Project KMA

DUE DILIGENCE REPORT

January 2022
Strictly Private and Confidential
Layout

Details Page No
Transmittal Letter 3
Exclusions and limitations 4
Context of our review 6
Definitions and Glossary 7
Summary – Financial Due Diligence 8
Organisation Hierarchy Chart of the Company 10
Overview of Income Statement 11
Overview of Balance Sheet 26
Secretarial Review 47
Summary – Tax Due Diligence 50
Tax Review 52

2
14th January 2022

Dear All,

In accordance with your instructions, confirmed in our engagement letter ,we have prepared this Desktop Due Diligence report on Kosei Minda Aluminium Company Private
Limited (“FC/Company/Target”).

This report is addressed to and intended for the information of the addressee[s], only in connection with the proposed transfer of equity shares in the Company. Save as
expressly provided for in our engagement letter, it is not to be referred to or quoted, in whole or in part, in any other context without our prior written consent.

This report is based on the latest information made available to us as at the completion of our work on 19th Jan 2022, and we accept no responsibility to update it for events
that take place after the date of its issue. We emphasise that our enquiries would not necessarily disclose all matters of significance to you relating to the Company.

We have prepared this report from the information received by us on discussion with the management of the Company. We have not verified the accuracy, reliability or
completeness of the information supplied and the procedures that we used to perform the work, did not constitute an audit or review made under any generally accepted
auditing standards.

Should you require any clarifications, please do let us know.

We thank you for giving us the opportunity.

Yours faithfully

Hiroki Nose
Director
NAC Nose India Pvt. Ltd.

3
Exclusions and Limitations
Notice to any person not authorised to have access to this report
Any person who is not an addressee of this report or who has not signed and returned to NAC Nose
India Pvt. Ltd. either a “no-reliance” or an “assumption of duty” release letter is not authorised to
have access to this report. We do not accept or assume responsibility to any unauthorised person
to whom this report is shown or any other person who may otherwise gain access to it. If any
unauthorised person chooses to rely on the contents of this report, they do so entirely at their own
risk. Should any unauthorised person obtain access to and read this report, such person accepts
and agrees that:
• This report was prepared in accordance with instructions provided by the addressees
exclusively for the sole benefit and use of each of them and such other parties whom we
expressly agreed in writing may have the benefit of, or rely upon, our work.
• NAC Nose India Pvt. Ltd., its Directors, employees and agents neither owe nor accept any duty
or responsibility to the reader, whether in contract or in tort (including without limitation,
negligence and breach of statutory duty), or howsoever otherwise arising. We make no
representations regarding this report or the accuracy of the contents including that the
information has not changed since the date of this report. We shall not be liable in respect of
any loss, damage or expense of whatsoever nature which results from any use the reader may
choose to make of this report, or any reliance the reader may seek to place on it, or which is
otherwise consequent upon access to this report by the reader.
• The results and findings of the procedures performed are presented in this report. However,
these procedures do not constitute an audit and, had we performed additional procedures or
conducted an audit in accordance with generally accepted auditing standards, other matters
might have come to our attention, which we would have reported to you.
• Our work was restricted to the financial statements of the Target and other information
provided by the Target. The financial statements are the responsibility of Target management.
In this regard, management is responsible for proper recording of transactions in the
accounting records and maintaining an internal control structure to permit the preparation of
reliable financial statements.
• This report is not to be referred to or quoted, in whole or in part, in any other document or
made available to any third party, without our prior written consent.
Report
• Our scope of work was restricted to the limited due diligence procedure set out in our
Engagement Letter .
• The report is subject to the limitations and is to be read in totality, and not in parts, in
conjunction with the relevant documents referred to therein.
• This due diligence exercise has been restricted and kept limited to and based entirely
on the documents and information made available to us till 19th Jan 2022. Information
that was not available has been highlighted in slide 6 – Scope Limitations. Had we been
provided with this information, certain other matters may have come to our attention,
which we may have reported to you.
Information Received
• This report is based on the information received from the sources mentioned herein.
The due diligence exercise has been restricted and kept limited to and based entirely
on the documents, records, files, registers and information provided to us. We have not
verified the information independently with any other external source.
• We have assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as original, and the conformity of the copies or extracts submitted to us
with that of the original documents.
• We have assumed that the documents submitted to us by the Target in connection with
any particular issue are the only documents related to such issue.
• We have reviewed the documents and records from the limited perspective of
examining accounting, financial and tax issues and we do not express any opinion as to
the legal or technical implications of the same.
4
Exclusions and Limitations

Limitation of Liability
• You agree to indemnify and hold us harmless from time to time and at all times hereafter, from and against (i) all loss, damage, harm or injury
suffered or incurred by us or any of them and (ii) all notices, claims, demands, action, suits or proceedings given, made or initiated against us on
account of or arising out of any default committed by you in the performance of all or any of your obligations hereunder, as also against all costs,
charges and expenses suffered or incurred by us on account of the aforesaid.

• Whilst all reasonable care has been taken to ensure that the facts stated in the report are accurate and the opinions given are fair and reasonable,
neither we nor any of our Directors, Officers, Affiliates or Employees shall in any way be responsible for the contents stated herein. Accordingly, we
make no representation or warranty, express or implied, in respect of the completeness, authenticity or accuracy of the information and statements
set out in this report, or otherwise provided in this connection. We expressly disclaim any and all liabilities, which may arise based upon the
information used in this report.

• If any payment is made by you under this clause you shall not seek recovery of that payment from us at any time. In this clause “us” shall include all
NAC Nose India Pvt. Ltd. Persons and “you” shall include other beneficiaries.

5
Context of our review

Sources of Information Key Discussions

• Corporate Website
• We have had telephonic discussions with Ms. Sujeetha
• Profit and Loss Account of the company for the year ended 31 March 2019, Govindarajan.
2020 and 2021 and for YTD 30 Sept 2021
Limitation in scope
• Other information provided to us through email, word documents or • This report has been produced solely for the purposes of addressing
explanations provided during virtual discussions. our scope of work set out in our engagement letter
• NAC Nose India Pvt. Ltd.analysis: where specified we have undertaken • This report has, by agreement, not considered the following areas of
certain analytical activities on the underlying data provided to us. work:
• The sources of information used are noted, wherever possible, in the o Operational due diligence
report. We have not sought to establish the reliability of these sources by o Market/commercial due diligence
reference to evidence independent of information provided by the target.
o IT due diligence
We have, however, analyzed the information produced and have satisfied
ourselves, so far as possible, that the information presented is consistent
with other information obtained by us during the course of the work
undertaken to prepare this report., identified during our work have also
been highlighted for the reader of the report.

• Our analysis is prepared using MS Excel, and may produce small rounding
differences, which are inherent, as a consequence.

6
Definitions, Abbreviations and Glossary of Terms
Abbreviation Meaning
2020-21 1 April 2020 – 31 March 2021
YTD Sept 1 April 2021 – 30 September 2021
MAM Most Appropriate Method
S.No. Serial Number
i.e. That is
w/o Without
Y-o-Y Year on Year
CoD Cash on Delivery
COGS Cost Of Goods Sold
EBITDA Earnings Before Interest, Tax, Depreciation and Amortization
FS Financial Statements
PAT Profit After Tax
MIS Management Information Systems
DIN Director Identification Number
TNMM Transaction Net Margin Method
N/A, NA Not Available
No. Number
KMP Key Managerial Personnel
MOA Memorandum of Association
AOA Articles of Association
RoC Registrar of Companies
7 7
Summary : Financial Due Diligence

