Code ofEthics issued by the Institute of Chartered Accountants of India (ICAI) together withethical requirements that are relevant to our audit of the standalone financial statementsunder the provisions of the Act and the rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
Emphasis of Matter
We draw attention to Note 2.4 to the Financial Statements which describes the economicand social consequences the entity is facing as a result of COVID-19 which is impactingoperations of the Company supply chains personnel available for work etc.
Our opinion is not modified in respect of this matter of emphasis.
Key Audit Matters
Key audit matters are those that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current year. Wehave determined the matters described below to be the key audit matters and were addressedin the context of our audit of the standalone financial statements as a whole and informing our opinion thereon. We do not provide a separate opinion on these matters.
1. Indirect tax liabilities Recoveries from past periods and ongoing tax matters.
2. Impact of minimum item / product differentiation resulting in complexities inphysical verification of inventories and reconciliation thereof with book balances.
3. Accounting for Expected Credit Loss on trade receivables.
4. Revaluation of Brands
Indirect tax liabilities Recoveries from past periods and ongoing tax matters
Description of Key Matter:
As at March 31 2020 the Company has unsettled and disputed indirect tax positionsamounting to Rs. 1010.94 lacs on account of erstwhile Sales tax within the State ofTamilnadu and Delhi. Also other current assets in the financial statements includerecoveries amounting to Rs. 416.76 lacs from State of Tamilnadu and Rs. 937.93lacs underGoods and Service Tax Act. The disposal of these items involves significant judgment todetermine the possible outcome and timing thereof.
Description of Auditor response:
We obtained information from the Company of demands and notices received by it duringthe financial year 2019-20 with respect to the pending matters. We reviewed the processesand controls in place over tax assessments including follow ups demands / refunds throughdiscussions with the management's internal experts and reviewed the communications withthose charged with governance pertaining to this issue. We sought guidance from our taxteam to evaluate the status as explained by the Company's internal expert and the possibleoutcome of these demands and status of refund claims especially in the given situation offrequent change in the countrywide regulatory environment some of them being substantialin nature like change from VAT/Sales Tax regime to Goods and Service Tax. Assessed whetherthe Company's disclosures in Note 35 to the standalone financial statements theContingent liabilities and commitments adequately disclose the relevant facts andcircumstances.
Impact of minimum item / product differentiation resulting in complexities in physicalverification of inventories and reconciliation thereof with book balances
Description of Key Matter:
As at March 31 2020 the Company reported a total inventory of Rs. 9237.14 Lacsconsisting of Rs. 2740.75Lacs of raw materials Rs. 1374.27 Lacs of stock in process andRs. 5122.12Lacs representing its finished goods. The Company has two manufacturing unitsand the management has carried out a physical verification at both the units and weobserved difficulties in identifying correct stock items that gave rise to somedifferences when compared with book balances. The Company is in the business ofmanufacture and sale of undergarments for both gents and ladies. Due to its nature ofbusiness the Company is required to manufacture and maintain a desired inventory levelsto cater to market products in various sizes shapes and colors and each of these have tobe at least in four of its popular brands among others. Inherently there is minimumproduct differentiation between items held as inventories. The Company also gets some ofits products manufactured from subcontractors. Considering the multiple product range andmultiple production arrangements coupled with minimum product differentiation the processof arranging stocking counting and subsequent reconciliation of these individual itemsof raw material and finished product with book records is a complex and time-consumingprocess. Additionally the Company also carries out manufacturing activities on behalf ofother manufacturers. The situation for physical count was further accentuated due tolockdowns and distancing requirements resulting due to outbreak of COVID-19 pandemic. Inview of above this was a key audit matter in the context of our audit.
Description of Auditor response:
We carried out comparatives of inventory levels for certain past periods with a view toascertain any unreasonable accumulations in inventory levels. Reviewed and compared theinventory levels submitted to other agencies like Company bankers with a view to confirminventory levels reported and discussed with the management on the observation if anymade by such agencies on their in specific relation. We further obtained an understandingand evaluated the designed and controls in relation to inventory.
Accounting for Expected Credit Loss on trade receivables
Description of Key Matter:
Management has considered estimates in computing the expected credit losses afterconsidering credit history of customers and current market realities.
