Additional Notes to the Financial Statements
(i) Expenditure incurred under Section 135 of the Companies Act, 2013 on Corporate Social Responsibility (CSR) activities -Rs. 247.50 Crores (2015 - Rs. 214.06 Crores) comprising employee benefits expense of Rs. 7.01 Crores (2015 - Rs. 7.61 Crores) and other expenses of Rs. 240.49 Crores (2015 - Rs. 206.45 Crores) of which Rs. 17.04 Crores (2015 - Rs. 12.67 Crores) is accrued for payment as on 31st March, 2016. Such CSR expenditure of Rs. 247.50 Crores (2015 - Rs. 214.06 Crores) excludes Rs. 11.43 Crores (2015 - Rs. 4.97 Crores) being the excess of expenditure of salaries of CSR personnel and administrative expenses over the limit imposed of 5% of total CSR expenditure laid down under Rule 4(6) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 for such expenses.
(ii) Research and Development expenses for the year amount to Rs. 121.91 Crores (2015 - Rs. 105.79 Crores).
(iii) Contingent liabilities and commitments:
(a) Contingent liabilities
(i) Claims against the Company not acknowledged as debts Rs. 581.25 Crores (2015 - Rs. 558.25 Crores), including interest on claims, where applicable, estimated to be Rs. 178.47 Crores (2015 - Rs. 153.37 Crores). These comprise:
• Excise duty, VAT / sales taxes and other indirect taxes claims disputed by the Company relating to issues of applicability and classification aggregating Rs. 471.42 Crores (2015 - Rs. 450.01 Crores), including interest on claims, where applicable, estimated to be Rs. 159.98 Crores (2015 - Rs. 135.58 Crores).
• Local Authority taxes/cess/royalty on property, utilities, etc. claims disputed by the Company relating to issues of applicability and determination aggregating Rs. 73.36 Crores (2015 - Rs. 68.79 Crores), including interest on claims, where applicable, estimated to be Rs. 14.46 Crores (2015 - Rs. 13.47 Crores).
• Third party claims arising from disputes relating to contracts aggregating Rs. 29.10 Crores (2015 - Rs. 29.19 Crores), including interest on claims, where applicable, estimated to be Rs. 0.25 Crore (2015 - Rs. 0.14 Crore).
• Other matters Rs. 7.37 Crores (2015 - Rs. 10.26 Crores), including interest on other matters, where applicable, estimated to be Rs. 3.78 Crores (2015 - Rs. 4.18 Crores).
It is not practicable for the Company to estimate the closure of these issues and the consequential timings of cash flows, if any, in respect of the above.
(ii) Corporate Guarantee given to Yes Bank Limited for credit facility availed by Broadcast Audience Research Council (BARC) outstanding - Rs. 1.30 Crores (2015 - Rs. 1.30 Crores).
• Estimated amount of contracts remaining to be executed on capital accounts and not provided for Rs. 2039.83 Crores (2015 - Rs. 1432.41 Crores).
• Uncalled liability on shares partly paid is Rs. 26.40 Crores (2015 - Rs. 26.40 Crores). (vi) Micro, Small and Medium scale business entities:
(iv) Micro, Small and Medium scale business entities
A sum of Rs. 34.13 Crores is payable to Micro and Small Enterprises as at 31st March, 2016 (2015 - Rs. 24.56 Crores). The above amount comprise Rs. 32.92 Crores (2015 - Rs. 21.91 Crores) on account of trade payable and Rs. 1.21 Crores (2015 - Rs. 2.65 Crores) on account of other current liabilities. There are no Micro, Small and Medium Enterprises, to whom the Company owes dues, which are outstanding for more than 45 days during the year and also as at 31st March, 2016. This information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company.
(v) Pursuant to the Scheme of Arrangement for demerger of the Non-Engineering Business of Wimco Limited (‘Wimco’) into ITC Limited (the Scheme), as approved by the shareholders of the Company and subsequently sanctioned by the Honourable High Courts at Bombay and Calcutta vide their Orders dated 10th April, 2014 and 14th May, 2014 respectively, the entire assets and liabilities, as at 1st April 2013, of the Non-Engineering Business of Wimco were transferred to and vested in the Company on a going concern basis with effect from 1st April, 2013. The Scheme had been given effect to in the financial statements of the Company for the year ended 31st March, 2015.