Details 6 Months Ended Year Ended Impact Comments

Sept’21 March’21 (₹ in million)
(₹ in million) (₹ in million)
The company’s revenues have decreased disproportionately to the overall
passenger car sales in India.
The company does not cater to the top automotive manufacturers in India
and thereby limiting the future prospects.
Cannot be About 80% of the business for the FY2020-21 and about 70% for the
Revenue from operations 584.93 785.66
quantified period ended September’21 is from three customers, namely, Renault
Nissan Automotive India (RNAIPL), Toyota Kirloskar Motor (TKML) and
Honda Cars India (HCIL). High dependence on few customers leads to
Concentration Risk
(Refer Slides - 14 to 19)
As informed to us, the sales prices are reset on a quarterly basis.
Whenever there is a increase in the raw material prices, there is a time lag
213.92 362.00 Difficult to
Margin on Sales of 3 months for revision of the sales price leading to lesser margin during
(36.75%) (46.08%) quantify
that particular quarter.
(Refer Slide - 20)
Difficult to The company does not have any practice to hedge it’s foreign currency
Forex Exposure 347.40 708.60
quantify exposure.
The company has been unable to demonstrate a proper mechanism for
Property, Plant and verification of its fixed assets. To evaluate the actual current value and
Difficult to
Equipment (excluding land 926.42 961.30 working condition of property, plant , and equipment, a technical due
quantify
and building) diligence may be opted for.
(Refer Slides - 29 & 30)

8 8
Summary : Financial Due Diligence
Details September’21 March’21 Impact Comments
(₹ in million) (₹ in million) (₹ in million)
Capital work in progress is pending from FY2019-20, this primarily
consists of 2 imported machineries. Since these machineries have not been
Difficult to
Capital work in progress 38.20 38.20 installed for so long, there is a risk of deterioration in physical condition/
quantify
obsolescence.
Further this delay may also impact the warranties extended by the vendors.
As per the information received and on going through the internal audit
reports, we have observed that the company does not have a documented
Difficult to
Inventory 192.87 173.08 system for identification of slow moving, non moving and obsolete items of
quantify
inventory.
(Refer Slide - 32)
These items are outstanding for more than 365 days and seems to be
doubtful.
Trade Receivables 278.57 209.75 24.26 No provision has been created against these doubtful debts in the financial
statements.
(Refer Slide -33)
Balance with statutory The matter with the customs authorities has continued for a long period of
authorities (other than time and hence the recovery of amount seems to be doubtful.
30.39 30.61 17.74
Direct taxes and Indirect (Refer Slide - 35)
taxes)
The company has not provided any balance confirmations in respect of
Difficult to
Vendor Debit Balances 16.86 15.74 vendor debit balances.
quantify
(Refer Slide - 36)
The internal auditors in their report for March’21 have reported many non-
Difficult to compliance issues related to labour laws.
Internal Audit - -
quantify No internal audit report is available for the period Apr’21 to Sept’21. As
informed to us, the audit is still underway. 9 9
Organisation Chart

President

Head Marketing & Head Finance &

Head HR & IR Head Operations
Sales Materials

1 2 3 4

IT Assistant Manager Manager Production Engineer Senior Officer

HR & IR Assistant Manager DY Manager Engineering Engineer Assistant Manger

Manager Quality Company Secretary

DY Manager Maintenance

DY Manager EHS
10 1
0
Overview of
Income Statement
Comparative Statement of Profit & Loss

Kosei Minda Aluminum Company Private Limited

Comparative Income Statement
Amount in Rs. million Remarks
Period Ended Year ending Year ending
Particulars Sept’21 March, 2021 March, 2020
(Unaudited) (Audited) (Audited)
Revenue from operations 584.93 785.66 1144.41 Refer Slides – 14 to 19
Total 584.93 785.66 1144.41
Less: Expenses
Cost of raw materials and Paint material
386.63 458.30 609.02
consumed
Purchases of traded goods - 2.95 16.74 Refer Slide – 20
Changes in Inventories of Finished Goods
-15.62 -37.59 -2.26
and Work-in-Progress
Employee Benefit Expenses 56.77 115.72 137.62 Refer Slide – 23
Depreciation and amortisation
63.80 122.17 131.46
expense
Other Expenses 192.80 238.29 435.21 Refer Slides – 24 & 25
EBIT -99.44 -114.18 -183.38
Less: Finance Cost 16.78 60.61 85.20 Refer Slide – 22
Add: Other Income 13.63 18.73 19.11 Refer Slide – 21
Profit before tax and Extraordinary items -102.59 -156.06 -249.47
Less: Prior Period Item - - 9.24
Net Income -102.59 -156.06 -258.71
12 12
Comparison with the Budgets

P.E. September’21 Y.E. March’21 Remarks :-

Particulars Budget Actual Budget Actual
(₹ in million) (₹ in million) Revenue is much lesser than
TOTAL SALES 742.99 598.57 1,149.95 797.75 the budgeted figures. Gross
LESS- COST OF SALES 675.95 634.46 1,059.17 821.02 profit is negative for both
LESS- PURCHASE OF TRADED GOODS - - - 2.95 FY2020-21 and P.E. Sept’21.
GROSS PROFIT 67.04 -35.89 90.78 -26.23
LESS- GEN & ADMIN EXPENSES 55.18 50.22 87.21 69.23
INCOME (LOSS) FROM OPERATIONS 11.86 -86.11 3.58 -95.46
ADD/(DEDUCT) - OTHER INCOME/(EXPENSES) 17.44 16.48 47.98 60.61
NET PROFIT (LOSS) -5.58 -102.59 -44.41 -156.07

QTY PRODUCED 2,36,727 2,04,567 4,01,899 2,92,966

QTY SOLD 2,36,727 1,91,101 4,01,899 2,75,282
WEIGHT KGS 20,50,248 16,79,170 35,67,261 25,04,443
WEIGHT PER WHEEL-AVG 8.66 8.21 8.88 8.55
SALES WEIGHT 20,50,248 16,16,334 35,67,261 23,53,671

DM COST (INR/KG) 194.52 213.86 159.91 171.10

DL COST (INR/KG) 19.10 24.83 17.12 22.43
OH COST (INR/KG) 116.07 148.46 119.88 149.30

13
Revenue from Operations

Kosei Minda Aluminum Company Private Limited has earned revenue from sale of its product i.e. “Alloy Wheels”.

Sales (₹ in million) Sales (%) Sales (₹ in million) Sales (%)

Customers
September-2021 September-2021 March-2021 March-2021
Renault Nissan Automotive India 89.67 15.33% 135.46 17.24%

Toyota Kirloskar Motor 191.35 32.71% 281.16 35.79%

Honda Cars India 120.43 20.59% 205.18 26.12%

Isuzu Motors Ltd. 4.67 0.80% 5.43 0.69%

After Market Sales 39.25 6.71% 106.36 13.54%

TOTAL DOMESTIC SALES 445.37 76.14% 733.59 93.37%

Export Sales 139.56 23.86% 52.07 6.63%

TOTAL SALES 584.93 100% 785.66 100%

14
Customer–wise Revenue Analysis

About 80% of the business for the FY2020-21 and about 70% for the period ended September’21 is from three customers, namely, Renault
Nissan Automotive India (RNAIPL), Toyota Kirloskar Motor (TKML) and Honda Cars India (HCIL).

High Dependence on Few Customers Leads to Concentration Risk

TKML TKML
35.79% 32.71%

HCIL RNAIPL HCIL RNAIPL

26.12% 17.24% 20.59% 15.33%

March’21 Sept’21

Domestic Export Domestic Export

(Others) (Others) (Others) (Others)
13.54% 6.63% 6.71% 23.86%
Isuzu Isuzu
(Others) (Others)
0.69% 0.80%

15 15
Customer–wise Revenue Analysis

S. NO OEM Market Share (%) FY 2020-21 KMA’s Presence

1 Maruti Suzuki 47.80%

2 Hyundai 17.42%

3 Mahindra 5.75%
As per the adjacent chart, KMA has only 3
main customers RNAIPL, HCIL & TKML. 4 Tata Motors 8.20%
There are other companies as well in the
automobile industry which the company 5 Toyota 3.44%
(KMA) has been unable to penetrate, i.e. 6 Honda 3.03%
company has not expanded it’s customer
base during past years, due to which 7 Renault 3.41%
KMA’s sale has seen contraction year by
year. 8 Kia 5.75%

9 Ford 1.77%

10 Volkswagen 0.76%

11 MG 1.32%

12 Nissan 0.70%

13 Skoda 0.42%
Data Source - www.autocarindia.com
- www.autopunditz.com 14 Fiat 0.24%

16
KMA’s Competition

Major competitors of KMA are :-

• Minda Kosei Aluminum Wheel Pvt. Ltd.

