SURYA NEPAL PRIVATE LIMITED - ITC i

SURYA NEPAL PRIVATE LIMITED 

REPORT OF THE DIRECTORS FOR THE FINANCIAL YEAR ENDED 31ST 

ASADH 2069 (15TH JULY, 2012) 

Your Directors are pleased to submit their Report and Audited Accounts of 

your Company for the year ended 31st Asadh 2069 (15th July 2012). 

SOCIO-ECONOMIC ENVIRONMENT 

The operating environment continued to remain uncertain during the year 

under review. The Constituent Assembly, unable to fulfil its mandate of 

writing the country's Constitution, was dissolved during the year. The spate 

of disruptions in economic activity, as a result of a disturbed industrial 

climate due to political instability, has resulted in deceleration in economic 

growth & employment generation and slowdown in investments. The 

overall industrial sector grew 1.6% during the year as compared to 2.9% 

last year. 

The GDP growth for the financial year ending mid July 2012 is estimated 

at 4.6% against 3.8% in the previous year, due to increased agricultural 

production and growth in the services sector. 

The legal cigarette industry accounts for less than 50% of the overall tobacco 

consumption in Nepal. The balance consumption is mainly in the form of 

bidi and khaini / other smokeless tobacco products (44%) and smuggled 

cigarettes (6%). However, the legal cigarette industry contributes about 

91% of the Government's revenue from tobacco with a share of about 

4.3% of the Government's total tax revenue. Other forms of tobacco 

products, constituting a significant share of tobacco consumption are lightly 

taxed / evasion prone and contribute only 9% of the Government's revenue 

from tobacco. 

A report on Tobacco Control in Nepal published by Ministry of Health and 

Population has, inter alia, highlighted that low taxation on bidis and lack 

of uniformity in taxation on all forms of tobacco products are some of the 

weaknesses in the Government's tobacco industry related policies. The twin 

impacts of discriminatory taxation and regulatory policy framework against 

the legal cigarette industry have led to steady and continuous erosion of 

legal cigarette's share in the overall tobacco basket, leading to several 

unintended and adverse consequences like increase in smuggling of cigarettes 

and other tobacco products and increase in consumption of lightly taxed 

/ tax evaded tobacco products. The World Health Organisation (WHO) in 

its Technical Manual on Tobacco Administration recognizing such impact 

has highlighted the importance of increasing taxes for other forms of 

tobacco products. 

According to findings of the General Consumer survey carried out in 2012 

by an independent International research agency, cigarette incidence in 

Nepal has witnessed a long term decline which has been sharper in the 

last 4 years. 

The Tobacco Products (Control & Regulatory) Act, 2011 that took effect 

from 7th August, 2011, has put impractical restrictions on the use of tobacco 

products and its sale and distribution. The tobacco legislation has incorporated 

certain provisions that places the legal cigarette industry at a disadvantage 

and are out of step with similar legislation in most of the Asian countries. 

These are likely to encourage smuggling of cigarettes, evasion of taxes, and 

fuel further growth in the consumption of other forms of tobacco over 

cigarettes. The disproportionate size of warning on cigarette packs at 75% 

of the total pack surface required to be implemented from November 2011, 

would have led to even more increased smuggling of cigarette packs with 

less stringent / no health warnings. As a responsible member of the industry, 

the Company is committed to a pragmatic and purposeful policy for the 

country's tobacco industry and has represented to the Government for 

reconsideration of certain provisions of the Tobacco Control legislation that 

may not be consistent with the approach of creating a pragmatic and 

purposeful policy framework. The Graphical Health Warnings Directives 

envisaged an immediate implementation giving no time for the industry 

to comply with the provisions. Hence, the tobacco stakeholders like farmers, 

bidi manufacturers, importers and cigarette manufacturers including your 

Company, had no recourse but to challenge certain provisions of the 

legislation, especially directives on Graphic Health Warnings in the Hon'ble 

Supreme Court of Nepal. The Hon'ble Supreme Court has granted stay on 

the implementation of the provisions related to Graphic Health Warnings, 

pending completion of final hearing on the matter. However, despite the 

stay given by the Hon'ble Supreme Court pending final hearing, the 

Government proceeded to promulgate the Rules for the Tobacco legislation 

for immediate implementation in April 2012. These Rules are even more 

impractical and certain provisions were challenged in the Supreme Court 

by the bidi manufacturers and your Company. The Hon'ble Supreme Court 

has granted a stay against certain Rules from being given effect to till further 

hearing on the matter. 

COMPANY PERFORMANCE 

The Company for the year ended 31st Asadh 2069, recorded a 13% growth 

in sales with Gross Turnover (net of VAT) increasing to NRs. 1503 ( ` 939) 

Crores from NRs. 1328 (` 830) Crores in the previous year. The Profits after 

Tax at NRs 304 (` 190) Crores increased by 20% and return on net worth 

increased to 132% from 110% in the previous year. Cash generated from 

operations at NRs. 331 (` 207) Crores is higher by NRs. 133 (` 83) Crores 

as compared to the previous year, primarily due to increase in operating 

profits. 

CONTRIBUTION TO THE EXCHEQUER 

Your Company continues to be one of the largest contributors to the 

Government Exchequer, accounting for about 3.3% of the total revenues 

of the Government of Nepal. Your Company paid NRs. 806 (` 504) Crores 

by way of Excise Duty, VAT, Income Tax and other taxes during the year 

(Previous Year: NRs. 710 (` 444) Crores). 

Your Company's Excise Duty contribution to the exchequer constitutes 

nearly 16% of the Government's total Excise revenue while the VAT and 

Income tax contribution constitutes nearly 3% of the Government's total 

VAT & Income Tax revenue. The corporate income tax policy of the 

Government acts as a disincentive to the business diversification plans of 

companies, since multi-business corporations like your Company, has limited 

scope for set-off of losses with profits from other businesses. Your Company, 

along with leading Trade Bodies like FNCCI and NICCI, continue to represent 

to the Government to widen the scope of business loss set-off to create an 

investment friendly environment which will support business diversification 

resulting in employment generation in the country. 

EMPLOYMENT GENERATION 

Your Company, through its multiple businesses, continues to directly / 

indirectly provide livelihood to more than 1,10,000 people in the country, 

which includes 8,000 farmers and 20,000 farm labourers. As a responsible 

corporate citizen of the country, your Company will continue to create 

enablers for generating employment and economic surplus for the nation. 

BUSINESS SEGMENTS 

CIGARETTE BUSINESS 

The Company continues to invest in upgrading and strengthening product 

quality. Considering the wide income dispersion in Nepal, the product 

portfolio spans across all price points and geographies. This also helps to 

counter the menace of illegal trade. 

The Company continued investment and strengthening of its time-tested 

"hub & spoke" network of warehouses that have ensured uninterrupted 

and on-time supply to the trade and consumers. 

On the manufacturing front, your Company has been able to successfully 

induct new generation machines by imparting training and building internal 

capabilities. A long-term agreement with the workmen has been signed 

for a period of two years. Your Company's continued investment in 

technology and infrastructure has resulted in increase in quality levels across 

all product segments. 

The construction of a second cigarette factory near Pokhara is in progress 

and will position the Company well for servicing consumer demand in the 

longer term. 

Energy conservation and efficiency continue to engage your Company's 

attention as areas of critical priority. Plans to implement identified energy 

saving projects have been initiated and as a part of our sustainability 

initiative, a Bio Gas plant, as an alternate to Liquefied Petroleum Gas (LPG) 

has been successfully piloted in the Canteen. 

Environment Health and Safety 

Institutionalizing systems with respect to environment, health and safety 

have enabled a benchmarked safe work environment for all employees. 

Leaf Tobacco 

During the year, the Company's leaf operation has been accredited with 

the Quality Management System (ISO 9001:2008), Environmental 

Management System (ISO 14001:2004) and Occupational Health and 

Safety Systems (OHSAS 18001:2007). Interventions by your Company 

196


towards enhancement of productivity and adoption of best farm practices 

have facilitated in improvements in quality of domestic grades over a period 

of time. 

GARMENT BUSINESS 

In the domestic branded apparel market, the supply chain and distribution 

infrastructure for 'John Players' and 'Springwood' brands has been further 

strengthened during the year. 

The final settlement with the non-management staff and identified 

management staff, pursuant to the closure of Garments manufacturing 

Unit at Biratnagar, has been completed. 

MATCHES BUSINESS 

In the Safety Matches business, revenues from the Company's brand 'Tir' 

have increased by nearly 38% during the year evidencing its strong and 

growing consumer franchise. The Company is augmenting contract 

manufacturing capacities to further strengthen market presence and its 

share. 

DIVIDEND 

Your Directors have declared an Interim Dividend of NRs. 20 (` 12.50) per 

Ordinary Share for the year ended 31st Asadh 2069. The consequent 

outflow on this account, including Dividend Tax, amounts to NRs. 40.32 

(` 25.20) Crores. Your Board has also recommended a Final Dividend of 

NRs. 119 (` 74.38) per Ordinary Share. 

All dividends during the year have been paid within the prescribed period 

and there are no unclaimed dividends lying with the Company. 