Description of Auditor response:
We have performed audit procedures that included management discussions on Company'sunderstanding in relation to the adoption of the standard and installing a process of itsimplementation. We reviewed the past data customer history and assumptions arisingtherefrom in deciding and computing loss rate for different ageing buckets identified bythe management. We also reviewed the application of any specific provision for customerswhich was necessary in the given circumstances. With respect to forward looking assumptionand matters considered by the Company keeping in relevance the impact due to COVID-19pandemic outbreak held discussions with the management and corroborated the assumptionusing both internal and externally available information on attest basis.
Revaluation of Brands
Description of Key Matter:
As on April 1 2017 the Company was required to transit to and implement IndianAccounting Standards. At the time of transition the Company had carried out a fairvaluation of its four business brands at the value of Rs. 12397.10 lacs. Howeversubsequently the management observed that the projections used for valuation of the brandshad certain errors. Consequently the management decided to correct this error by giving aretrospective accounting treatment in terms of Indian Accounting Standard (Ind AS) 1 -Presentation of Financial Statements and Indian Accounting Standard (Ind AS) -38Intangible Assets. In view of this the management has now carried out an exercise torevise the side valuation and has arrived at a revised fair value of four brands to Rs.6923.82 lacs. Considering the nature of transaction and it's retrospective accountingtreatment this was a key audit matters for us.
Description of Auditor Response:
The Company had engaged an outside professional firm to carry out its brand valuationas on the transition date. The Company has obtained fresh valuation report from anapproved valuer after correcting the objective error as assessed by it. The Institute ofChartered Accountants of India ICAI has issued valuation standards. We broadly reviewedthe bases approaches and methods recommended by relevant valuation standard 102 andvaluation standard 103 and those used by the Company and generally satisfied about theappropriateness of the same. This helped us in comparing the assumptions made in theprevious valuation. We also examined and satisfied ourselves about the requirements ofgiving effect of a retrospective accounting treatment in terms of Ind AS 1 recognition ofan impairment accounting in terms of Ind AS 38 as aforesaid and other consequentialaccounting treatments and corresponding requisite disclosures.
Information Other than the Standalone Financial Statements and Auditor's Report Thereon
The Company's Board of Directors is responsible for the other information. The otherinformation comprises the information included in the Directors' Report including anyannexures thereto Corporate Governance Report and Management Discussion and Analysis butdoes not include the standalone financial statements and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other informationand we do not express any form of assurance conclusion thereon.
In connection with our audit of the standalone financial statements our responsibilityis to read the other information identified above and in doing so consider whether theother information is materially inconsistent with the standalone financial statements orour knowledge obtained in the audit or otherwise appears to be materially misstated.
If based on our work we have performed we conclude that there is materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.
Due to the COVID-19 pandemic and the lockdown and other restrictions imposed by theGovernment and local administration the audit processes carried out post lockdown werebased on the remote access and evidence shared digitally.
Our opinion is not modified in respect of these other matters.
Responsibilities of Management and Those Charged with Governance for the StandaloneFinancial Statements
The Company's Board of Directors is responsible for the matters stated in Section134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the financial position financialperformance changes in equity and cash flows of the Company in accordance with theaccounting principles generally accepted in India including the Indian AccountingStandards prescribed under Section 133 of the Act. This responsibility also includesmaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding the assets of the Company and for preventing and detecting frauds andother irregularities; 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 standalone financial statements that give a true andfair view and are free from material misstatement whether due to fraud or error.
In preparing the standalone financial statements management 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 unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
The Board of Directors are also responsible for overseeing the Company's financialreporting process.
Auditor's Responsibilities for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in aggregatethey could reasonably be expected to influence the economic decisions of users taken onthe basis of these standalone financial statements.
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
(a) Identify and assess the risks of material misstatement of the financial statementswhether due to fraud or error design and perform audit procedures responsive to thoserisks and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error as fraud may involve collusion forgeryintentional omissions misrepresentations or the override of internal control;
(b) 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 Act we are also responsible for expressing our opinion on whether the Company hasadequate internal financial controls system in place and the operating effectiveness ofsuch controls;
(c) Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management;
(d) Conclude on the appropriateness of management's use of the going concern basis ofaccounting 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 standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Company to cease tocontinue as a going concern; and
(e) 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.