(It is the largest alloy wheel manufacturer in India supplying to all major OEMs like Maruti
Suzuki, Mahindra, etc.)

• Steel strip wheels Ltd.

• Rockman Industries

• Enkei Wheels (India) Limited

17
Revenue from Operations – Sales Trend

Gross Turnover
2,500
Considering the records for FY2017-18 to period ended Sept’21, we have
noted that business for the organization has seen a dip year by year.

As is evident from the adjacent graph, annual revenue during the past years 2,000
has decreased from INR 2207 Million in FY2017-18 to INR 786 Million in
FY2020-21.
1,500

Increase / 1,000
Gross Turnover
Financial Year (Decrease) (%)
(₹ in million)
in Turnover
FY2017-18 2,207 388 21% 500
FY2018-19 2,028 -179 -8%
FY2019-20 1,144 -883 -44%
FY2020-21 786 -359 -31%
P.E. Sept’21 585 -
2017-18 2018-19 2019-20 2020-21 P.E. Sept'21
Gross Turnover

18
Revenue from Operations – Sales Trend

Automobile Domestic Sales Trends

Years 2017-18 2018-19 2019-20 2020-21
Number of Passenger Vehicles
32,88,581 33,77,389 27,73,519 27,11,457
Automobile Industry Sold
Growth YoY (%) 2.70% -17.88% -2.24%
Number of Units Sold 7,13,623 6,21,570 3,84,581 2,75,315
KMA
Growth YoY (%) -12.90% -38.13% -28.41%

Data Source - www.siam.in

Remarks :-
As per the reported figures, Automobile Industry saw a decline in number of units sold by 17.55% in FY2020-21 from FY2017-18. On the
other hand, KMA’s sales has degrown by 61.42% during the same period.

Capacity utilization
We have been informed that the capacity of the plant as on date is 50000 wheels per month and the Company is operating at around 46% of
capacity in FY 2020-21.

19
Margin on Sales
Period Ended Year ending
Year ending 2021
Particulars Sept’21 2020
(Audited)
(Unaudited) (Audited)
Amount in Rs. million
Revenue from operations 584.93 785.66 1144.41
Total 584.93 785.66 1144.41
Less: Expenses
Cost of raw materials and Paint material
386.63 458.30 609.02
consumed
Purchases of traded goods - 2.95 16.74
Changes in Inventories of Finished Goods
-15.62 -37.59 -2.26
and Work-in-Progress
Margin 213.92 362 520.91
Margin Percentage (%) on Sales 36.57% 46.08% 45.52%

As informed to us, margin for half year ended September’21 has fallen due to increase in raw material costs and increase in freight charges due
to non-availability of containers.

*Sales price setting mechanism (Pricing formula)

Prices are decided on a quarterly basis – All costs given below based upon previous quarter data.

Formula :-
London Metal Exchange Price + Major Japanese Port Surcharge + Premium charged by Supplier + Processing cost of KMA inclusive of profit
margin.
20
Other Income

Annual breakup for other income has been attached in the table given along-side :-

For the period ended
Particulars
30-Sept-2021
Interest Income on
- Bank Deposits
Other non-operating
income
Government Grant income
Foreign Exchange
Fluctuation (net)
Mould sales
Total
For the year ended For the year ended
Remarks
31-Mar- 2021 31-Mar- 2020
(₹ in million)
- - -
- 0.06 0.17
This comprises mainly of duty drawback
13.63 1.25 3.67
income on export sales
The Company has availed EPCG scheme.
Company capitalizes the non-refundable
portion of the duty saved as part of its Fixed
- 5.04 5.58
assets and correspondingly accounts for
deferred income which is amortised over the
period the export obligation is met.
Primarily on account of amounts paid to parent
- 7.13 -
company
- 5.26 9.69
13.63 18.74 19.11

21
Financial Cost

P.E. Sept’21 Y.E. March’21

Particulars Facility Name
(₹ in million) (₹ in million)
Interest Expenses
The Bank of Tokyo-Mitsubishi UFJ,LTD Working Capital Facility 4.93 13.31
Mizuho Bank Ltd. Working Capital Facility 1.51 15.11
Sumitomo Mitsui Banking Corporation Working Capital Facility 4.97 13.95
The Bank of Tokyo-Mitsubishi UFJ,LTD Long Term Loan 5.06 16.90
Kosei International Trade & Investment Co. Ltd. ECB - -

Bank Charges - 0.30 1.35

TOTAL - 16.78 60.61

• Interest was waived off on parental ECB for FY2020-21 and subsequently the debt was converted into equity in FY2021-22. (₹ 371.82 million)

Remarks :-

Finance cost has reduced due to reduction in borrowings (Refer Slide – 38)

22
Employee Benefit Expenses

P.E. Sept’21 Y.E. March’21 Y.E. March’20

Particulars
(₹ in million) (₹ in million) (₹ in million)
TURNOVER 584.93 785.66 1,144.41
Salaries, wages and bonus 45.15 87.14 103.48
Contribution to provident and other funds 2.92 6.03 6.98
Gratuity expense 4.05 1.41 0.43

Staff welfare expenses 17.94 21.14 26.72

Contract Wages 19.18 17.98 27.27

TOTAL 89.24 133.70 164.88
Percentage of Turnover (%) 15.26% 17.02% 14.41%

Details of Head Count :-

September’21 March’21
Particulars
(in numbers) (in numbers)
STAFF 88 73
ASSOCIATES 114 130
CONTRACTUAL 237 194
TOTAL 439 397
23
Manufacturing Expenses

P.E. Sept’21 Y.E. March’21 Y.E. March’20

Particulars
(₹ in million) (₹ in million) (₹ in million)
TURNOVER 584.93 785.66 1,144.41
Consumption of stores and spares 37.97 49.10 51.23

Power and fuel 73.11 106.06 131.89

Repairs & Maintenance

Plant and machinery 13.42 18.34 36.81
Others 2.59 1.89 3.68
TOTAL 127.09 175.38 223.62
Percentage of Turnover (%) 21.73% 22.32% 19.54%

Remarks :-

No significant variation was noted in manufacturing expenses as a percentage of sales.

24
Administrative and Selling Expenses
P.E. Sept’21 Y.E. March’21 Y.E. March’20
Particulars Remarks
(₹ in million) (₹ in million) (₹ in million)

TURNOVER 584.93 785.66 1,144.41

Assets Scrapped - - 51.35 One time expense

Foreign Exchange Fluctuation (net) 2.33 - 47.98 Primarily on account of amounts paid to parent company

In 2020-2021, there was waiver of Royalty of 0.5% by Kosei

International Trade and Investment Co. Ltd and Kosei Aluminum
Royalty Fees 12.19 6.23 20.50
(Thailand) Co. Ltd . Additionally there was a waiver of
management fees of 1% by Minda Industries Ltd.
Freight outward 8.39 15.41 18.36
Miscellaneous expenses 2.21 2.63 17.01
Travelling and conveyance 1.16 2.78 9.89

Legal and professional expenses 1.65 3.25 5.40

Insurance 1.87 3.45 3.08

Rates and taxes 0.78 5.61 0.79
Others 2.65 6.24 9.96
TOTAL 33.23 45.60 184.32
Percentage of Turnover (%) 5.68% 5.80% 16.11%
25
Overview of
Balance Sheet
Comparative Balance Sheet
Kosei Minda Aluminum Company Private Limited
Comparative Balance Sheet
Amount in Rs. million Remarks
Sept’21 2020-21 2019-20
Particulars
(Unaudited) (Audited) (Audited)
Non- Current Assets (A)
Property, Plant and Equipment 1233.47 1279.90 1373.85 Refer Slides – 29 & 30
Capital Work in Progress 38.20 38.20 38.23 Imported machinery - Installation pending due to COVID’19
Intangible assets 2.08 2.08 2.73 Refer Slide – 29
The number of shares have been confirmed by the Investee
Investments 0.26 0.26 0.29
Companies
Other Financial assets 4.39 5.52 13.85 Refer Slide – 31
Other non current assets 8.06 - - Refer Slide – 31
(A) 1286.46 1325.96 1428.95
Current Assets (B)
Inventories 192.87 173.08 126.00 Refer Slide – 32
Trade Receivables 278.57 209.75 180.71 Refer Slide – 33
Cash and cash equivalents 2.03 2.14 3.09 Refer Side – 34
Other Financial assets 1.47 1.59 1.84
Current tax assets (net) 1.12 0.54 0.60
Other current assets 59.04 49.70 41.19 Refer Slide – 35
(B) 535.10 436.80 353.43
TOTAL ASSETS 1821.56 1762.76 1782.38
27
Comparative Balance Sheet