TAX MATTERS 

As reported in earlier years, the Hon'ble Supreme Court of Nepal, during 

the year 2009-10, passed judgments in favour of your Company, with 

regard to certain Excise and Income Tax demands on the issue of theoretical 

production. 

The Inland Revenue Department, citing the judgments passed in favour of 

your Company by the Hon'ble Supreme Court of Nepal, on 11th February, 

2011 decided the following administrative review petitions in favour of the 

Company: 

1. VAT demand - NRs. 7.55(` 4.72) Crores for the financial year 2058- 

59 (2001-02). 

2. Income Tax demand - NRs. 4.91 (` 3.07) Crores for the financial 

year 2062-63 (2005-06). 

All other pending Show Cause Notices (SCNs) and demands related to 

excise, income tax and VAT received from time to time on the issue of 

theoretical production, are similarly based on an untenable contention by 

the Revenue authorities that the Company could have produced more 

cigarettes than it has actually produced in a given year, based on an inputoutput 

ratio allegedly submitted by the Company in the year 2047-48 and, 

that the Company is liable to pay taxes on such cigarettes that could have 

been theoretically produced. This, despite the fact that the Company's 

cigarette factory is under 'physical control' of the Revenue authorities and 

the cigarettes produced are duly accounted for and certified as such by the 

Revenue authorities. The cumulative demands on the Company on account 

of theoretical production that remains pending stand at NRs. 80.44 (` 

50.28) Crores and comprise: 

(a) Excise Demands - NRs. 27.80 (` 17.38) Crores. No fresh demand 

has been received during the year. 

(b) VAT Demands - NRs. 28.96 (` 18.10) Crores. No fresh demand 

has been received during the year. 

(c) Income Tax Demands - NRs. 23.68 (` 14.80) Crores. No fresh 

demand has been received during the year. 

Out of the above NRs. 80.44 (` 50.28) Crores, demands aggregating NRs. 

66.81 (` 41.76) Crores are under appeal before the Supreme Court and 

demands aggregating NRs. 13.63 (` 8.52) Crores are under appeal before 

the Revenue Tribunal / DG-Inland Revenue Department. 

Your Company has been advised by its eminent counsel that the cases 

made out by the Department have no legal or factual basis and that the 

demand notices being raised against your Company are not sustainable, 

particularly in the light of the decision passed on 29th October, 2009 in 

favour of the Company by the Full Bench of the Hon'ble Supreme Court 

on similar matters. The subsequent decisions of the Supreme Court of Nepal 

and the Inland Revenue Department have further reinforced this position. 

RISK MANAGEMENT 

Your Company's Corporate Governance Policy has laid down the structure, 

roles and responsibilities of the key entities in the governance process and 

also mandated periodic reviews of the key areas of operations. In addition, 

your Company has amongst others, robust policies, procedures and internal 

control systems covering areas such as Finance & Accounting and Information 

Technology. Your Company has initiated a company-wide implementation 

of Enterprise Resource Planning (ERP) system which is expected to significantly 

augment the quality of business processes and systems. 

CORPORATE SOCIAL RESPONSIBILITY (CSR) INITIATIVES 

Your Company's commitment to its role as a responsible corporate citizen 

was further reinforced with initiatives such as the construction of a school 

building for the local community proximate to the site of its second factory 

near Pokhara; the school building including the land on which it has been 

constructed, have been donated to the school authorities. At Simra, your 

Company continues to support multiple local community development 

programs including health facilities and infrastructure support. 

PROMOTION OF SPORTS AND TOURISM AND OTHER CORPORATE 

INITIATIVES 

The country's most premier professional Golf tournament - the 'Surya Nepal 

Pvt. Ltd. Masters' - has now become a co-sanctioned event with Professional 

Golf Tour of India, attracting the top professional golfers of the Indian subcontinent 

with their large fan followings. In the context of promoting 

Tourism in the country, mainstay of Nepal's economy, the Nepal Tourism 

Board continues to partner your Company in this event with the objective 

of promoting Nepal as a golfing destination. Your Company continues to 

support the 'Surya Nepal Pvt. Ltd. Junior Golf Program' for identifying and 

encouraging young and upcoming talent. 

Your Company also instituted the 'Surya Nepal Pvt. Ltd. Asha Social 

Entrepreneurship Awards'. The Award is first of its kind in the country and 

seeks to recognize and honour entrepreneurs who have contributed in 

creating employment opportunities amongst the local communities. 

EMPLOYEES 

The Directors of your Company place on record their sincere appreciation 

for the contribution made by the employees during the year. 

Your Company continues to provide the best employment conditions in 

the country, which include facilities like housing, medical etc. 

DIRECTORS 

There were no changes in the composition of the Board of Directors during 

the year. 

The numbers of shares held by your Directors in the Company as on 31st 

Asadh 2069 are annexed to this Report (Annexure I). The Directors have 

confirmed that none of them or their close relatives have any direct 

involvement or any personal interest in any transaction of sale or purchase 

or any kind of contract or arrangement connected with the business of the 

Company. No amounts are due to the Company from any of the Directors, 

Managing Director or their close relatives. 

The details of payments made during the year to the Directors, Managing 

Director and other officials, by way of Board meeting fees etc., are also 

annexed to this Report (Annexure II). 

Further, details of Management expenses for the year 2068 / 69 are annexed 

to this Report (Annexure III). 

AUDITORS 

M/s. N. Amatya & Company, Chartered Accountants, Kathmandu, Nepal, 

and M/s. T R Upadhya & Co, Chartered Accountants, Kathmandu, Nepal, 

Auditors of the Company, retire at the ensuing Annual General Meeting 

and being eligible, have offered themselves for re-appointment. 

FUTURE OUTLOOK 

Your Company continues to explore and pursue opportunities for profitable 

growth and looks forward to the future with optimism and confidence. 

On behalf of the Board 

Date : 19th Aswin 2069 Y. C. Deveshwar K. N. Grant Sanjiv Keshava 

(5th October 2012) Chairman Director Managing Director 

197


Annexure I 

Sl. No. Name of Director Number of Ordinary Shares of 

NRs. 100/- each held singly and / or 

jointly as on 31st Asadh 2069 

(15th July-2012) 

1. Y. C. Deveshwar Nil 

2. A. K. Mukerji Nil 

3. B. B. Chatterjee Nil 

4. K. N. Grant Nil 

5. S. R. Pandey 67,212 

6. S. SJB Rana 600 

7. Sanjiv Keshava Nil 

Annexure II 

THE AMOUNT OF REMUNERATION, ALLOWANCE AND FACILITIES PAID TO 

DIRECTOR, MANAGING DIRECTOR, CHIEF EXECUTIVE AND OFFICIALS 

During the financial year 2068/69, the following amounts have been paid to 

the Directors: 

Board Meeting Fee paid NRs. 47,059 (` 29,412) 

Incidental expenses paid NRs. 10,000 (` 6,250) 

Payment to/on behalf of the Managing Director for the financial year 2068/69: 

Salary - NRs. 52,80,000 (` 33,00,000) 

Allowances - NRs. 72,66,997 (` 45,41,873) 

In addition to the above, the Company has also provided the following to 

the Managing Director: 

Fully furnished accommodation with gas, electricity, water, three 

domestic helpers, furnishings and necessary security at his residence. 

Airfares incurred for the Managing Director and his family for the 

purpose of Leave Travel & Reporting Trips. 

Entrance fees and annual subscription charges for two clubs. 

Personal accident insurance. 

Company car with driver and telephone at residence. 

Payment to/ on behalf of officials for the financial year 2068/69: 

Salary - NRs. 1, 36,07,462 (` 85,04,664) 

Allowances - NRs.1,99,22,367 (` 1,24,51,479) 

In addition to the above, some of the officials have been provided the 

following as per their terms of appointment: 

Accommodation with gas, electricity, water, security guard, domestic 

help, gardener and furnishings. 

Airfares incurred for the Managers and their families for the purpose 

of Leave Travel & Reporting Trips. 

Entrance fees and annual subscription charges for clubs as applicable. 

Personal accident insurance. 

Company car with driver and telephone at residence. 

Annexure III 

MANAGEMENT EXPENSES 

The expenses incurred by the Company for its management and 

administration for the financial year 2068/69 comprising postage, telephone, 

telex, fax, legal and service fees, bank charges, rates & taxes, printing & 

stationery, business entertainment, rent, electricity, fuel & water, repair & 

improvement, travel & conveyance, insurance premium, board meeting 

fees, donations, books & periodicals, miscellaneous expenses etc. amounted 

to NRs. 76,53,93,530 (` 47,83,70,956). 

AUDITORS’ REPORT TO THE SHAREHOLDERS OF SURYA NEPAL PRIVATE LIMITED 

We have audited the accompanying Balance Sheet of Surya Nepal Private 

Limited as at 31st Asadh 2069 (15th July 2012), the related Profit & Loss 

Account for the year ended on that date annexed there to, Cash Flow 

Statement and Statement of Changes in Equity for the year then ended, 

and significant accounting policies and other explanatory notes. These 

financial statements are the responsibility of the management of the 

Company. 

Our responsibility is to express an opinion on these financial statements 

based on our audit. We have conducted our audit in accordance with Nepal 

Standards on Auditing. Those standards require that we comply with ethical 

requirements and plan and perform the audit to obtain reasonable assurance 

about whether the financial statements are free of material misstatement. 