As a result, in the financial statements as at, and for the year ended 31st March, 2015:
a) the excess of value of the net assets of the Non-Engineering business of Wimco over the sum of face value of the shares allotted and cancellation of the Company’s investment in Wimco, amounting to Rs. 91.00 Crores was debited to General Reserve.
b) the loss of Rs. 8.01 Crores for the year from 1st April, 2013 to 31st March, 2014 has been recognised as an adjustment to the revenue reserves.
c) earlier unrecognised net deferred tax assets of Rs. 45.84 Crores on carry forward of business losses and other net timing differences of Wimco have also been recognised as an adjustment to revenue reserves.
d) in consideration of the above, the Company had issued and allotted 87,761 Ordinary Shares of Rs. 1.00 each.
(vi) Pursuant to the notification of Schedule II of the Companies Act 2013, with effect from 1st April 2014, the Company had reviewed and revised the estimated useful lives of its fixed assets. In respect of assets, whose useful life was exhausted as at 1st April, 2014, the related carrying amount aggregating to Rs. 48.32 Crores (net of deferred tax of Rs. 24.88 Crores) had been adjusted against opening balance of Surplus in the Statement of Profit and Loss during 2014-15.
(vii)Previous year’s figures have been regrouped / reclassified wherever necessary to correspond with the current year’s classification/disclosure.
Significant Accounting Policies
IT IS CORPORATE POLICY
To brpare financial statements in accordance with applicable Accounting Standards in India. A summary of important accounting policies is set out below. The financial statements have also been brpared in accordance with relevant brsentational requirements of the Companies Act, 2013.
Basis of Accounting
To brpare financial statements in accordance with the historical cost convention modified by revaluation of certain Fixed Assets as and when undertaken.
All assets and liabilities have been classified as current or non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 based on the nature of products and the time between the acquisition of assets for processing and their realisation in cash and cash equivalents.
To state Fixed Assets at cost of acquisition inclusive of inward freight, duties and taxes and incidental expenses related to acquisition. In respect of major projects involving construction, related br-operational expenses form part of the value of assets capitalised. Expenses capitalised also include applicable borrowing costs, if any.
To capitalise software where it is expected to provide future enduring economic benefits. Capitalisation costs include licence fees and costs of implementation/system integration services. The costs are capitalised in the year in which the relevant software is implemented for use.
To charge off as a revenue expenditure all upgradation / enhancements unless they bring similar significant additional benefits.
To calculate debrciation on Fixed Assets, Tangible and Intangible, in a manner that amortises the cost of the assets after commissioning (or other amount substituted for cost), less its residual value, over their useful lives as specified in Schedule II of the Companies Act, 2013 other than Intangible (Know how, Business and Commercial Rights, Trademarks), which are amortised over the estimated period of benefit or contractual terms, as applicable. Leasehold properties are amortised over the period of the lease.
To amortise capitalised software costs over a period of five years.
Revaluation of Assets
As and when Fixed Assets are revalued, to transfer to Revaluation Reserve the increase in the net book value of such Fixed Assets arising on revaluation. To account for the debrciation on such revalued Fixed Assets over the unexpired useful life of such Fixed Assets; to transfer to General Reserve the amount standing to the credit of Revaluation Reserve on account of a revalued asset that is retired/derecognised.
Impairment of Assets
To provide for impairment loss, if any, to the extent, the carrying amount of assets exceed their recoverable amount. Recoverable amount is higher of an asset’s net selling price and its value in use. Value in use is the brsent value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.
Impairment losses recognised in prior years are reversed when there is an indication that the impairment losses recognised no longer exist or have decreased. Such reversals are recognised as an increase in carrying amounts of assets to the extent that it does not exceed the carrying amounts that would have been determined (net of amortisation or debrciation) had no impairment loss been recognised in brvious years.
To state Current Investments at lower of cost and fair value; and Long Term Investments, including in Joint Ventures and Associates, at cost. Where applicable, provision is made to recognise a decline, other than temporary, in valuation of Long Term Investments.
To state inventories including work-in-progress at lower of cost and net realisable value. The cost is calculated on weighted average method. Cost comprises expenditure incurred in the normal course of business in bringing such inventories to its location and includes, where applicable, appropriate overheads based on normal level of activity. Obsolete, slow moving and defective inventories are identified at the time of physical verification of inventories and, where necessary, provision is made for such inventories.