Sept’21 2020-21 2019-20

Particulars Remarks
(Unaudited) (Audited) (Audited)
Amount in Rs. million
Current Liabilities (C )
Trade payables 541.31 482.13 393.88 Refer Slide – 37
Other financial liabilities 2.86 9.19 3.01
Government Grant - 2.48 5.04
Provision for liability of gratuity and leave encashment. These
Short term provisions - 0.93 2.89
are valued on the basis of Actuarial Valuation
Current tax liabilities 0.57 - -
Other current liabilities 40.67 41.26 31.41
(C) 585.41 535.99 436.23
Net Current Assets (B-C) -50.31 -99.19 -82.80
Non- current Liabilities (D)
Borrowings 619.09 1120.90 1084.49 Refer Slide – 38
Provision for liability of gratuity and leave encashment. These
Government Grant 3.90 1.42 3.90
are valued on the basis of Actuarial Valuation
Long term provisions 9.47 10.18 7.4
(D) 632.46 1132.50 1095.79
Net Assets [A+(B-C)-D] 603.69 94.27 250.36
Shareholder's Funds
Equity Share capital 1569.91 957.91 957.91
Other equity -966.22 -863.64 -707.55
Net Worth 603.69 94.27 250.36

28
Fixed Assets
Breakup of tangible fixed assets as on March’21 & Sept’21 stands as follows-

March’21 September’21 (₹ in million)

Percentage
Particulars Gross Net Gross Net
Depreciated
Leasehold land 114.07 108.73 114.07 104.79 8%

Factory buildings 155.52 127.89 158.79 123.25 22%

Office buildings 88.24 81.98 88.24 79.01 10%

Plant and machinery 1,403.95 934.84 1412.15 900.93 36%

Moulds and dies 82.38 14.10 87.55 13.59 84%

Office equipment 10.02 3.69 10.07 3.56 65%

Computer 5.49 0.03 5.81 0.03 99%

Furniture and fixtures 13.50 6.54 13.87 6.30 55%

Vehicles 3.14 2.11 3.14 2.03 35%
TOTAL TANGIBLE ASSETS 1,876.33 1,279.90 1893.70 1233.47
Computer Software 12.04 2.08 12.04 2.08 83%
TOTAL INTANGIBLE ASSETS 12.04 2.08 12.04 2.08

Fixed assets schedule & depreciation details not provided for Sep 21. In the absence of this data, depreciation for Sep 21 has been taken on pro-
rata basis.
29
Fixed Assets

Remarks :-

The Statutory Auditor has commented as under regarding the fixed assets :-

a) The Company has maintained proper records showing full particulars including the quantitative details and situation of fixed assets
b) As per the information and explanation given to us, the company has physically verified its assets during the previous year, which in our
opinion is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such
verifications.

However the fixed asset register provided to us does not contain required details like quantity, location and other relevant details of the
fixed assets.

There was no evidence of physical verification of fixed assets provided to us except for a one page physical verification certificate provided
to the statutory auditors which does not contain any details. Fixed assets verification sheet showed items of Plant & Machinery only. The
statement was unsigned and undated and did not contain any Cost/ WDV details. Also comparison with book stocks was not given.

No unique numbers have been allotted to fixed assets as per the fixed asset register provided to us. In the absence of the same and affixing
of tags containing these numbers on each item of fixed assets, proper physical verification is not possible.

30
Other Non Current Assets & Financial Assets

Particulars September'21 March'21 March'20

(₹ in million)
Other Financial Assets
Deposit with original maturity for more than 12
0.77 0.77 0.77
months
Security deposit 3.62 4.75 13.08
Capital Advances 8.06 - -
TOTAL 12.45 5.52 13.85

Remarks :-

We had asked for documentary evidence regarding security deposit given by KMA. However no such documents were provided for verification.

31
Inventories

We have noted an increasing trend in the level of inventory maintained by the organization. As can be observed from the charts given below,
significant change was observed in September’21, where the level of inventory increased to INR 192.87 Million, as compared to INR 126.00
Million and INR 173.08 Million for March’20 and March’21 respectively.

Particulars September'21 March'21 March'20

Inventory
(₹ in million) 120.00

Raw materials 30.20 34.23 31.04 100.00

80.00
Work-in-progress 3.87 1.91 5.72 60.00
40.00
Finished goods 104.45 90.79 49.39
20.00
Goods in Transit - 3.73 1.55 -
March'20 March'21 Sept'21
Stores, spares and
54.35 42.42 38.30 Raw materials Work-in-progress
consumables
Finished goods Stores, spares and consumables
Total 192.87 173.08 126.00

32
Trade Receivables
(₹ in million)
30-03-2021 30-09-2021
Particulars Total < 90 days > 90 days Total < 90 days > 90 days Management comment
Honda Cars India Limited - R J 22.44 22.44 - 34.13 34.13 -
Honda Cars India Limited - UP (HMIL) 3.93 3.93 - 4.31 4.31 -
Honda Cars India Limited -UP 14.17 14.17 - 14.17 14.17 -
Honda Motor India 9.65 9.65 - 9.65 9.65 -
Isuzu Motors India Private Limited - - - 0.60 0.60 -
Kosei International Trade & Investment 3.94 3.94 - 90.98 90.98 -
Muzammil Traders - - - - - -
Maruti Suzuki India Limited - HR - - - - - -
This is more than 365 days old and we have taken up the matter through
Maruti Suzuki India Limited - KA 3.90 - 3.90 3.90 - 3.90
our partner MKA
This is more than 365 days old and it is mainly due to change of system and
Nissan Motor India Private Limited 40.05 31.68 8.36 37.65 29.28 8.36
team. We have taken up the matter and there is some positive action.
This is more than 365 days old and it is mainly due to change of system and
Renault Nissan Automotive India Pvt Ltd 27.28 17.71 9.57 25.21 15.64 9.57
team. We have taken up the matter and there is some positive action.
Renault Nissan Technology & Business Cen 0.07 0.07 - 0.07 0.07 -
S.S Trading Co - Dr - - - 3.48 3.48 -
SRI LAMSIDDH METALS 0.05 0.05 - - - -
This is more than 365 days old and it is mainly due to change of team. We
Toyota Kirloskar Motor Private Limited 61.49 58.76 2.73 61.33 58.91 2.43 have taken up the matter and we have received around Rs.7 lakhs and the
balance will be cleared before 31.3.2022.
Swegon Blue Box 0.06 - - - - -
Millenium Overseas 9.32 - - - - -
Ragib International 9.17 - - - - -
S S Tyre Wala 3.43 - - - - -
AJ Enterprises 0.10 - - - - -
Muzammil Traders 0.36 - - - - -
Mr. Umesh - TKM 0.01 - - - - -
Vinayaka Metal Works 0.05 - - - - -
TOTAL 209.48 162.41 24.57 278.57 254.25 24.26

Remarks :- All amounts >90 days are outstanding from last year and recovery seems to be doubtful. 33
Cash and Cash Equivalents

Particulars Sept’21 Mar’21 Mar’20

As at 30th September’21, cash and its equivalents mainly comprised of
Cash & Cash Equivalents
balance in current accounts worth INR 1.74 Million with various banks.
Balances with Banks (₹ in million)
The adjacent table has been annexed for details of cash and its - On Current accounts 1.74 1.93 2.85
Cash on hand 0.29 0.21 0.24
equivalents.
TOTAL 2.03 2.14 3.09