An audit includes obtaining audit evidence, on test basis, supporting the 

amounts and disclosures in the financial statements including the assessment 

of the risks of material misstatement of the financial statements, whether 

due to fraud or error. An audit also includes assessing the accounting 

principles used and significant estimates made by management, as well as 

evaluating the overall financial statements presentation. We believe that 

the audit evidence we have obtained is sufficient and appropriate to provide 

a basis for our opinion. 

We report that: 

a. We have obtained all the information and explanations which to the 

best of our knowledge and belief were necessary for the purpose of 

our audit; 

b. The enclosed Balance Sheet, Profit and Loss Account, the Cash Flow 

Statement and Statement of Changes in Equity, read with significant 

accounting policies and the explanatory notes attached there to comply 

with the provisions of the Company Act 2063 and have been prepared 

as per the provisions of Company Act, 2063 of Nepal and the same 

are in conformity with the books of account maintained by the Company; 

c. In our opinion, proper books of account as required by law have been 

kept by the Company, so far as appears from our examination of those 

books; 

d. In our opinion and to the best of our information and according to the 

explanations given to us the enclosed financial statements read with 

significant accounting policies and the explanatory notes attached 

thereto, in accordance with Nepal Accounting Standards, give a true 

and fair view of: 

i. in the case of Balance Sheet, the financial position of the Company 

as at 31st Asadh 2069 (15th July 2012); 

ii. in the case of Profit & Loss Account, the profit of the Company for 

the year ended on 31st Asadh 2069 (15th July 2012); 

iii. in the case of Cash Flow Statement, the cash flows of the Company 

for the year ended on 31st Asadh 2069 (15th July 2012); 

iv. in the case of Statement of Changes in Equity, the changes in equity 

for the year ended on 31st Asadh 2069 (15th July 2012). 

e. In our opinion and to the best of our information and according to the 

explanations given to us and from our examination of the books and 

records of the Company, carried out in accordance with Nepal Standards 

on Auditing, we have neither come across cases where the Board of 

Directors or any member thereof or any employee of the Company 

has acted contrary to the provisions of law relating to the accounts or 

committed any misappropriation or caused loss or damage to the 

Company nor any fraud committed, relating to the accounts, in the 

Company. 

Nem Lal Amatya Shashi Satyal 

Date : 19th Aswin 2069 Partner Partner 

(5th October 2012) N Amatya & Co. T R Upadhya & Co. 

Place : New Delhi Chartered Accountants Chartered Accountants 

198


BALANCE SHEET AS AT 31st ASADH 2069 (15TH JULY, 2012) 

CAPITAL & LIABILITIES 

Figures in NRs. Figures in ` Figures in NRs. Figures in ` 

As at As at As at As at 

31st Asadh 2069 31st Asadh 2069 32nd Asadh 2068 32nd Asadh 2068 

Schedule (15th July, 2012) (15th July, 2012) (16th July, 2011) (16th July, 2011) 

SHARE CAPITAL AND RESERVES 

(a) Share Capital 1 2,016,000,000 1,260,000,000 2,016,000,000 1,260,000,000 

(b) Reserves & Surplus 2 934,016,875 583,760,542 692,987,549 433,117,214 

LONG TERM LOAN 

(a) Secured Loan 3 1,710,000,000 1,068,750,000 — — 

Total 4,660,016,875 2,912,510,542 2,708,987,549 1,693,117,214 

ASSETS 

(1) Fixed Assets 4 

(a) Gross Block 4,475,849,765 2,797,406,103 3,848,637,474 2,405,398,421 

(b) Less: Accumulated Depreciation 1,911,187,885 1,194,492,430 1,627,082,817 1,016,926,761 

(c) Net Block 2,564,661,880 1,602,913,673 2,221,554,657 1,388,471,660 

(d) Capital Work in Progress and In-transit 406,635,370 254,147,106 144,122,586 90,076,616 

(2) Investments 5 109,882,338 68,676,461 109,882,338 68,676,461 

(3) Deferred Tax Asset (Net) (Refer 2F of Schedule 19) 33,223,491 20,764,682 10,915,022 6,821,889 

(4) Current Assets 

(a) Inventories 6 2,424,085,440 1,515,053,400 2,168,804,144 1,355,502,590 

(b) Sundry Debtors 7 56,297,214 35,185,759 92,276,414 57,672,759 

(c) Cash and Bank Balances 8 36,456,761 22,785,476 14,324,218 8,952,636 

(d) Loans and Advances 9 3,434,669,978 2,146,668,736 1,898,287,023 1,186,429,388 

Total 5,951,509,393 3,719,693,371 4,173,691,799 2,608,557,373 

Less: Current Liabilities and Provisions 

(a) Short Term Borrowings 10 404,210,497 252,631,561 733,247,775 458,279,859 

(b) Liabilities 11 1,006,853,035 629,283,149 851,970,328 532,481,457 

(c) Provisions 12 2,994,832,065 1,871,770,041 2,365,960,750 1,478,725,469 

Total 4,405,895,597 2,753,684,751 3,951,178,853 2,469,486,785 

Net Current Assets 1,545,613,796 966,008,620 222,512,946 139,070,588 

Total 4,660,016,875 2,912,510,542 2,708,987,549 1,693,117,214 

NOTES TO THE ACCOUNTS AND CONTINGENT LIABILITIES 19 

The schedules referred to above form an integral part of the Balance Sheet. 

This is the Balance Sheet referred to in our Report of even date. 

Subhraketan Mitra Sanjiv Keshava Siddhartha SJB Rana K N Grant Y C Deveshwar 

Head of Finance Managing Director Director Director Chairman 

S R Pandey A K Mukerji B B Chatterjee Nem Lal Amatya Shashi Satyal 

Director Director Director Partner Partner 

N. Amatya & Co. T R Upadhya & Co. 

Date: 19th Aswin 2069 (5th October 2012) Chartered Accountants Chartered Accountants 

199


PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st ASADH 2069 (15TH JULY, 2012) 


For the year ended For the year ended For the year ended For the year ended 


Schedule (15th July, 2012) (15th July, 2012) (16th July, 2011) (16th July, 2011) 

Gross Revenue 13 15,026,109,024 9,391,318,140 13,276,646,095 8,297,903,809 

Less: Duties 14 4,732,030,886 2,957,519,303 4,243,349,162 2,652,093,226 

Net Sales 10,294,078,138 6,433,798,837 9,033,296,933 5,645,810,583 

Raw Materials Consumed, etc. 15 3,549,356,981 2,218,348,114 3,411,608,705 2,132,255,441 

Cost of Sales 3,549,356,981 2,218,348,114 3,411,608,705 2,132,255,441 

Gross Profit 6,744,721,157 4,215,450,723 5,621,688,228 3,513,555,142 

Other Income 16 60,798,255 37,998,909 60,611,071 37,881,920 

Total 6,805,519,412 4,253,449,632 5,682,299,299 3,551,437,062 

Manufacturing, Admin, Selling Expenses etc. 17 1,473,160,169 920,725,104 1,295,593,597 809,746,001 

Provision for Employees' Bonus 416,618,684 260,386,678 352,602,982 220,376,864 

Operating Profit 4,915,740,559 3,072,337,850 4,034,102,720 2,521,314,197 

Interest 159,784,168 99,865,105 32,526,939 20,329,337 

Depreciation 344,578,427 215,361,518 269,701,443 168,563,403 

Loss on Fixed Assets sold / discarded (Net) 3,990,834 2,494,271 1,705,951 1,066,219 

Profit before Taxation 4,407,387,130 2,754,616,956 3,730,168,387 2,331,355,238 

Provision for Taxation 18 1,364,117,804 852,573,628 1,186,144,497 741,340,311 

Profit after Taxation 3,043,269,326 1,902,043,328 2,544,023,890 1,590,014,927 

Transferred from General Reserve 170,965 106,853 — — 

Available for Appropriation 3,043,440,291 1,902,150,181 2,544,023,890 1,590,014,927 

Appropriation 

Provision for Employees' Housing 241,200,291 150,750,181 204,138,568 127,586,605 

Interim Dividend 403,200,000 252,000,000 312,480,000 195,300,000 

Proposed Final Dividend 2,399,040,000 1,499,400,000 1,935,360,000 1,209,600,000 

Balance Carried Over to Balance Sheet — — 92,045,322 57,528,322 

3,043,440,291 1,902,150,181 2,544,023,890 1,590,014,927 

NOTES TO THE ACCOUNTS AND CONTINGENT LIABILITIES 19 

The Schedules referred to above form an integral part of the Profit & Loss Account. 

This is the Profit & Loss Account referred to in our Report of even date. 