Revenue from sale of products and services
To recognise Revenue at the time of delivery of goods and rendering of services net of trade discounts to customers and Sales tax/Value added tax recovered from customers but including excise duty on goods payable by the Company. Net revenue is stated after deducting such excise duty.
To account for Income from Investments on an accrual basis, inclusive of related tax deducted at source. To account for Income from Dividends when the right to receive such dividends is established.
To provide for Dividends (including income tax thereon) in the books of account as proposed by the Directors, pending approval at the Annual General Meeting.
To make regular monthly contributions to various Provident Funds which are in the nature of defined contribution schemes and such paid/payable amounts are charged against revenue including any shortfall in interest between the amount of interest realised by the investment and the interest payable to members at the rate declared by the Government of India. To administer such Funds through duly constituted and approved independent trusts with the exception of Provident Fund and Family Pension contributions in respect of Unionised Staff which are statutorily deposited with the Government.
To administer through duly constituted and approved independent trusts, various Gratuity and Pension Funds which are in the nature of defined benefit / contribution schemes. To determine the liabilities towards such schemes, as applicable, and towards employee leave encashment by an independent actuarial valuation as per the requirements of Accounting Standard – 15 on “Employee Benefits”. To determine actuarial gains or losses and to recognise such gains or losses immediately in Statement of Profit and Loss as income or expense.
To charge against revenue, actual disbursements made, when due, under the Workers’ Voluntary Retirement Scheme.
To charge Rentals in respect of leased brmises and equipment to the Statement of Profit and Loss. To recognise rental income on assets given on operating lease on an accrual basis over the lease term in the Statement of Profit and Loss.
Research and Development
To write off all expenditure other than capital expenditure on Research and Development in the year it is incurred. Capital expenditure on Research and Development is included under Tangible Assets.
Taxes on Income
To provide Current tax as the amount of tax payable in respect of taxable income for the period, measured using the applicable tax rates and tax laws.
To provide Deferred tax on timing differences between taxable income and accounting income subject to consideration of prudence, measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
Not to recognise Deferred tax assets on unabsorbed debrciation and carry forward of losses unless there is virtual certainty that there will be sufficient future taxable income available to realise such assets.
Foreign Currency Transactions
To account for transactions in foreign currency at the exchange rate brvailing on the date of transactions. Gains/Losses arising on settlement of such transactions as also the translation of monetary items at period ends due to fluctuations in the exchange rates are recognised in the Statement of Profit and Loss.
To account for differences between the forward exchange rates and the exchange rates at the inception of forward exchange contracts (other than those designated as cash flow hedges), as income or expense over the life of the contracts.
To account for gains/losses arising on cancellation or renewal of forward exchange contracts (other than those designated as cash flow hedges) as income/expense for the period.
To apply the principles of hedge accounting as set out in Accounting Standard-30 “Financial Instruments: Recognition and Measurement” to those forward exchange contracts and currency options that are designated as cash flow hedges and, accordingly, to account for the changes in the fair value of such contracts, to the extent that they are effective, directly in the Hedging Reserve Account, and to take the ineffective portion to the Statement of Profit and Loss. To recognize in the Statement of Profit and Loss the balance in the Hedging Reserve Account when the hedged item affects the profit or loss.
To recognise the net mark to market losses in the Statement of Profit and Loss on the outstanding portfolio of forward exchange contracts and currency options, other than those designated as cash flow hedges, as at the Balance Sheet date, and to ignore the net gain, if any.
To accumulate exchange differences arising on monetary items that, in substance, form part of the Company’s net investment in a non-integral foreign operation in a foreign currency translation reserve. To recognise such balances in the Statement of Profit and Loss on disposal of the net investment.
To disclose claims against the Company not acknowledged as debts after a careful evaluation of the facts and legal aspects of the matter involved.
To identify segments based on the dominant source and nature of risks and returns and the internal organisation and management structure.
To account for inter-segment revenue on the basis of transactions which are primarily market led.
To include under “Unallocated Corporate Expenses” revenue and expenses which relate to initiatives/costs attributable to the enterprise as a whole and are not attributable to segments.
Financial and Management Information Systems
To practice an Accounting System which unifies Financial and Cost Records and is designed to comply with the relevant provisions of the Companies Act, 2013 provide financial and cost information appropriate to the businesses and facilitate Internal Control.
On behalf of the Board
Y. C. DEVESHWAR Chairman
R. TANDON Director & Chief Financial Officer
B. B. CHATTERJEE Company Secretary
20th May, 2016