Other Financial Assets and Current Tax Assets

Particulars September’21 March’21 March’20

(₹ in million)
Remarks :-
Loan to employees 0.67 0.76 0.93
No material movement was noted.
Interest accrued on fixed
0.80 0.83 0.91
deposits
Advance tax paid 1.12 0.54 0.60
TOTAL 2.59 2.13 2.44

34
Other Current Assets

Particulars September’21 March’21 March’20 Remarks

(₹ in million)
Advances recoverable in cash
or 16.86 15.74 8.63 Refer Slide – 36
in kind
Balances with statutory
30.39 30.61 30.32 See note below
/government authorities
Prepaid expenses 11.80 3.35 2.24
TOTAL 59.04 49.70 41.19

Note :-
The Company has received notice dated 18.01.2017 from Deputy Commissioner of Customs (Special Valuation Branch) in connection with the
assessable value of the imports from group companies. The Company has been requested to provide relevant documents. The Company has
submitted the required details to the Special Valuation Branch ('SVB') to conclude that the value of imports from related parties are at arms-
length price and is awaiting the final order. As part of this exercise, the Company has been carrying out the pricing study to substantiate that the
transactions are at arms-length. Refund application for this deposit of ₹17.74 million has been filed. Pending finalisation , no adjustment has
been made in the financial statements.

Other balances with government authorities are covered in the tax diligence section.

35
Vendor Debit Balances
(₹ in million)
Particulars 31-03-2021 30-09-2021 Remarks :-
Bharat Aluminium Company Limited 14.55 9.05
Kosei ST. Marys Corporation 1.29 1.29 As informed to us, all these advances are
Kronos Engineering - 1.27 in due course of business and are
Saks Power Pvt Ltd 0.05 1.22 recoverable in cash or kind. However no
Uni Logistic Agencies Pvt Ltd 0.00 1.06 balance confirmations were provided to
Automachine Technologies - 0.69 us.
Fedex Express -0.00 0.35
New Look Tailors - 0.33
Accurate Engineering - 0.30
Jaydev Constructions Private Limited 0.21 0.21
Kreate Energy (I) Pvt Ltd - 0.12
A I Enterprises Pvt Ltd - 0.10
Kaser Compressors (I) Private Limited 0.09 0.09
Kaiser Technic 0.09 0.09
P.Obul Reddy & Sons - 0.09
Blue Star Engineering & Electronics Limi - 0.08
Minda Kosei Aluminum Wheel Pvt Ltd(GJ) 0.07 0.07
Priya Enterprises 0.07 0.07
Swegon Blue Box Private Limited - 0.06
Metal Power Analytical P Ltd - 0.06
Others -0.70 0.27
TOTAL 15.74 16.86

36
Trade Payables
(₹ in million)
30-09-2021 31-03-2021
Party Details TOTAL < 90 Days 91-150 Days > 150 Days TOTAL < 90 Days 91-150 Days > 150 Days
Kosei International Trade & Investment C 290.42 7.98 16.56 265.87 304.81 17.68 1.99 285.15
Toyota Tsusho India Pvt Ltd - TN 83.51 83.51 - - -0.01 -0.01 - -
Rusal Marketing Gmbh 40.68 40.68 - - 65.59 65.59 - -
Kosei Aluminum Co Ltd 19.08 0.11 - 18.97 13.37 0.68 - 12.69
Sree Sumangala Metals & Industries P Ltd 16.57 16.57 - - - - - -
Kiti - Interest Payable 14.87 - - 14.87 14.87 - - 14.87
Nippon Paint India Pvt Ltd 11.96 11.96 - - 16.69 16.69 - -
Minda Industries Ltd 10.87 - - 10.87 10.87 - - 10.87
Indcon Manufacturing Pvt Ltd 9.01 9.01 - - 1.85 1.85 - -
Total Oil India Pvt Ltd 5.76 5.76 - - 3.00 3.00 - -
Akzo Nobel India Limited 2.12 2.12 - - 2.08 2.08 - -
Kosei Aluminum (Thailand) Co Ltd 2.02 - - 2.02 2.02 - - 2.02
Kosei Minda Mould Private Limited 1.87 - 1.87 0.00 2.75 2.75 - -
Classic Moulds & Dies 1.65 1.65 - - 0.41 0.41 - -
Lakshithas Travels 1.63 1.63 - - 0.98 0.98 - -
Transystem Logistics International Pvt L 1.41 1.41 - - 1.03 1.03 - -
Kawasaki Heavy Industries (India)Pvt.Ltd 1.35 0.35 - 1.00 1.73 0.90 - 0.83
Master Fluid Solutions India Pvt Ltd 1.29 1.29 - - 1.86 1.86 - -
Chetak Logistics Limited 1.18 1.18 - - 3.56 3.56 - -
Murugan Associates 1.16 1.16 - - -2.64 -2.64 - -
Eins Engineering Solutions India Pvt Ltd 1.09 0.97 0.12 - 1.36 1.36 - -
O-Tech 1.09 1.09 - - 0.06 0.06 - -
Suseela Engineering Works 1.05 0.95 0.10 - 1.40 1.40 - -
Others 19.67 17.69 0.69 1.29 34.48 29.40 0.20 4.88
TOTAL 541.31 207.09 19.34 314.88 482.13 148.65 2.19 331.29
37
 Borrowings

P.E. Sept’21 Y.E. March’21

Particulars Facility Name
(₹ in million) (₹ in million)
Unsecured Loans
The Bank of Tokyo-Mitsubishi UFJ,LTD Working Capital Facility 180.97 206.34
Mizuho Bank Ltd. Working Capital Facility 170.05 218.81
Sumitomo Mitsui Banking Corporation Working Capital Facility 186.00 205.00
The Bank of Tokyo-Mitsubishi UFJ,LTD Long Term Loan 82.07 118.93
Kosei International Trade & Investment
ECB - 371.82
Co. Ltd.
TOTAL - 619.09 1,120.90
Remarks :-

• Working capital loans from bank consists of money borrowed from Bank of Tokyo - Mitsubishi UFJ Limited guaranteed by Kosei Aluminum
Company Limited, Japan. The working capital loan is repayable on demand and carries interest @ 6.05% per annum.

• Working capital loans from bank consists of money borrowed from Mizuho Corporate Bank Limited guaranteed by Kosei International
Trade and Investment Company, Hong Kong. The working capital loan is repayable on demand and carries interest @ 8% annum. It also
includes Export Packing Credit of Rs.24.865 Million and carries a rate of interest between 2.15% to 2.3%.

• Working capital loans from bank consists of money borrowed from Sumitomo Mitsui Banking Corporation guaranteed by Kosei Aluminum
Company Limited, Japan. The working capital loan is repayable on demand and carries interest @ 6% per annum.

38
 Related Party Transactions

Sr. No Name of the Related Party Nature of Relationship

1 Kosei Aluminium Company Limited, Japan Ultimate holding company
Kosei International Trade and Investment Company
2 Holding Company
Limited, Hong Kong
Kosei Aluminium (Thailand) Company Limited,
3 Holding Company
Thailand
4 Kosei North Company Limited Japan Fellow subsidiary
5 Minda Industries Limited Holding Company
6 Minda Investments Limited Enterprises owned or significantly influenced by key management personnel
7 Mindarika Private Limited Enterprises owned or significantly influenced by key management personnel
8 Minda Finance Limited Enterprises owned or significantly influenced by key management personnel
9 Minda Projects Limited Enterprises owned or significantly influenced by key management personnel
10 Minda Kosei Aluminum Wheel Private Limited Enterprises owned or significantly influenced by key management personnel
11 Kosei Minda Mold Private Limited Fellow subsidiary

Key Management Personnel:

1 Mr. Hironobu Sengoku Managing Director (From 01/04/2018)
2 Mr.Toshiya Kimata Executive Vice President and Director (From 01/04/2017)

A summary of transactions with these parties have been provided in the subsequent slide.