200


CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST ASADH 2069 (15TH JULY, 2012) 




(15th July, 2012) (15th July, 2012) (16th July, 2011) (16th July, 2011) 

A 

B 

C 

Cash Flow From Operating Activities 

Net Profit Before Tax 4,407,387,130 2,754,616,956 3,730,168,387 2,331,355,238 

Adjustments for : 

Depreciation 344,578,427 215,361,518 269,701,443 168,563,403 

Interest 159,784,168 99,865,105 32,526,939 20,329,337 

Interest from Investments (5,683,125) (3,551,953) (5,683,125) (3,551,953) 

Interest on Short Term/Call Deposits (20,374,758) (12,734,224) (33,986,968) (21,241,855) 

Unrealised Loss/(Gain) on Foreign Exchange (Net) (2,115,443) (1,322,152) (422,158) (263,849) 

Loss on Fixed Assets sold/discarded (Net) 4,663,834 2,914,896 1,705,951 1,066,219 

Claims and Advance written off 152,454 95,284 — — 

Provision for Doubtful Debts and Advance 477,178 298,236 220,118 137,574 

Provision for Sales Return — — 9,523,511 5,952,194 

Liability no longer required written back (11,185,333) (6,990,833) — — 

Provision for Doubtful Advance/Debts written back (2,423,370) (1,514,606) (2,582,676) (1,614,173) 

Operating Profit Before Working Capital Changes 4,875,261,162 3,047,038,227 4,001,171,422 2,500,732,135 

Adjustments for : 

Trade and Other Receivables (1,404,207,488) (877,629,680) (1,266,675,623) (791,672,260) 

Inventories (255,281,296) (159,550,810) (803,029,204) (501,893,253) 

Trade Payables 90,342,839 56,464,274 45,189,384 28,243,365 

Cash Generated From Operation 3,306,115,217 2,066,322,011 1,976,655,979 1,235,409,987 

Income Tax Paid (1,372,209,848) (857,631,155) (1,144,215,434) (715,134,646) 

Net Cash From Operating Activities (A) 1,933,905,369 1,208,690,856 832,440,545 520,275,341 

Cash Flow From Investing Activities 

Purchase of Fixed Assets (920,974,314) (575,608,946) (662,868,937) (414,293,086) 

Proceeds from Disposal of Fixed Assets 57,492 35,933 38,899 24,312 

Interest Received 26,340,322 16,462,701 39,838,715 24,899,197 

Net Cash Used in Investing Activities (B) (894,576,500) (559,110,312) (622,991,323) (389,369,577) 

Cash Flow From Financing Activities 

Proceeds from Long Term Borrowing 1,710,000,000 1,068,750,000 — — 

Net Increase/(Decrease) in Cash Credit/Overdraft Facilities (329,037,278) (205,648,299) 733,247,775 458,279,859 

Interest Paid (152,434,491) (95,271,557) (31,043,821) (19,402,388) 

Dividends Paid (2,247,840,000) (1,404,900,000) (1,814,400,000) (1,134,000,000) 

Net Cash Used in Financing Activities (C) (1,019,311,769) (637,069,856) (1,112,196,046) (695,122,529) 

Net Increase/(Decrease) in Cash & Cash Equivalents (A+B+C) 20,017,100 12,510,688 (902,746,824) (564,216,765) 

Cash and Cash Equivalents (Opening balance) 14,795,375 9,247,109 917,542,199 573,463,874 

Cash and Cash Equivalents (Closing balance) 34,812,475 21,757,797 14,795,375 9,247,109 

Cash and Cash Equivalents: 

Cash and Cash Equivalents as above 34,812,475 21,757,797 14,795,375 9,247,109 

Unrealised Gain / (Loss) on Foreign Currency Cash and Cash Equivalents - Net 1,644,286 1,027,679 (471,157) (294,473) 

Cash & Bank Balance (Schedule 8) 36,456,761 22,785,476 14,324,218 8,952,636 

This is the Cash Flow Statement referred to in our Report of even date. 







201

STATEMENT OF CHANGE IN EQUITY FOR THE YEAR ENDED 31ST ASADH 2069 (15TH JULY, 2012) 


Figures in NRs. Figures in ` Figures in NRs. Figures in ` Figures in NRs. Figures in ` Figures in NRs. Figures in ` Figures in NRs. Figures in ` Figures in NRs. Figures in ` 

Share Capital Share Capital Revaluation Revaluation General General Employees' Employees' Surplus Surplus Total Total 

Reserve Reserve Reserve Reserve Housing Housing 

Reserve Reserve 

Balance as at 32nd Asadh 2067 (16th July 2010) 2,016,000,000 1,260,000,000 12,181,280 7,613,300 13,485,985 8,428,741 371,136,394 231,960,246 — — 2,412,803,659 1,508,002,287 

Net Profit for the year — — — — — — — — 2,544,023,890 1,590,014,927 2,544,023,890 1,590,014,927 

Transferred to Employees' Housing Reserve — — — — — — 204,138,568 127,586,605 (204,138,568) (127,586,605) — — 

Dividend — — — — — — — — (2,247,840,000) (1,404,900,000) (2,247,840,000) (1,404,900,000) 

Transferred to Reserve — — — — 92,045,322 57,528,322 — — (92,045,322) (57,528,322) — — 

Total — — — — 92,045,322 57,528,322 204,138,568 127,586,605 — — 296,183,890 185,114,927 

Balance as at 32nd Asadh 2068 (16th July 2011) 2,016,000,000 1,260,000,000 12,181,280 7,613,300 105,531,307 65,957,063 575,274,962 359,546,851 — — 2,708,987,549 1,693,117,214 

Net Profit for the year — — — — — — — — 3,043,269,326 1,902,043,328 3,043,269,326 1,902,043,328 

Transferred to Employees' Housing Reserve — — — — — — 241,200,291 150,750,181 (241,200,291) (150,750,181) — — 

Transferred to Profit and Loss Appropriation Account — — — — (170,965) (106,853) — — 170,965 106,853 — — 

Dividend — — — — — — — — (2,802,240,000) (1,751,400,000) (2,802,240,000) (1,751,400,000) 

Transferred to Reserve — — — — — — — — — — — — 

Total — — — — (170,965) (106,853) 241,200,291 150,750,181 — — 241,029,326 150,643,328 

Balance as at 31st Asadh 2069 (15th July 2012) 2,016,000,000 1,260,000,000 12,181,280 7,613,300 105,360,342 65,850,210 816,475,253 510,297,032 — — 2,950,016,875 1,843,760,542 

SCHEDULES TO THE ACCOUNTS 





SCHEDULE 1: SHARE CAPITAL 

Authorised 

65,000,000 Ordinary Shares of 

NRs. 100/-each 6,500,000,000 4,062,500,000 6,500,000,000 4,062,500,000 

Issued, Subscribed & Paid up 

20,160,000 Ordinary Shares of 

NRs.100/- each, fully paid 2,016,000,000 1,260,000,000 2,016,000,000 1,260,000,000 

2,016,000,000 1,260,000,000 2,016,000,000 1,260,000,000 

Out of the above: 

1. 16,800,000 Ordinary Shares were issued as fully paid up bonus shares in 2065-66 (2008-09). 

2. 2,800,000 Ordinary Shares were issued as fully paid up bonus shares in 2060-61 (2003-04). 

3. 280,000 Ordinary Shares were issued as fully paid up bonus shares in 2052-53 (1995-96). 

4. 11,894,400 Ordinary Shares are held by the Holding Company, ITC Limited. 

Reconciliation of number of Shares outstanding: 

Number of Shares 

At the beginning of the year 20,160,000 20,160,000 20,160,000 20,160,000 

At the end of the year 20,160,000 20,160,000 20,160,000 20,160,000 

Figures in NRs. Figures in ` Figures in NRs. Figures in ` Figures in NRs. Figures in ` Figures in NRs. Figures in ` 


32nd Asadh 2068 32nd Asadh 2068 31st Asadh 2069 31st Asadh 2069 

(16th July, 2011) (16th July, 2011) Addition Addition Withdrawal Withdrawal (15th July, 2012) (15th July, 2012) 

SCHEDULE 2 : RESERVES & SURPLUS 

Capital Reserve 

Revaluation of Land 12,181,280 7,613,300 — — — — 12,181,280 7,613,300 

Revenue Reserve 

General Reserve 105,531,307 65,957,063 — — 170,965 106,853 105,360,342 65,850,210 

Housing Fund 

Provision for Employee Housing 575,274,962 359,546,851 241,200,291 150,750,181 — — 816,475,253 510,297,032 

Surplus 

Profit & Loss Account — — — — — — — — 

692,987,549 433,117,214 241,200,291 150,750,181 170,965 106,853 934,016,875 583,760,542 





SCHEDULE 3 : LONG TERM LOAN - SECURED 

Secured Loan 1,710,000,000 1,068,750,000 — — 

1,710,000,000 1,068,750,000 — — 

Long term Loan availed from Holding Company, ITC Limited. 

Secured by hypothecation of movable fixed assets and inventories of 

the Company, both present and future. 

202


SCHEDULES TO THE ACCOUNTS (Contd.) 