Materiality is the magnitude of misstatements in the financial statements thatindividually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the financial statements may be influenced. We considerquantitative materiality and qualitative factors in:
(i) planning the scope of our audit work and in evaluating the results of our work; and
(ii) to evaluate the effect of any identified misstatements in the financialstatements.
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 standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report where applicable and unless law or regulation precludes publicdisclosure about the matter or when in extremely rare circumstances we determine that amatter should not be communicated in our report because the adverse consequences of doingso 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 2016 (the 'Order') issued bythe Central Government in terms of Section 143(11) of the Act we give in the Annexure'A' a Statement on the matters specified in paragraphs 3 and 4 of the Order to theextent applicable.
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 purposes of our audit;
(b) in our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books;
(c) the Balance Sheet the Statement of Profit and Loss the Statement of Changes inEquity and the Statement of Cash Flows dealt with by this Report are in agreement with thebooks of account;
(d) in our opinion the aforesaid standalone financial statements comply with theIndian Accounting Standards prescribed under Section 133 of the Act;
(e) on the basis of the written representations received from the directors as on March31 2020 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2020 from being appointed as a director in terms of Section 164 (2) of theAct;
(f) with respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in Annexure 'B';
(g) with respect to the other matters to be included in the Auditors Report inaccordance with the requirements of Section 197(16) of the Act as amended in our opinionand to the best of our information and according to the explanations given to us theremuneration paid by the Company to its directors during the year is in accordance withthe provisions of section 197 of the Act; and
(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 in our opinionand to the best of our information and according to the explanations given to us:
(1) the Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements - (Refer Note 35 to the standalonefinancial statements);
(2) the Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses; and
(3) there has been no delay in transferring amounts required to be transferred to theInvestor Education protection fund by the Company.
ANNEXURE - A TO THE INDEPENDENT AUDITOR'S REPORT
(Referred to in paragraph 1 of our report of even date)
(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The Company has a program of a verification of fixed assets to cover all the itemsat major locations in a phased manner over a period of three years which in our opinionis reasonable having regard to the size of the Company and the nature of its assets.Pursuant to the program no physical verification has been conducted by the management inview of COVID-19 pandemic outbreak.
(c) According to the information and explanations given to us and on the basis of ourexamination of the records of the Company the title deed of immovable property is held inthe name of the Company.
(ii) We have been informed that the Company has a plan of physically verifying it'sinventories at certain intervals of time in a phased manner and the same has been carriedout excluding inventories in transit as per plan. The discrepancies noted on physicalverification of inventory as compared to book records were appropriately dealt with in thebooks of account.
(iii) The Company has not granted any loans to parties covered in the registermaintained under section 189 of the Companies Act 2013 ("the Act"). Thereforeparagraph 3(iii) of the Order is not applicable to the Company.
(iv) In our opinion and according to the information and explanations given to usthere are no loans investment guarantees and securities granted in respect of whichprovisions of section 185 and 186 of the Companies Act 2013 are applicable. ThereforeParagraph 3(iv) of the Order is not applicable to the Company.
(v) The Company has not accepted any deposits from the public during the year to whichthe directives issued by the Reserve Bank of India and the provisions of Sections 73 to 76and other relevant provisions of the Act and the rules framed thereunder apply.
(vi) As per the information and explanations given to us in respect of the class ofindustry the Company falls under the maintenance of cost records has not been prescribedby the Central Government under section 148(1) of the Companies Act 2013. Thereforeparagraph 3(vi) of the Order is not applicable to the Company.
(vii) (a) According to the information and explanations given to us the Company isgenerally regular in depositing undisputed statutory dues including provident fundemployees' state insurance income tax duty of customs goods and services tax cess andany other statutory dues where applicable to the appropriate authorities. According tothe information and explanations given to us there are no arrears of outstandingstatutory dues as at the last day of the financial year for a period of more than sixmonths from the date they became payable.