39
 Related Party Transactions
Nature of the September’21 March’21 March’20
Name of the Related Party
Transaction (₹ in million) (₹ in million) (₹ in million)
1) Sale of goods
Kosei International Trade and Investment Company Limited, Hong
- 57.28 102.20
Kong
2) Purchases of stores,
spares and consumables
Kosei International Trade and Investment Company Limited, Hong
21.81 19.93 23.80
Kong
3) Purchase of fixed assets
Kosei International Trade and Investment Company Limited, Hong
0.17 1.37 4.18
Kong
Kosei Minda Moulds Pvt Ltd 1.87 2.75 0.99
4) Royalty fee
Kosei Aluminium Company Limited, Japan - - 10.25
Minda Industries Ltd - - 10.25
5) Consultancy charges
Kosei International Trade and Investment Company Limited, Hong
- 0.39 -
Kong
6) Repairs and
maintenance
Kosei International Trade and Investment Company Limited, Hong
- - 1.55
Kong
7) Interest on loans
Kosei International Trade and Investment Company Limited, Hong
- - 10.63
Kong
8) Remuneration to key
managerial personnel
Short term employee benefits - 7.01 11.06
40
 Related Party Transactions

Nature of the September’21 March’21 March’20

Name of the Related Party
Transaction (₹ in million) (₹ in million) (₹ in million)
9) Re-imbursement of
expenses
Kosei International Trade and Investment Company Limited, Hong Kong - 1.03 0.23
Kosei St. Mary's - - 1.28
Kosei Aluminimum Company, Japan 0.11 0.90 2.99
Kosei Aluminimum (Thailand) Company Limited - - 0.05
Minda Kosei Aluminum Wheel Pvt Ltd(GJ) - - 0.02
10) Sales Promotion
Expenses
Kosei International Trade and Investment Company Limited, Hong Kong - 0.44 14.35
Kosei Aluminimum Company, Japan - - 0.49
11) Testing Expenses
Kosei International Trade and Investment Company Limited, Hong Kong - 0.86 0.48
Kosei Aluminimum (Thailand) Company Limited - - 0.80
12) Loans taken
Kosei International Trade and Investment Company Limited, Hong Kong - - 168.08
13) Loans repaid
Kosei International Trade and Investment Company Limited, Hong Kong - - 178.09

41
Critical Issues as per Internal Audit Report

A Accounts receivable and Accounts payable March'21

1 Long pending Dr balances in Sundry creditors accounts amounting to Rs. 1.30 million need to be scrutinised
2 Long pending Cr balances in Sundry creditors accounts amounting to Rs. 3.37 million need to be reviewed. As per management old balances are not to
be paid.
3 There was a long pending balance of Rs. 9.65 million recoverable from Honda Motor India. As per management there was a mistake in the entry as there
were 2 codes for Honda.
4 There were long pending credit balances in Debtors ledger amounting to Rs. 4.09 million, out of which Rs. 3.90 million pertains to Maruti Suzuki India
Ltd. As per the management the matter shall be taken up with Maruti.

B Procurement
1 Purchase requisitions not maintained in ERP.
2 250 instances of receipt of material after the need by date.
3 Instances of GRN not prepared for materials received back from job workers.
4 Instances of POs raised prior to PR acceptance date.
5 Instances of variation in rates within a short period of time.
6 Instances where payment terms were not mentioned in the POs.
7 Instances where delivery terms were not mentioned in the POs.
8 Certain Pos pending for along time. These need to reviewed for closure
9 Instances noted where Freight/Courier/Delivery charges not included in Pos but paid.
10 Instances of delays in raising GRNs by more than 10 days.
11 Instances where no Inward security seal affixed on the supplier invoices.

C Physical Stock verification

1 During Stock verification of Paint shop and consumables differences were observed between book stocks and Physical. The difference being Rs. 0.01
million

42
 Critical Issues as per Internal Audit Report

D Labour laws compliances (1of 4)

1 Factories Act, 1948

Records not maintained

• Form 7 Record of Lime Washings, Paintings etc
• Form 11 Notice Of Periods Of Work for Adult Workers=
•Form 12 Register Of Adult Workers
• Form 15 Register Of Leave with wages
• Form 17 Health Register
•Form 28 Exemption Register
•Form 3 A Notice of Change of Manager (Rule 12 A) - No record in support of change in Manager
• Form 8 Report of examination of pressure vessel
• Form 18 Report of Accident Maintained, but last accident is recorded in 2017
• Form 25 Muster Roll (Incomplete Register)
• Form 29 Particulars of rooms in the factory Incomplete register, verified by Inspector and marked as incomplete as on 19 02 2019

43
 Critical Issues as per Internal Audit Report

D Labour laws compliances (2of 4)

2 The Contract Labour (Regulation &Abolition) Act, 1970

Records not available

• Form IV Application For License
• Form V Form Of Certificate By Principal Employer
• Form VI Form of license granted by the office of the licensing officer
• Form VI A Notice of Commencement/ Completion Of Contract Work by the licensee
• Form VI B Notice Of Commencement/ Completion of contract work by the employer for each contractor
• Form VII Application for renewal of licenses
• Form XVI Muster Roll
• Form XVII Register Of Wages
• Form XIX Wage Slip
• Form XXIV Return to be sent by the contractor to the licensing officer
• Form XXV Annual Return Of Principal Employer to be sent to the Registering Officer
• Form XII Register Of Contractors The list of contractors registered and the contractors employed is not properly updated

44
 Critical Issues as per Internal Audit Report

D Labour laws compliances (3 of 4)

3 The Equal Remuneration Act, 1976

Register not maintained up to date

• Form D Register to be maintained by the Employer Incomplete register, verified by Inspector and
marked as incomplete as on 18 06 2018

4 Payment Of Bonus Act

Register not maintained

• Form C Register showing the details of amount of bonus due to each of the employees, the deductions under section 17, 18 and the amount actually
disbursed under Rule 4

Return not filed

• Annual Return stating the amount of bonus paid to employees for the accounting year ending on 31st March is not submitted (Form D) to the
Inspector Time limit for the said purpose is within 30 days after the expiry of time limit specified for payment of bonus (Time limit for payment of
bonus is eight months from the close of accounting year)

5 Employment Exchange Act 1959

Record not available

• Requisition form to be used when calling for applicants from Employment Exchanges as when vacancies arise is not made available

45
 Critical Issues as per Internal Audit Report

D Labour laws compliances (4 of 4)

6 Others

a) Factory license is renewed but the HP mentioned in the license is not matching with the HP of list of machineries The same has to be amended
b) Shift timing and relay of working is not displayed
c) Meeting with regard to sexual harassment is not carried out
d) The list of contractors registered and the contractors working is not maintained
e) National and festival holidays register which is required to be maintained under Form VI is not maintained
f) Register of wages as required under Form B has not been updated from December 2020
g) Register of deduction for damage or loss caused to the employer, by neglect or default of the employed person is updated till December 2020
h) Renewal copy of stability register is not available
i) No proper documentation and maintenance of records which are mandatory to be done regularly
j) Documents relating to contract labour is not available for inspection
k) Professional tax payment is not done for the period April 2020 to September 2020

Remarks :-
• The Company gets the Internal audit done on a quarterly basis through an external audit firm.

• The auditors had submitted a report for the Year 2020-2021. It was noted that no management comments had been given in the report nor any
action taken report was prepared.

• No reports were received for the current financial year i.e. 2021-22 for any quarter.

• In our view the system of Internal audit is not effective.