SCHEDULE 4 - FIXED ASSETS 

GROSS BLOCK DEPRECIATION NET BLOCK 

Basic NRs. ` NRs. ` NRs. ` NRs. ` NRs. ` NRs. ` NRs. ` NRs . ` NRs. ` NRs. ` 

Description Depreciation As at As at As at As at As at As at As at As at As at As at As at As at 

Rates 32.03.2068 32.03.2068 Additions Additions Withdrawals/ Withdrawals/ 31.03.2069 31.03.2069 32.03.2068 32.03.2068 For For Withdrawals/ Withdrawals/ 31.03.2069 31.03.2069 31.03.2069 31.03.2069 32.03.2068 32.03.2068 

(%) (16.07.2011) (16.07.2011) Adjustments Adjustments (15.07.2012) (15.07.2012) (16.07.2011) (16.07.2011) the year the year Adjustments Adjustments (15.07.2012) (15.07.2012) (15.07.2012) (15.07.2012) (16.07.2011) (16.07.2011) 

Land & Land Development 245,789,991 153,618,745 23,394,753 14,621,721 673,000 420,625 268,511,744 167,819,841 — — — — — — — — 268,511,744 167,819,841 245,789,991 153,618,745 

Buildings 1.65 505,715,552 316,072,219 104,163,485 65,102,178 6,070,493 3,794,058 603,808,544 377,380,339 115,494,908 72,184,318 15,159,163 9,474,477 2,979,391 1,862,119 127,674,680 79,796,676 476,133,864 297,583,663 390,220,644 243,887,901 

Plant and Machinery 5.30 2,865,470,728 1,790,919,205 444,494,848 277,809,280 53,869,628 33,668,518 3,256,095,948 2,035,059,967 1,434,744,878 896,715,549 294,801,921 184,251,201 53,152,848 33,220,530 1,676,393,951 1,047,746,220 1,579,701,997 987,313,747 1,430,725,850 894,203,656 

Furniture and Fixtures 3.40 & 5.30 27,658,092 17,286,307 2,069,669 1,293,543 1,644,695 1,027,934 28,083,066 17,551,916 12,819,237 8,012,022 1,941,715 1,213,572 1,591,093 994,433 13,169,859 8,231,161 14,913,207 9,320,755 14,838,855 9,274,285 

Vehicles 5.30 80,131,003 50,081,877 46,182,359 28,863,974 — — 126,313,362 78,945,851 17,133,426 10,708,391 7,533,589 4,708,493 — — 24,667,015 15,416,884 101,646,347 63,528,967 62,997,577 39,373,486 

Computers 7.30 54,734,545 34,209,091 58,300,137 36,437,586 2,363,266 1,477,041 110,671,416 69,169,636 28,347,191 17,716,995 9,338,756 5,836,723 2,248,223 1,405,139 35,437,724 22,148,579 75,233,692 47,021,057 26,387,354 16,492,096 

Office Equipments 5.30 69,137,563 43,210,977 13,801,725 8,626,078 573,603 358,502 82,365,685 51,478,553 18,543,177 11,589,486 15,803,283 9,877,052 501,804 313,628 33,844,656 21,152,910 48,521,029 30,325,643 50,594,386 31,621,491 

Total 3,848,637,474 2,405,398,421 692,406,976 432,754,360 65,194,685 40,746,678 4,475,849,765 2,797,406,103 1,627,082,817 1,016,926,761 344,578,427 215,361,518 60,473,359 37,795,849 1,911,187,885 1,194,492,430 2,564,661,880 1,602,913,673 2,221,554,657 1,388,471,660 

Capital Work-in-Progress and 

in Transit 144,122,586 90,076,616 891,606,649 557,254,156 629,093,865 393,183,666 406,635,370 254,147,106 — — — — — — — — 406,635,370 254,147,106 144,122,586 90,076,616 

Grand Total 3,992,760,060 2,495,475,037 1,584,013,625 990,008,516 694,288,550 433,930,344 4,882,485,135 3,051,553,209 1,627,082,817 1,016,926,761 344,578,427 215,361,518 60,473,359 37,795,849 1,911,187,885 1,194,492,430 2,971,297,250 1,857,060,779 2,365,677,243 1,478,548,276 

Previous Year 3,351,469,043 2,094,668,152 1,514,166,607 946,354,131 872,875,590 545,547,246 3,992,760,060 2,495,475,037 1,383,610,520 864,756,575 269,701,443 168,563,403 26,229,146 16,393,217 1,627,082,817 1,016,926,761 2,365,677,243 1,478,548,276 

Depreciation for the year includes additional depreciation amounting to NRs. 93,283,088 (` 58,301,930) {2067-68 (2010-11) NRs. 34,181,855 (` 21,363,659)} arising from change in estimated useful life of certain plant and machinery and other assets. 

203







SCHEDULE - 5 : INVESTMENTS - LONG TERM 

Investment in Stocks issued by Nepal Government 

5% Bikash Rinpatra, 2071 * 84,250,000 52,656,250 84,250,000 52,656,250 

Investment in Promissory Note issued by Nepal Government 

6.5% Bikash Rinpatra, 2075 * 25,632,338 16,020,211 25,632,338 16,020,211 

109,882,338 68,676,461 109,882,338 68,676,461 

* Pledged with a bank for obtaining letter of credit, guarantee facilities. 

SCHEDULE - 6 : INVENTORIES 

Stores & Supplies (including in-transit) 119,165,998 74,478,749 67,000,391 41,875,244 

Raw Materials (including in-transit) 937,685,253 586,053,283 941,555,595 588,472,247 

Stock - In - Process 9,288,015 5,805,009 48,897,470 30,560,919 

Finished Goods 

At Cost 1,343,493,938 839,683,711 1,105,949,490 691,218,431 

At Net Realisable Value 14,452,236 9,032,648 5,401,198 3,375,749 

2,424,085,440 1,515,053,400 2,168,804,144 1,355,502,590 

SCHEDULE - 7 : SUNDRY DEBTORS 

(Receivable within twelve months, unless otherwise stated) 

Due for more than six months 

Good and Secured — — 222,269 138,918 

Good and Unsecured 

From Holding Company — — 2,160,000 1,350,000 

From Others 3,574,846 2,234,279 3,206,036 2,003,773 

Doubtful and Unsecured - From Others 89,051 55,657 — — 

Due for less than six months - considered good 

Secured 1,435,752 897,345 1,527,117 954,448 

Unsecured 

From Holding Company — — 20,751,909 12,969,943 

From Others 51,286,616 32,054,135 64,409,083 40,255,677 

56,386,265 35,241,416 92,276,414 57,672,759 

Less: Provision for Doubtful Debts 89,051 55,657 — — 

56,297,214 35,185,759 92,276,414 57,672,759 

SCHEDULE - 8 : CASH AND BANK BALANCES 

Cash on Hand 56,639 35,399 74,092 46,308 

Cheques on Hand 1,057,677 661,048 — — 

Cash at Bank 

Current Account 1,867,692 1,167,308 7,093,018 4,433,135 

Savings Account (Provident Fund) 57,078 35,674 54,417 34,011 

Short Term - Call Deposits 33,417,675 20,886,047 7,102,691 4,439,182 

36,456,761 22,785,476 14,324,218 8,952,636 

SCHEDULE - 9 : LOANS & ADVANCES 

(Recoverable within twelve months, unless otherwise stated) 

Receivables from Holding Company (Net) 2,989,298,544 1,868,311,590 1,684,771,406 1,052,982,129 

Loan/Advance to Employees 

[Includes NRs. 76,874,812 (` 48,046,758) {(2067-68 (2010-11) - 88,263,194 55,164,496 101,624,407 63,515,254 

NRs. 88,560,703 (` 55,350,439)} recoverable after twelve months] 

Margin Money Deposit 104,812 65,508 160,198 100,124 

Advance to Others* 137,305,167 85,815,729 36,607,793 22,879,870 

Prepaid Expenses 3,816,408 2,385,255 4,152,510 2,595,318 

Accrued Interest Receivable 550,310 343,944 832,749 520,468 

Deposits: With Government Authorities 204,148,640 127,592,900 64,286,000 40,178,750 

With Others 14,032,664 8,770,415 12,289,993 7,681,246 

3,437,519,739 2,148,449,837 1,904,725,056 1,190,453,159 

Less: Provision for Doubtful Advance 2,849,761 1,781,101 6,438,033 4,023,771 

3,434,669,978 2,146,668,736 1,898,287,023 1,186,429,388 

* Includes Capital Advance NRs. 104,951,446 (` 65,594,654) {2067-68 (2010-11) - NRs. 10,266,478 (` 6,416,549)} 

SCHEDULE - 10 : SHORT TERM BORROWINGS 

Secured 

Cash Credit/Overdraft Facilities from Banks * 404,210,497 252,631,561 733,247,775 458,279,859 

404,210,497 252,631,561 733,247,775 458,279,859 

* Secured by charge over certain land and building of the Company. 