(b) According to the information and explanations given to us and the records examinedby us there are no cases of non-deposit with appropriate authorities of disputed dues ofduty of customs goods and service tax. However according to information and explanationgiven to us the following dues of Income tax Central sales tax and Value added tax as atMarch 31 2020 which have not been deposited on account of a dispute pending are asunder:
|Sr No Forum where the dispute is pending ||Nature of the disputed dues ||Name of the Statute ||F. Y. which the amount relates to ||Rs. In Lakh |
|1 High Court of Chennai ||Claim of concessional rate of tax disallowed ||TNVAT ACT 2006 ||2001-2002 ||195.46 |
|2 Deputy Commercial Tax Office - Tamil Nadu ||Disallowance of concessional rate of tax on BT ||TNVAT ACT 2006 ||2001-2002 ||5.43 |
|3 Deputy Commercial Tax Office - Tamil Nadu ||CST rate of Hosiery Goods ||TNVAT ACT 2006 ||2002-2003 ||802.77 |
|4 Deputy Commercial Tax Office Delhi ||Non submission of form "C" ||Central Sales Tax Act 1956 ||2005-2006 ||7.28 |
|5 Income Tax Appellate Tribunal Mumbai ||Penalty u/s271(1) ||Income Tax Act 1961 ||2010-2011 ||2.68 |
|6 Asst Commissioner of Income Tax Kalyan ||Demand u/s 156 ||Income Tax Act 1961 ||2011-2012 ||31.51 |
(viii)Based on our audit procedures and according to the information and explanationsgiven to us the Company has not defaulted in repayment of its dues to banks and financialinstitution during the year. The Company has not borrowed from government and debentureholders during the year.
(ix) The Company did not raise any money by way of initial public offer or furtherpublic offer (including debt instruments) during the year. The Company has not raised anyterm loan during the year.
(x) During the course of our examination of the books and records of the Companycarried out in accordance with generally accepted auditing practices in India andaccording to the information and explanations given to us we have neither come across anyfraud by the Company or any fraud on the Company by its officers or employees noticed orreported during the year nor have we been informed of such case by management.
(xi) According to the information and explanations given to us the managerialremuneration has been paid / provided in accordance with the requisite approvals mandatedby the provisions of Section 197 read with Schedule V to the Act.
(xii) In our opinion and according to the information and explanations given to us theCompany is not a Nidhi Company. Therefore paragraph 3(xii) of the Order is not applicableto the Company.
(xiii)According to the information and explanations given to us all the transactionswith the related parties are in compliance with Sections 177 and 188 of the Act whereapplicable. The relevant details of such related party transactions have been disclosed inthe standalone financial statements etc. as required under Indian Accounting Standard(Ind AS) 24 Related Party Disclosures specified under Section 133 of the Act.
(xiv)According to the information and explanations given to us the Company had notmade any preferential allotment or private placement of shares or fully or partlyconvertible debentures during the year. Accordingly the Paragraph 3(xiv) of the Order isnot applicable to the Company.
(xv) According to the information and explanations given to us the Company has notentered into any non-cash transactions with directors or persons connected with him duringthe year. Accordingly the Paragraph 3 (xv) of the Order is not applicable to the Company.
(xvi)According to the information and explanations given to us the Company is notrequired to be registered under Section 45-IA of the Reserve Bank of India Act 1934.
ANNEXURE - B TO THE INDEPENDENT AUDITOR'S REPORT
(Referred to in paragraph 2(f) of our report of even date)
Report on the Internal Financial Controls under Section 143(3)(i) of the Companies Act2013
We have audited the internal financial controls over financial reporting of VIPClothing Limited (the 'Company') as of March 31 2020 in conjunction with our auditof the standalone financial statements of the Company for the year ended on that date.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the'Guidance Note') issued 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 Companies Act 2013 (the 'Act').
Our responsibility is to express an opinion on the Company's internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Guidance Note and the Standards on Auditing issued by ICAI and deemed to beprescribed 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 ICAI. Those Standards and the Guidance Note require that we complywith ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether adequate internal financial controls over financial reporting wasestablished and maintained and if such controls operated effectively in all materialrespects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the standalone financial statements whether due to fraud orerror.
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 systemover financial reporting.
Meaning of Internal Financial Controls Over Financial Reporting
A Company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of standalone financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal financial control overfinancial reporting includes those policies and procedures that: (1) pertain to themaintenance of records that in reasonable detail accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of standalonefinancial statements in accordance with generally accepted accounting principles and thatreceipts and expenditures of the company are being made only in accordance withauthorisations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorised acquisition use ordisposition of the Company's assets that could have a material effect on the standalonefinancial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting
Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion to the best of our information and according to the explanations givento us the Company has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as of March 31 2020 based on the internal controlover financial reporting criteria established by the Company considering the essentialcomponents of internal control stated in the Guidance Note issued by the ICAI.