46
Secretarial Review
Secretarial Index

Name of Company KOSEI MINDA ALUMINUM COMPANY PRIVATE LIMITED

Corporate Identity Number U28910TN2011PTC079581

ROC Registration Number 079581

Company Category Non-Govt Public Company | Limited by Shares
Date of Incorporation 10th March, 2011
Authorized Capital INR 1,572,000,000/-
Paid up Capital INR 1,569,912,370/-
NIRMAL KUMAR MINDA (10/03/2011)
SHUNKICHI KAMIYA (21/03/2011)
Board of Directors / Signatory Details (Begin KUNDANKUMAR JHA (21/01/2017)
Date) TOSHIYA KIMATA (10/05/2017)
HIRONOBU SENGOKU (16/07/2018)

Registered Address Plot No. 20A & 20B, SIPCOT Industrial Growth Centre Oragadam Extn Scheme, RNS Park,
Vill: Vadakkupattu Sriperumbudur taluk Kancheepuram TN 603204 IN
Date of Last Balance Sheet 31/03/2021
Assets under charge Nil

48
Tax Review
Summary : Direct Tax Observations

Details Relevant FY Impact

impacted
Royalty payments FY 2018-19 and ▪ Royalty payout to AE by a company which is incurring losses may be questioned by the Indian TPO unless
FY 2019-20 supported by strong reasoning
(comparatively ▪ TNMM as a method to benchmark royalty has been rejected by the TPO in FY 2017-18 and CUP applied. No
minor payouts in appeal filed against the change of method: it needs to be seen whether the same method has been followed
this year) for FY 2020-21
▪ TNMM application to justify royalty payment for FY 2018-19 could be at risk as it hinges upon capacity
utilization which in itself can be questioned (difficult to quantify impact).

Adjustment on account 2018-19 ▪ Adjustment on account of utilization is not explained and not mapped to financials / Tax Audit Report
of capacity utilization ▪ If the case is opened under reassessment and capacity utilisation adjustment is rejected by the TPO (regular
(20%) assessment cannot happen as time period for issuance of notice has lapsed), adjustment to purchase and sale
price for transactions with AE may happen (difficult to quantify impact).

Withholding tax 2018-19 and later ▪ Tax has not been withheld on payments of royalty till FY 2017-18. No appeal has been filed against this
implications on royalty years addition. There could be penal implications.
▪ Further, the subsequent years also may be impacted if tax has not been withheld on such royalty payments.
(difficult to quantify impact as amounts are not available)
Litigation matters of FY 2012-13 ▪ TP adjustments of Rs. 188.6 million and Rs. 160 million were done against which the CIT(A) had dismissed
past years FY 2013-14 the appeals. It needs to be clarified whether any appeal has been filed with the ITAT else there could be penal
implications.

50 50
Summary : Indirect Tax Observations
Details
Late filing of GSTR 3B
returns
GST to be paid on reverse
charge basis on services
imported, viz. payment of
royalty, technical services
fee etc.
Difference in tax amounts
between books and GSTR
3B
Difference in credit notes
amounts in book vs GSTR
1 a lower turnover. However,
Late filing of LUT
Relevant FY Impact (Amount in Rs.
impacted Million)
FY 2018-19 9.74 (interest)
FY2019-20
FY 2020-21
13.78 (tax amount)
Interest @ 18% on date
when GST was due to be paid
Fy 2020-21 0.97 (excess tax booked as
payable in books). Interest @
18% can also be levied.
Fy 2020-21 8.92 (more in GSTR 1, hence
GST payable is computed on
outward supply in GSTR 3B is
higher than GSTR 1 but
lesser than the books)
Fy 2018-19 0.51 (likely interest amount)
Comments
As per Section 50(1) read with Notification No. 13/ 2017 – CT, Interest to be paid @
18% p.a. from the due date of payment of tax amount.
As per Notification No. 10/2017 – IT (Rate), any service supplied by any person who
is located in a non-taxable territory to any person other than non-taxable online
recipient, tax will be payable under reverse charge mechanism.
The amount, if not reconciled with the taxes reported in GSTR 3B, could be considered
as payable by KMA. As per sec. 50(1) read with not. No. 13/ 2017 – CT, Interest to be
paid @ 18% p.a. from the due date of payment of tax amount.
Credit notes are issued by the entity that books the revenue. Issuance of such credit
notes results in reduction of sales on which GST is payable. It appears that the credit
notes appearing in GSTR 1 are higher than booked in the books by a substantial
amount. A breakup of the amounts is needed and also mapped to GSTR 3B to
determine if reduced GST payment has been made.
Similarly, there is a difference in debit notes between GSTR 1 and books – difference
of about Rs. 201,220.
As per rule 96A of CGST rules, Any registered person availing the option to supply
goods or services for export without payment of integrated tax shall furnish, prior to
export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional
Commissioner.
51
Transfer Pricing : International Transactions Summary

Transaction Particulars FY 2018-19 (Rs. in million) FY 2019-20 (Rs. in million) MAM

Purchase of consumables (Kosei HongKong) 16.12 2.38 TNMM

Sale of finished goods (Kosei HongKong) 81.41 10.22 TNMM
Purchase of Fixed Assets (Kosei HongKong) 50.15 0.42 Such Other Method
Payment of Royalty 19.47 (Japan) 1.025 (Japan) TNMM
9.74 (Thailand)
9.74 (HongKong)
Payment of interest on ECB (Kosei HongKong) 35.87 1.06 Such Other Method

Loan repayment (Kosei HongKong) 165.74 34.62 Such Other Method

Repairs and maintenance (Kosei HongKong) NA 0.16 Such Other Method

Reimbursement of expenses (Kosei HongKong) NA 0.46 Such Other Method

Sales promotion expenses (Kosei HongKong) NA 1.44 Such Other Method

Sales promotion expenses (Kosei Thailand) NA 0.049 Such Other Method

Testing expenses (Kosei HongKong) NA 0.048 Such Other Method

Testing expenses (Kosei Thailand) NA 0.08 Such Other Method

Technical services (Kosei Thailand) 0.17 TNMM

Consultancy services (Kosei HongKong) 1.61
52
Transfer Pricing : Observations
Observations FY 2018-19 Comments Impact
(Rs. in million)
Adjustment on 20% No rationale or justification Transfer Pricing (TP) authorities may allow an adjustment on account of idle capacity
account of capacity provided in the TP Study for only if it is justifiable.
utilization manufacturing using only 80%
Likely Impact: of the installed capacity. As no justification/ evidence has been provided for the same in KMA’s case, the
Monetary Further, no comment has been authorities may reject this adjustment (this adjustment resulted in reduction of fixed
given on reduced capacity expenses and gave rise to profits at the net level). Prior to the adjustment, KMA had
utilization by the auditor in an operating loss of Rs. 29.76 million which got converted into operating profit of Rs.
the Audit Report. 65.62 million, i.e. 3.24% on operating revenue (margin of comparables computed as
5.79%).
If capacity adjustment is rejected by TP authorities, there could be a significant
adjustment to the operating loss. There is no capacity utilization adjustment in FY
2017-18 and the sales in FY 2018-19 are just about 9% less than the sales in FY 2017-
18.
Payment of Royalty 38.95 Payment of royalty by a loss making company may be questioned by the TP authorities and disallowed by the
Likely Impact: authorities unless the requirement to pay royalty is clearly justified. Further, the fact that royalty payout in FY 2019-20
Monetary has reduced considerably may also put the justification for royalty payment in FY 2018-19 at a risk.

Purchase of Fixed 50.15 No document provided to The TP authorities can disregard the price actually paid for the assets unless its
Assets justify the purchase price documentarily justified to be at arm’s length. Impact can be to the extent of
Likely Impact: depreciation charged in the profit & loss account.
Monetary
Note 1: Transfer Pricing Study for FY 2019-20 and FY 2020-21 has not been provided. Form 3CEB for FY 2020-21 is yet to be filed (due date is February 15, 2022).

Note 2: Whether CbCR and other forms are applicable and have been filed?

Note 3: Please note that though no notice has been received from the Income Tax Authorities for FY 2018-19 (AY 2019-20) for a scrutiny assessment, there is still time
for the authorities to issue a notice under section 147/ 148 of the Act for income escaping assessment. 53
Transfer Pricing : Impact of TP Order passed for FY 2017-18 ( AY 2018 – 19)

TPO Observations Impact

TNMM method in case of royalty not acceptable – CUP preferred though no No final conclusion in the Order, therefore no impact for this year but TPO’s
evaluation of Arm’s length price on CUP done by the TPO. observations could be used against KMA for later years as the ground is not
covered in appeal
Likely Impact as of now: Non Monetary

Fixed Asset purchase: TNMM quoted instead of Such other Method No negative impact. KMA can use the observation to benchmark fixed asset
purchases in future.