SCHEDULE - 11 : CURRENT LIABILITIES 

(Payable within twelve months, unless otherwise stated) 

Interest Accrued but not due on Borrowings * 8,832,795 5,520,497 1,483,118 926,949 

Retention Money 10,921,337 6,825,836 7,701,794 4,813,621 

Sundry Creditors 787,983,577 492,489,738 625,755,214 391,097,009 

Advances From Wholesale Dealers 161,942,855 101,214,284 190,797,357 119,248,348 

Deposits From Wholesale Dealers 5,300,000 3,312,500 5,900,000 3,687,500 

Other Liabilities 31,872,471 19,920,294 20,332,845 12,708,030 

1,006,853,035 629,283,149 851,970,328 532,481,457 

* Includes interest accrued on long term loan from Holding Company, 

ITC Limited NRs. 8,432,877 (` 5,270,548) {2067-68 (2010-11) - NRs. Nil (` Nil)} 

SCHEDULE - 12 : ROVISIONS 

Provision for Income Tax 91,520,531 57,200,332 77,304,106 48,315,066 

[Net of payment of Income Tax Advance/Deposits amounting to 

NRs. 1,383,470,233 (` 864,668,896) {2067-68 (2010-11) - 

NRs. 1,179,032,927 (` 736,895,579)}] 

Provision for Retirement and Other Employee Benefits 101,071,534 63,169,709 40,816,644 25,510,403 

Provision for Interim Dividend 403,200,000 252,000,000 312,480,000 195,300,000 

Provision for Proposed Final Dividend 2,399,040,000 1,499,400,000 1,935,360,000 1,209,600,000 

2,994,832,065 1,871,770,041 2,365,960,750 1,478,725,469 

204


SCHEDULES TO THE ACCOUNTS (Contd.) Figures in NRs. Figures in ` Figures in NRs. Figures in ` 




SCHEDULE - 13 : GROSS REVENUE 

Domestic : Cigarette 14,713,764,523 9,196,102,827 12,790,940,843 7,994,338,027 

Garments 55,312,928 34,570,580 86,842,480 54,276,550 

Matches 131,145,583 81,965,989 95,145,565 59,465,978 

Export : Garments 125,885,990 78,678,744 303,717,207 189,823,254 

15,026,109,024 9,391,318,140 13,276,646,095 8,297,903,809 

SCHEDULE - 14 : DUTIES 

Excise Duty 4,631,115,015 2,894,446,884 4,176,629,284 2,610,393,303 

Sticker Charges 100,915,871 63,072,419 66,719,878 41,699,923 

4,732,030,886 2,957,519,303 4,243,349,162 2,652,093,226 

SCHEDULE - 15 : RAW MATERIALS CONSUMED ETC. 

Leaf 1,950,659,106 1,219,161,941 1,881,351,475 1,175,844,672 

Casing Materials 26,582,804 16,614,253 21,525,431 13,453,394 

Wrapping Materials 1,290,232,989 806,395,618 1,097,830,138 686,143,836 

Fabrics, Trims etc. * 164,221,692 102,638,558 311,706,854 194,816,784 

Purchase and Contract Manufacturing Charges 143,236,645 89,522,903 126,840,185 79,275,116 

3,574,933,236 2,234,333,273 3,439,254,083 2,149,533,802 

Allocation of overheads etc. on Finished Goods 

Opening 72,270,696 45,169,185 44,625,318 27,890,824 

Closing (97,846,951) (61,154,344) (72,270,696) (45,169,185) 

3,549,356,981 2,218,348,114 3,411,608,705 2,132,255,441 

* Includes write down of Inventories amounting to NRs. 45,169,090 (` 28,230,681) {2067-68 (2010-11) - NRs. 56,971,291 (` 35,607,057)} 

SCHEDULE - 16 : OTHER INCOME 

Interest Received 8,870,302 5,543,939 10,399,820 6,499,888 

Less: Interest paid on Trading Debts 1,978,539 1,236,587 1,716,584 1,072,865 

6,891,763 4,307,352 8,683,236 5,427,023 

Interest on Short Term/Call Deposit with Bank 20,374,758 12,734,224 33,986,968 21,241,855 

Gain on Foreign Exchange (Net) 2,775,027 1,734,392 — — 

Interest from Investments 5,683,125 3,551,953 5,683,125 3,551,953 

Liability no longer required written back* 11,185,333 6,990,833 — — 

Provision for doubtful advance/debts written back 2,423,370 1,514,606 2,582,676 1,614,173 

Miscellaneous Income 11,464,879 7,165,549 9,675,066 6,046,916 

60,798,255 37,998,909 60,611,071 37,881,920 

* Includes write back of provision for sales return, relating to Garments domestic business, for NRs. 1,033,370 (` 645,856) {2067-68 (2010-11) - NRs. Nil 

(` Nil)} 

SCHEDULE - 17 : MANUFACTURING, ADMIN, SELLING EXPENSES ETC. 

Salaries, Wages & Allowances 285,238,440 178,274,025 305,402,776 190,876,735 

Contribution to Provident Fund 9,102,254 5,688,909 9,793,702 6,121,064 

Labour & Staff Welfare 35,497,862 22,186,164 23,062,861 14,414,288 

Rent 68,231,205 42,644,503 55,474,912 34,671,820 

Electricity, Fuel & Water 98,607,585 61,629,741 103,785,608 64,866,005 

Rates & Taxes 1,899,680 1,187,300 5,216,431 3,260,269 

Insurance Premium 44,744,942 27,965,589 41,342,734 25,839,209 

Repairs & Improvement - Depreciable Assets 136,671,563 85,419,727 130,198,565 81,374,103 

Maintenance - Other Properties 14,227,387 8,892,117 27,512,667 17,195,417 

Safety & Pollution Control Cost 9,338,889 5,836,806 7,483,639 4,677,274 

Consumable Stores & Spares * 27,608,107 17,255,067 60,618,465 37,886,541 

Freight 55,239,246 34,524,529 45,923,670 28,702,294 

Product Development 34,077,304 21,298,315 7,903,015 4,939,384 

Advertising 14,299,486 8,937,179 17,365,559 10,853,474 

Market Research 19,056,193 11,910,121 8,226,057 5,141,286 

Retail Accessories 41,531,503 25,957,189 86,188,601 53,867,876 

Trade Marketing Expenses 74,929,378 46,830,861 114,586,315 71,616,447 

Travel & Conveyance 73,750,167 46,093,854 72,799,377 45,499,611 

Training & Recruitment Expenses 12,884,202 8,052,626 11,212,593 7,007,871 

Postage, Telephone, Telex, Fax etc. 8,147,048 5,091,905 8,925,505 5,578,441 

Bank Charges and Commission 2,745,903 1,716,189 3,744,539 2,340,337 

Audit Fees 720,000 450,000 800,000 500,000 

Legal Fees 201,300 125,813 1,141,700 713,563 

Printing & Stationery 7,090,515 4,431,572 16,933,624 10,583,515 

Consultancy / Professional Service Charges & Other Fees 274,641,159 171,650,724 72,502,379 45,313,987 

Licence Fee 1,071,087 669,429 2,012,329 1,257,706 

Business Entertainment Expenses 4,791,482 2,994,676 5,988,919 3,743,074 

Promotion & Sponsorship 24,146,399 15,091,499 16,535,426 10,334,641 

Board Meeting Fees 47,059 29,412 41,176 25,735 

Donations ** 10,483,237 6,552,023 641,000 400,625 

Books & Periodicals 434,429 271,518 372,053 232,533 

Membership Fee 1,186,920 741,825 1,169,665 731,041 

Claims and Advance written off 152,454 95,284 — — 

Provision for Doubtful Debts and Advances 477,178 298,236 220,118 137,574 

Provision for Retirement and Other Employee Benefits 70,548,624 44,092,890 8,051,568 5,032,230 

Loss on Foreign Exchange (Net) — — 590,526 369,079 

Miscellaneous Expenses {Refer 2E of Schedule 19} *** 9,339,982 5,837,487 21,825,523 13,640,952 

1,473,160,169 920,725,104 1,295,593,597 809,746,001 

* Includes provision for obsolescence of spares, relating to plant & machinery with no residual useful life, for NRs. 2,250,835 (` 1,406,772) {2067-68 (2010-11) - 

NRs. 39,035,987 (` 24,397,492)} 

** Includes cost of construction of School Building in Pokhara NRs. 6,640,337 (` 4,150,210) and Land donated for School NRs. 673,000 (` 420,625) {2067-68 (2010-11) 

- NRs. Nil (` Nil)} 

*** Includes provision for sales return, relating to Garments domestic business, for NRs. Nil (` Nil) {2067-68 (2010-11) - NRs. 9,523,511 (` 5,952,194)} 

205


SCHEDULES TO THE ACCOUNTS (Contd.) Figures in NRs. Figures in ` Figures in NRs. Figures in ` 




SCHEDULE - 18 : PROVISION FOR TAXATION 

Current Tax 1,386,426,273 866,516,421 1,168,072,804 730,045,503 

Deferred Tax (22,308,469) (13,942,793) 18,071,693 11,294,808 

1,364,117,804 852,573,628 1,186,144,497 741,340,311 

SCHEDULE 19 - NOTES TO THE ACCOUNTS 

1. Significant Accounting Policies 

i) Convention 

These Financial Statements have been prepared in accordance with applicable Accounting 

Standards and Generally Accepted Accounting Principles (GAAPs) in Nepal. A summary 

of Significant Accounting Policies, which have been applied consistently, is set out below. 

The Financial Statements have also been prepared in accordance with the relevant 

presentational requirements of the Company Act, 2063 of Nepal. 

ii) Basis of Accounting 

These Financial Statements have been prepared in accordance with the historical cost 

convention modified by revaluation of certain freehold land as detailed in (iii) below. 

The preparation of the accounts requires management to make estimates and assumptions 

that affect the reported amounts of revenues, expenses, assets and liabilities at the date 

of the Financial Statements. The key estimates and assumptions are set out in the 

Accounting Policies below, together with the related notes to the accounts. 

