Untitled - Bharat Petroleum

SCHEDULE ‘X’ — (Contd.)
3. Provision for income tax has been made in accordance with Section 115JB of the Income Tax Act, 1961. However,
management is confident that it would be in a position to pay normal tax within the period specified under the
Income Tax Act, 1961 and hence MAT credit has been recognised.
4. In respect of sharing of under-recoveries on sensitive petroleum products viz. MS, HSD, LPG (Domestic) and SKO
(PDS), as advised by the Ministry of Petroleum & Natural Gas, a part of the under-recovery suffered by the Oil
Marketing Companies during the year was compensated by ONGC and GAIL by offering discount on price of Crude
Oil, SKO and LPG purchased from them. Accordingly, the Corporation has accounted the discount received as
follows:
a) Rs. 30,209.22 million (previous year Rs. 5,759.50 million) discount received on crude oil purchased
from ONGC has been adjusted against raw material cost; and
b) Rs. 5,609.73 million (previous year Rs. 6,259.13 million) discounts received on SKO and LPG purchased
from ONGC/GAIL has been adjusted against “Purchase of product for resale”.
5. In lieu of the under-recoveries on sale of LPG (Domestic) and SKO (PDS) during 2005-06, the Corporation has
received Oil Marketing Companies GOI Special Bonds amounting to Rs. 21,631.20 million (previous year Nil)
from the Government of India during March 2006 that has been treated as income.
6. Impairment of Assets
Determination as to whether and how much an asset is impaired involve Management estimates of highly
uncertain matters such as international prices of crude oil and products, duty structure and Government policies.
On account of the communication received from the Government about the modalities for compensating the
marketing oil companies towards the subsidy losses for the year 2006-07, future cash flows have been worked out
based on the desired margins for deciding on impairment of related Cash Generating Units. No impairment is
therefore considered as at 31 st March 2006. In view of the peculiar nature of the environment, in which the industry
operates and the assumptions being technical and dependent on Government policies, the auditors have relied on
the same.
7. Provision for taxation in the Profit and loss Account includes Rs. 6.40 million (previous year Rs. 5.10 million)
towards wealth tax.
8. During the year 2005-06, based on the Management’s review of the estimated useful lives of certain assets such
as computer equipments and peripherals, mobile phones, furniture provided at the residence of management, etc.
the Corporation has increased the rate of depreciation on these assets. This has resulted in additional depreciation
of Rs. 321.21 million during the year of which Rs. 249.30 million is for the period upto March 2005.
9. The erstwhile KRL had written back excess Income Tax provision of Rs. 155.00 million in the year 2000-01 towards
accumulated losses and unabsorbed depreciation of erstwhile Cochin Refineries Balmer Lawrie Ltd., which was
amalgamated with KRL. Based on the application by the erstwhile KRL, the Central Government has declared that
the amalgamation fulfils the conditions mentioned under the then Section 72A of the Income Tax Act. The disposal
of the matter is now pending with the Ministry of Commerce and Industry for enabling the company to get relief
from the Income Tax Department. Hence, no adjustment is considered necessary in the accounts for the year.
10. The Corporation has numerous transactions with other oil companies, which are reconciled on an ongoing basis
and are subject to confirmation. Adjustment, if any, arising therefrom are not likely to be material.
11. The Corporation follows open item system of maintaining customer accounts included in “Sundry Debtors”. The
transactions continue to appear in the customer accounts till such time the same are matched and cleared. This
is an ongoing process. The clearance of such open items is not likely to have a material impact on the outstandings
or classification in the accounts.
12. Sundry debtors include Rs. 618.94 million (previous year Rs. 618.94 million) (net) due from a customer, pertaining
to the period November 1992 to June 1996 and September 1997 to January 1999, towards price revision of a
product, disputed by the customer. The dispute was referred to an arbitrator who has awarded the case in favour
of the Corporation along with interest. Both single bench and division bench of Mumbai High Court confirmed the
award passed in favour of the Corporation. The Special Leave Petitions filed by the customer in the Supreme Court
challenging the division bench order have been admitted. In view of the pendency of the matter in the Supreme
Court, no effect is given in the accounts in respect of interest awarded by the arbitrator.
Annual Report 2005-2006
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