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Direct Tax : Impact of Orders passed in the previous years

AO’s Observations Impact

FY 2017-18 (AY 2018-19):

To confirm whether TDS has been withheld from royalty
TDS not withheld on Royalty payments of Rs. 21.35 million. Hence the deduction of the same from payments made in FY 2018-19 and later years.
taxable profits has been disallowed by the AO. No appeal has been filed against the addition.

FY 2012-13 (AY 2013-14):

Whether any appeal filed with ITAT? Otherwise, penal
Upward adjustment in ALP of Rs. 188.61 million. The CIT(A) has dismissed the appeal. proceedings may be initiated

FY 2013-14 (AY 2014-15):

Whether any appeal filed with ITAT? Otherwise, penal
Upward adjustment in ALP of Rs. 160 million. The CIT(A) has dismissed the appeal. proceedings may be initiated

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Direct Tax : Review of KMA Income Tax Return

FY Book Profit / (Loss) PGBP/ (Loss) Comments

(Rs. in million) (Rs. in million) (Amounts are quoted in Rs. million)
FY 2018-2019 (101.65) (120.06) PGBP loss is after setting off bank interest income of Rs. 1.06.
(AY 2019-20)
Confirmation needed whether tax is withheld from royalty payments (breakup of amount
appearing in Clause 34 of Tax Audit Report is needed).

FY 2019-2020 (258.71) (200.84) PGBP loss is after setting off bank interest income of Rs. 1.06.
(AY 2020-21)
Confirmation needed whether tax is withheld from royalty payments (breakup of amount
appearing in Clause 34 of Tax Audit Report is needed).

FY 2020-2021 Return of income yet to be filed

(AY 2021-22)

Notices not responded:

▪ FY 2019-20 (AY 2020-21): Notice dated January 19, 2021 issued under section 133(6) of the Act. Reminder issued dated February 22, 2021.

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Goods & Service Tax : Observations

A. Late filing of returns: Likely Impact: Monetary

Rs. in million

Financial Late filing of GSTR- Late filing of GSTR-3B Cash Payment Likely interest to be paid
Year 1 returns returns (Rs.) (Rs.)
FY 2018-19 10 11 239.16 9.25

FY 2019-20 - 1 127.13 0.47

FY 2020-21 - 6 81.21 0.018

Total 10 18 447.502 9.74

B. RCM to be paid on RPT Transaction: Likely Impact: Monetary

Financial Year Taxable amount as per Tax amount as per Interest to be paid
financials (Rs.) financial (Rs.)
FY 2018-19 40.73 7.33 Interest to be paid @18% p.a. from
the due date of tax payment
FY 2019-20 27.92 5.03

FY 2020-21 7.92 1.4,3

Total 76.57 13.78

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Goods & Service Tax : Observations

C. Difference in taxable turnover between GSTR-1 & GSTR-3B (Outward Supply):

Rs. in million

Financial Year GSTR-1 GSTR-3B Differences Comments

FY 2018-19 2,042.11 2,054.09 11.98 Though taxable turnover reported in GSTR 3B is higher,
notices may be issued by the GST department to
FY 2019-20 1,164.83 1,168.07 3.24 explain the differences.

FY 2020-21 792.27 796.85 6.42 Likely Impact: Non monetary

Total 3,999.21 4,019.01 21.64

D. Difference in tax amounts between GSTR-1 & GSTR-3B (Outward Supply):

Financial Year GSTR-1 GSTR-3B Differences Comments

FY 2018-19 549.01 554.998 5.99 As taxes payable in GSTR 3B are higher, the GST department
may ask for a reconciliation for the differences in GSTR 1 and
FY 2019-20 294.83 295.53 0.695 GSTR 3B.

FY 2020-21 204.96 205.70. 1.08

Likely Impact: Non monetary
Total 1,048.79 1,056.23 7.76

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Goods & Service Tax : Observations

E. Difference in taxable turnover between Books & GSTR-3B (Outward Supply):

Rs. in million
Financial Year Books GSTR-3B Differences Comments
FY 2018-19 Data not provided 2,054.09 Taxable turnover as per the books is higher than the turnover
reported in GSTR 1. The same should be reconciled if not done
FY 2019-20 Data not provided 1,168.07 already.

FY 2020-21 79,73,34,315 796.85 0.481

Total 4,019.01

F. Difference in tax amounts between Books & GSTR-3B (Outward Supply):

Financial Year Books GSTR-3B Differences Comments

FY 2018-19 Data not provided 554.998 GST payable as per books is higher than the turnover reported
in GSTR 3B. There need to be appropriate reasons for the
FY 2019-20 Data not provided 295.53 same.

FY 2020-21 20,66,72,962 205.70 9,70,446 Likely Impact: Monetary

Total 1,056.23

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Goods & Service Tax : Observations

G. Difference in credit note between Books & GSTR-1 (Outward Supply): Likely Impact: Monetary
Rs. in million

Financial Year Taxable Value Taxable Value Differences Tax amount Tax amount Differences
(Books) (GSTR-1) (Books) (GSTR-1)
FY 2018-19

FY 2019-20

FY 2020-21 3.04 11.96 8.92 0.71 3.35 2.63

Total

H. Difference in debit note between Books & GSTR-1 (Outward Supply): Likely Impact: Monetary

Financial Year Taxable Value Taxable Value Differences Tax amount Tax amount Differences
(Books) (GSTR-1) (Books) (GSTR-1)
FY 2018-19

FY 2019-20

FY 2020-21 1.67 1.37 0.296 0.467 0.27 0.20

Total

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Goods & Service Tax : Observations

I. Tax to be paid on export of goods (as per GSTR-1) because of late filing of LUT: Likely Impact: Monetary
Rs. in million
Financial Year LUT application date Export before Tax amount Interest
application of LUT
FY 2018-19 20/07/2018 1.82 0.51 Interest to be paid @ 18%
p.a. from the due date of
FY 2019-20 17/04/2019 - - payment of tax amount.

FY 2020-21 28/05/2020 - -

Total 1.82 0.51

J. Interest on tax paid on inward supply (RCM) because of late reporting in GSTR-3B: Likely Impact: Monetary

Financial Year Tax as per Books Late deposit of Tax in Interest to be paid Comments
GSTR-3B
FY 2018-19

FY 2019-20

FY 2020-21 0.42 0.024 0.0011

Total

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Goods & Service Tax : Observations

K. Late filing fee for GSTR 9: Likely Impact: Monetary

Financial Year Due date Filing Date Late filing fee (Rs.)
FY 2018-19 31/12/2020 31/12/2020 NA

FY 2019-20 31/03/2021 Not filed 200 per day.

FY 2020-21 28/02/2022 Not yet filed NA

L. Penalty for late filing of GSTR 9C: Likely Impact: Monetary

Financial Year Due date Filing Date Late filing fee (Rs.)
FY 2018-19 31/12/2020 02/01/2021 50,000

FY 2019-20 31/03/2021 Yet to be filed 50,000

FY 2020-21 28/02/2022 Note yet filed

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Goods & Service Tax : Other Observations

▪ Self-invoice is required to be issued by recipient at the time of receipt of goods or services, in case supplier is unregistered under GST Law but KMA
is not issuing any self-invoicing. Dept. can raise an issue regarding ITC eligibility.

▪ Payment voucher at the time of making payment to the supplier is required to be issue but KMA is not issuing any payment voucher.

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Valuation

▪ The value of each equity share of Kosei Minda Aluminium Wheel Private Limited under Rule 11UA of the Income Tax Rules, 1962 (‘the Rules’) has
been computed as INR 3.69 per share. The same is attached for your kind perusal.

Particulars INR Million

Non Current Asset 1,286
Current Asset 509
Total Asset 1,796
Non Current Liability 21
Current Liability 1,195
Total Liability 1,217
Net Asset 579
No. of Shares 15,69,91,237
Per Share 3.69

▪ As per the Rules of the Institute of Chartered Accountants of India (‘ICAI’), the valuation can be certified only by a Chartered Accountancy firm. Since
NAC Consultants Limited is a company, the valuation has been done and certified by VGG & Co. which is a Chartered Accountant firm and a close
business associate of NAC Consultants Limited.

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