The most significant items include: 

a) The estimation of and accounting for retirement benefit costs. The determination 

of the carrying value of assets and liabilities, as well as the charge for the year, 

involves judgements made in conjunction with independent actuaries. These involve 

estimates about uncertain future events including life expectancy of members, 

attrition rate, salary increases as well as discount rates. 

b) The estimation of provisions for taxation, which are subject to uncertain future 

events, may extend over several years and so the amount and/or timing may differ 

from current assumptions. The Accounting Policy for taxation is disclosed below 

in point no. (xiv) including the recognised Deferred Tax Assets and Liabilities. 

iii) Fixed Assets 

Freehold land acquired up to 17.12.2043 (31.03.1987) was revalued and the resultant 

increase in the value of such land was credited to Capital Reserve. Subsequent acquisition 

of the above asset and the other assets are stated at cost of acquisition inclusive of inward 

freight, duties and taxes and incidental expenses related to acquisition. 

Depreciation on Fixed Assets has been provided on straight-line basis at the rates prescribed 

by the erstwhile Income Tax (First Amendment) Rules, 2039. The said rates have further 

been increased by 33 1/3 % as allowed by the Industrial Enterprises Act, 2049. Additional 

depreciation arising from a change in estimated useful life of assets is charged against 

revenue. 

Impairment loss, if any, ascertained as per Nepal Accounting Standard - 18 "Impairment 

of Assets" issued by Institute of Chartered Accountants of Nepal, is recognised. 

iv) Inventories 

Inventories are valued at cost or net realisable value whichever is lower. 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. 

v) Investments 

Long Term Investments are valued at cost. Provision is made where there is a permanent 

fall in the valuation of such Investments. 

vi) Sales 

Net sales are stated after deducting taxes, duties and sticker charges from invoiced value 

of goods sold. 

vii) Investment Income 

Income from investments is accounted for on an accrual basis, inclusive of related tax 

deducted at source. 

viii) Foreign Exchange Transaction 

Foreign Exchange transactions are recorded at the exchange rate prevailing on the date 

of transactions or where applicable, at the exchange rate covered by forward exchange 

contracts. Gains/losses arising out of fluctuations in the exchange rates are recognised 

in the Profit and Loss Account in the period in which they arise. Differences between 

the forward exchange rates and the exchange rates at the date of transactions are 

recognised as income or expense over the life of the contracts. Profit/loss arising on 

cancellation or renewal of forward exchange contracts is recognised as income/expense 

for the period. Gains/losses on account of foreign exchange rate fluctuations relating to 

monetary items are accounted for in the Profit and Loss Account at the year end. 

ix) Lease Rentals 

Operating lease rentals are charged to the Profit and Loss Account as incurred. 

x) Retirement Benefits 

(a) Gratuity 

Liability for gratuity benefits payable to the employees is actuarially determined 

at the year end and provided for. 

(b) Provident Fund 

Regular monthly contributions are made to Provident Funds, which are charged 

against revenue. 

(c) Leave Encashment and Other Retirement Benefits 

Leave encashment and other retirement benefits, wherever applicable, are determined 

on the basis of actuarial valuation at the year end and provided for. 

xi) Bonus 

Bonus is provided as per the provisions of the Bonus Act, 2030. 

xii) Employees' Housing 

Employees' Housing is provided as per the provisions of Labour Act, 2048. 

xiii) Cash and Cash Equivalents 

Cash and cash equivalents represent cash and cheques on hand and balance in Bank 

Accounts. 

xiv) Tax on Income 

Provision for current tax is made with reference to profit for the period covered by the 

Financial Statements as per the provisions of Income Tax Act, 2058. 

Deferred Tax is recognised and provided for on temporary differences between carrying 

amount of assets and liabilities and their respective tax base, subject to consideration 

of prudence. 

Deferred Tax Assets are recognised to the extent it is probable that future taxable profit 

will be available against which the temporary difference, unused tax losses and unused 

tax credit can be utilised, unless the Deferred Tax Asset arises from the initial recognition 

of an asset or liability in a transaction. 

Deferred Tax is determined using the tax rates that have been enacted or substantively 

enacted at the Balance Sheet date and are expected to apply when the related deferred 

tax asset is realised or deferred tax liability is settled. 

xv) Dividend 

Final Dividend is provided for as proposed by the Directors, pending approval at the 

Annual General Meeting. Interim dividend is provided for as declared by the Board of 

Directors and confirmed at the Annual General Meeting. 

2. Notes to the Accounts 

A. For the year ended 31st Asadh 2069, the Board of Directors of the Company at its 

meeting held on 19th Aswin 2069 (5th October 2012) have: 

a) declared interim dividend of NRs. 20 (` 12.50) per share and 

b) recommended final dividend of NRs. 119 (` 74.38) per share. 

B. Claims against the Company not acknowledged as debts: 

a) Demands raised by Revenue Authorities on theoretical production of cigarettes: 

Excise, Income Tax and Value Added Tax (VAT) authorities issued Show Cause 

Notices (SCNs) and raised demands to recover taxes for different years on theoretical 

production of cigarettes. The basis for all these SCNs and demands is an untenable 

contention by the Revenue Authorities that the Company could have produced 

more cigarettes than it has actually produced in a given year, by applying an inputoutput 

ratio allegedly submitted by the Company in the year 2047-48 (1990-91) 

and, that, the Company is liable to pay taxes on such cigarettes that could have 

been theoretically produced and sold. This, despite the fact that the Company's 

cigarette factory is under 'physical control' of the Revenue Authorities and cigarettes 

produced are duly accounted for and certified as such by the Revenue Authorities. 

As reported last year, the above basis of theoretical production has been rejected 

by the Supreme Court of Nepal vide its orders dated 29th October, 2009 and 1st 

April, 2010. In the said order of the Supreme Court of Nepal dated 1st April, 2010, 

the Excise demands {(for the financial years 2055-56 to 2059-60 (1998-99 to 2002- 

03)} and Income Tax demands {for the financial year 2058-59(2001-02)} were set 

aside. Citing the aforesaid decisions of the Supreme Court of Nepal, the Inland 

Revenue Department, on 11th February, 2011 decided the following administrative 

review petitions in favour of the Company relating to theoretical production: 

(i) Value Added Tax - NRs. 75,451,113 (` 47,156,946) for the financial year 2058- 

59 (2001-02). 

(ii) Income Tax - NRs. 49,070,474 (` 30,669,046) for the financial year 2062-63 (2005- 

06). 

The Company's counsel appearing in the matter has opined that the verdict of the 

Supreme Court of Nepal dated 29th October, 2009, which was delivered by a Full Bench 

of the Court, will add substantial strength to Company's case in all the other matters 

relating to the issue of theoretical production. 

Following is the status of pending demands and Show Cause Notices received from the 

Revenue Authorities based on similar untenable contention: 

Excise Demands and Show Cause Notice 

1. Excise demand letter dated 22nd February 2008 for NRs. 149,515,509 (` 93,447,193) 

relating to the financial years 2060-61 to 2062-63 (2003-04 to 2005-06). The 

Company's writ petition, challenging the demand, has been admitted by the 

Supreme Court of Nepal on 2nd April 2008 and it has issued Show Cause Notices 

to the respondents. 

2. Excise demand letter dated 30th November 2008 for NRs. 128,510,757 (` 

80,319,223) relating to the financial year 2063-64 (2006-07). The Company's 

writ petition, challenging the demand, has been admitted by the Supreme Court 

of Nepal on 6th January 2009 and it has issued Show Cause Notices to the 

respondents. 

206



3. Show Cause Notice dated 19th January 2010 seeking to demand NRs. 196,537,807 

(` 122,836,129) by way of Excise Duty for the financial year 2064-65 (2007-08). 

Company's writ petition challenging the Notice was admitted by the Supreme 

Court of Nepal. On 7th March 2010, Supreme Court of Nepal issued interim order 

directing Inland Revenue Department not to raise demand, pending final disposal 

of the writ petition. 

VAT Demands 

4. VAT demand letter dated 8th August 2007 for NRs. 57,238,860 (` 35,774,288) 

relating to the financial year 2059-60 (2002-03). The Company's writ petition, 

challenging the demand, has been admitted by the Supreme Court of Nepal on 

12th September 2007 and it has issued Show Cause Notices to the respondents. 

5. VAT demand letter dated 5th August 2008 for NRs. 10,718,107 (` 6,698,817) 

relating to the financial year 2060-61 (2003-04). The Company's writ petition, 

challenging the demand, has been admitted by the Supreme Court of Nepal on 

5th September 2008 and it has issued Show Cause Notices to the respondents. 

6. VAT demand letter dated 10th July 2009, for NRs. 106,966,056 (` 66,853,785) 

relating to the financial years 2061-62 to 2063-64 (2004-05 to 2006-07). The 

Company's writ petition, challenging the demand, has been admitted by the 

Supreme Court of Nepal on 9th August 2009 and it has issued Show Cause Notices 

to the respondents. 

7. VAT demand letter dated 14th May 2010, for NRs. 114,691,649 (` 71,682,281) 

relating to the financial year 2064-65 (2007-08). The Company has filed an 

administrative review petition before the Director General on 11th July 2010, and 

the matter is pending. 

