N M Raiji & Co, the auditors of the state-run Mahanagar Telephone Nigam Ltd (MTNL), has pointed out several irregularities in the company's annual report for 2000-01.
The auditors stated that accounting practices and procedures followed by MTNL in respect of fixed assets are not in compliance with the accounting standard 10 on fixed assets.
"We (auditors) are unable to quantify the impact of deviation in the absence of necessary data. As required by Section 211 (3B) of the Companies Act, 1956, MTNL has not quantified the impact on account of the deviation and has also not specified reasons for the deviation," it said.
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The auditing company has further stated that the balance sheet and the profit and loss account dealt with by the report comply with the accounting standards referred to in Subsection 3C of Section 211 of the Companies Act, 1956.
Based on the legal opinions received by the company, the management is claiming benefit under Section 80 IA of the Income Tax Act, 1961, on the basic telecommunication services provided. The benefit is claimed on the total operational profit earned by MTNL, it said.
Accordingly, tax liability for the current year is provided after considering benefit under Section 80 IA, resulting in tax provision on the basis of minimum alternate tax. Provision for income tax for the accounting year 1999-2000 was also made after considering such benefit.
Further, the company had revised its income tax return for 1997-98 and filed the return for 1998-99 after considering benefit under Section 80 IA of the Income Tax Act, 1961. However, MTNL has not written back any amount from the provision for taxation made for 1997-98 and 1998-99.
In case the benefit under Section 80 IA of the Act is finally accepted, the provision for taxation for the two years will be rendered excess to the extent of Rs 744.28 crore.
In the event of the tax benefit claimed by MTNL under Section 80 IA not being finally accepted by the tax authorities, profit for the year would be lower by Rs 577 crore and provision for taxation for 2000-01 would be higher by Rs 935 crore. In case the claim is accepted by the authorities, provision for taxation and reserves would be lower and higher respectively by Rs 744.28 crore.
Auditors have also said that the company has not made disclosures on consumption of stores and spares, imported and indigenous stores and spares, and outstanding dues to small scale undertakings required under schedule VI to the Companies Act, 1956.
The fixed assets records maintained by the company do not give the prescribed particulars in respect of several assets. Further, records of the Mumbai unit require to be updated for several years. The frequency of verification needs to be increased for the Delhi unit as well, NM Raiji said in the auditors' report.
MTNL in its replies to the auditors report have indicated that the provision for income tax has been made considering the claim of benefit under Section 80 IA of the Income Tax Act.
During this year, MTNL has created contingencies reserve for 1999-00 and 2000-01 by transferring the difference of tax liability and without considering the benefit under 80 IA from the general reserve and profit available for apportionment, respectively.
MTNL has been following the Department of Telecommunications procedure in respect of accounting of fixed assets, which is in variance with the accounting standard prescribed by the Institute of Chartered Accountants of India. The matter is under review by MTNL.
Regarding disclosures required under Schedule VI, the company said that the matter has been reviewed by MTNL and it has been decided to obtain exemption from the Company Law Board as this is not relevant to the company's kind of operation.