Income Tax Demands 

8. Income Tax demand letter dated 12th August 2007 for NRs. 196,092,971 

(` 122,558,107) relating to the financial year 2059-60 (2002-03). The Company's 

writ petition, challenging the demand, has been admitted by the Supreme Court 

of Nepal on 12th September 2007 and it has issued Show Cause Notices to the 

respondents. 

9. Income Tax demand letter dated 15th September 2008 for the financial year 2060- 

61 (2003-04). Out of total demand of NRs. 22,536,944 (` 14,085,590) the basis 

of the demand for NRs. 19,139,653 (` 11,962,283) is on theoretical production. 

The Company's writ petition, challenging the demand, has been admitted by the 

Supreme Court of Nepal on 8th December 2008 and it has issued Show Cause 

Notices to the respondents. 

10. Income Tax demand letter dated 16th October 2009 for the financial year 2061- 

62 (2004-05). Out of a total demand of NRs. 22,626,609 (` 14,141,631) the basis 

of the demand for NRs. 21,565,409 (` 13,478,381), is on theoretical production. 

The Company has filed an administrative review petition before the Director 

General, Inland Revenue Department on 18th December 2009. However, the 

Director General without dealing with the issues raised by the Company, summarily 

dismissed the petition by an order dated 2nd March 2010. The Company thereafter 

filed an appeal before the Revenue Tribunal, on 17th June 2010, and the matter 

is pending. 

The Management considers that all the demands and show cause notice listed 

above have no legal or factual basis. Accordingly, the Management is of the view 

that there is no liability that is likely to arise, particularly in the light of the decisions 

in favour of the Company by the Supreme Court of Nepal and the Inland Revenue 

Department. 

b) Other demands raised on account of: 

1. Income Taxes for various assessment years amounting to NRs. 111,670,181 (` 

69,793,863) {Previous year - NRs. 103,283,725 (` 64,562,328)} (net of provision 

made for the above assessment years) against which the Company has filed appeals 

with the appropriate authorities/Courts. 

2. Value Added Tax matters under dispute, pertaining to financial years 2055-56 to 

2057-58, amounting to NRs. 3,100,750 (` 1,937,963) {Previous year - NRs. 

3,100,750 (` 1,937,969)},which are under appeal /reassessment. 

C. Estimated amount of contracts remaining to be executed on capital account 

NRs. 787,516,967 (` 492,198,104) {2067-68 NRs. 501,125,637 (` 313,203,523)}. 

D. Remuneration to Managing Director: 

Particulars For the year ended For the year ended 

31st Asadh 2069 32nd Asadh 2068 

(15th July 2012) (16th July 2011) 

In NRs. In ` In NRs. In ` 

Salary, Bonus etc. (Short Term) 15,403,161 9,626,976 14,893,852 9,308,658 

Post Employment Benefits * * * * 

Total 15,403,161 9,626,976 14,893,852 9,308,658 

*Post employment benefits are actuarially determined on overall basis for all employees. 

E. Miscellaneous Expenses include reimbursement of expenses to statutory auditors amounting to NRs. 132,670 (` 82,919) {2067-68 - NRs. 99,633 (` 62,271)}. 

F. The major components of the Deferred Tax Assets/Liabilities, based on the tax effect of the timing difference are as under: 

As at 

As at 


(15st July 2012) (16th July 2011) 


Deferred Tax Asset 

On employees’ separation and retirement 30,234,585 18,896,616 10,598,101 6,623,813 

On fiscal allowance on fixed assets 9,568,550 5,980,344 1,430,310 893,944 

On doubtful advance 309,019 193,137 960,155 600,097 

On provision for inventories 10,212,325 6,382,703 9,836,065 6,147,541 

50,324,479 31,452,800 22,824,631 14,265,395 

Deferred Tax Liability 

On finished goods 17,100,988 10,688,118 11,909,609 7,443,506 

Deferred Tax - Net 33,223,491 20,764,682 10,915,022 6,821,889 

G. Reconciliation between tax expenses and accounting profit: 

For the year ended 



(15th July 2012) (16th July 2012) 


Accounting Profit 4,407,387,130 2,754,616,956 3,730,168,387 2,331,355,238 

Tax at the applicable tax rate 

(Cigarette manufacturing @ 30%, Garments 

Manufacturing @ 20% and Trading @ 25%) 1,334,823,317 834,264,573 1,141,055,678 713,159,799 

Factors affecting tax charge for the year 

Effect of : 

Unused Tax Losses not recognised 25,941,272 16,213,295 44,830,483 28,019,052 

Expenses not deductible for tax purposes 3,353,215 2,095,760 258,336 161,460 

Total Tax Expense 1,364,117,804 852,573,628 1,186,144,497 741,340,311 

H. Capital 

The Company is not subject to any capital adequacy norms under regulations presently in force. Employees Housing Reserve is set aside as required by law. It is the Company's policy to maintain 

a sound capital base that is supportive of the Company's business plans. Return on capital employed is monitored based on asset turnover and profitability ratio. 

207



I. Related party Disclosures 

Nature of relationship and name of the related parties: 

1. Holding Company 

ITC Limited, India 

2. Fellow Subsidiaries 

a) Srinivasa Resorts Limited, India 

b) Fortune Park Hotels Limited, India 

c) Bay Islands Hotels Limited, India 

d) Russell Credit Limited, India and its subsidiaries 

Greenacre Holdings Limited, India 

e) Wimco Limited, India and its subsidiaries 

Pavan Poplar Limited, India 

Prag Agro Farm Limited, India 

f) Technico Pty Limited, Australia and its subsidiaries 

TechnicoAgri Sciences Limited, India 

Technico Technologies Inc., Canada 

Technico Asia Holdings Pty Limited, Australia and its subsidiary 

Technico Horticultural (Kunming) Co. Limited, China 

g) ITC Infotech India Limited, India and its subsidiaries 

ITC Infotech Limited, United Kingdom 

ITC Infotech (USA), Inc., United States of America and its subsidiary 

Pyxis Solutions, LLC, United States of America 

h) Wills Corporation Limited, India 

i) Gold Flake Corporation Limited, India 

j) Landbase India Limited, India 

k) WelcomHotels Lanka (Private) Limited, Sri Lanka 

l) ITC Investments & Holdings Limited, India 

m) BFIL Finance Limited, India and its subsidiary 

MRR Trading & Investment Company Limited, India 

n) King Maker Marketing, Inc., United States of America 

The above list does not include ITC Global Holdings Pte. Limited, Singapore (under liquidation) 

3. Key Management Personnel: 

Y. C. Deveshwar Chairman & Non-Executive Director 

S. Puri Alternate Director to Mr Y C Deveshwar 

A. K. Mukerji Non-Executive Director 

B. B. Chatterjee Non-Executive Director 

K. N. Grant Non-Executive Director 

S. R. Pandey Non-Executive Director 

S. SJB Rana Non-Executive Director 

Saurya SJB Rana Alternate Director to Mr. S. SJB Rana 

S. Keshava Managing Director 

Disclosure of transactions between the Company and related parties during the year and outstanding balances as on 15th July 2012: 



31st Asadh 2069 (15th July 2012) 32nd Asadh 2068 (16th July 2011) 

Holding Company Fellow Key Management Holding Company Fellow Key Management 

Subsidiaries Personnel Subsidiaries Personnel 

In NRs. In ` In NRs. In ` In NRs. In ` In NRs. In ` In NRs. In ` In NRs. In ` 

Sale of Goods/Services 91,249,834 57,031,146 50,918 31,824 156,297,542 97,685,964 223,496 139,685 

Purchase of Goods/ Services 2,590,198,763 1,618,874,227 36,471,260 22,794,538 2,374,365,594 1,483,978,496 5,886,072 3,678,795 

Remuneration to Managing Director 15,403,161 9,626,976 14,893,852 9,308,658 

Sitting Fees/ Incidental 

Expenses to Other Directors 57,059 35,662 48,676 30,423 

Interest Expenses 124,400,591 77,750,369 

Machine Hire Charges 18,223,747 11,389,842 13,214,370 8,258,981 

Rent Received 

Dividend Payments 1,326,225,600 828,891,000 1,070,496,000 669,060,000 

Expenses recovered 7,312,686 4,570,429 13,968 8,730 7,812,677 4,882,923 35,280 22,050 

Expenses reimbursed 10,934,390 6,833,994 8,249,302 5,155,814 

Loan Taken 1,710,000,000 1,068,750,000 

Advances Given 2,824,825,274 1,765,515,796 2,923,370,637 1,827,106,648 

Balances as on 15th July 

— Debtors 22,911,909 14,319,943 

— Advances/Other Receivables 3,150,448,082 1,969,030,051 1,845,429,165 1,153,393,229 

— Creditors / Payables 161,149,538 100,718,461 31,008,925 19,380,578 160,657,760 100,411,100 

— Loan Outstanding 1,710,000,000 1,068,750,000 

J. Figures have been rounded off to the nearest rupee. 

K. Previous Year’s figures have been regrouped and/or rearranged wherever necessary. 







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SURYA NEPAL PRIVATE LIMITED - ITC i

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