Auditor Report of Mahanagar Telephone Nigam Ltd.

Mar 31, 2024

We have audited the accompanying standalone Ind-AS financial statements of MAHANAGAR TELEPHONE NIGAM LIMITED ("the Company"), which comprise the Balance Sheet as at March 31, 2024, the Statement of Profit and Loss (including Other Comprehensive Loss), the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and notes to financial statements, including a summary of the material accounting policies and other explanatory information (hereinafter referred to as "the standalone Ind- AS financial statements").

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the basis for Qualified Opinion Section of our report, the aforesaid standalone Ind- AS financial statements give the information required by the Companies Act, 2013 ("the Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, ("Ind-AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2024, net loss, changes in equity and its cash flows for the year ended on that date.

Basis for Qualified Opinion

We conducted our audit of the standalone Ind-AS financial statements in accordance with the Standards on Auditing specified under section 143(10) of the Act (SAs). Our responsibilities under those Standards are further described in the Auditor''s Responsibilities for the Audit of the standalone Ind AS Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit of the standalone Ind AS financial statements under the provisions of the Act and the Rules made there under, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI''s Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone Ind AS financial statements.

(i) The Net Worth of the Company has been fully eroded; The Company has incurred net cash loss during the year ended March 31st, 2024, as well as in the previous year and the current liabilities exceeded the current assets substantially.

Furthermore, Department of Public Enterprises vide its Office Memorandum No. DPE/5(1)/2014-Fin. (Part-IX-A) has classified the status of the Company as "Incipient Sick CPSE". Department of Telecommunication (DOT) has also confirmed the status vide its issue no. I/3000697/ 2017 through file no. 19-17/2017 - SU-II.

However, the standalone Ind AS financial statements of the Company have been prepared on a going concern basis keeping in view the majority stake of the Government of India.

Union Cabinet has also approved the "Revival plan of BSNL and MTNL" by reducing employee costs, administrative allotment of spectrum for 4G services, debt restructuring by raising of sovereign guaranteed bonds, monetization of assets and in principle approval for merger of BSNL and MTNL. Further, the Company had implemented the Voluntary Retirement Scheme in FY 2019-20 resulted into reduction in Employees Cost and also raised funds by issuing Bonds for Rs 6,500 crore in FY 2020-21 in line with cabinet note.

As per F.NO.20-28/2022-PR dated 2nd August 2022, the Union Cabinet in its meeting held on July 27, 2022 has approved the raising of Sovereign guaranteed bonds for MTNL with a tenure of 10 years or more for an amount of Rs. 17,571 crores with waiver of guaranteed fee to repay its high-cost debt and restructure it with new sustainable loan. During the year ended March 31, 2023, the Company has raised Rs. 10,910/- Crore and Rs. 6,660.99 Crores raised during year ended March 31, 2024. (refer note no. 78 to the standalone Ind-AS financial statements).

Further, in view of unsustainable debts of MTNL, a Committee of Secretaries (COS) was constituted by Government of India to examine matters such as asset monetization, AGR dues, debt restructuring etc for further course of action for merger of MTNL and BSNL. However, COS is reviewing various options submitted to them for solution of ''various issues related to MTNL which is under process.

(ii) Dues to/Receivable from Bharat Sanchar Nigam Limited (BSNL):

a) The Company has certain balances receivable from and payables to Bharat Sanchar Nigam Limited (BSNL). The net amount recoverable of Rs. 3569.07 Crores is subject to reconciliation and confirmation. In view of non-reconciliation and non-confirmation and in view of various pending disputes regarding claims and counter claims, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the standalone Ind-AS financial statements of the Company.

b) The Company has not provided a provision for doubtful claims in respect of lapsed CENVAT Credit due to non-payment of service tax to service providers within the period of 180 days and due to transition provision under Goods and Service Tax (GST) where the aforesaid CENVAT credit amounting to Rs.154.84 Crores has not been carried forward resulting in overstatement of Current Assets and understatement of loss to that extent.

c) The income arising on account of rental income in respect of property occupied by the BSNL amounting to Rs.33.52 Crores accrued during the year ended March 31st, 2024, has not been recognized in Delhi unit in the Standalone Ind-AS financial statement, however, the income arising on account of rental income in respect of property occupied by the BSNL amounting to Rs.29.94 Crores has been recognized in Mumbai Unit in the Standalone Ind-AS financial statement on estimate basis. Further, the Goods and Services Tax (GST) has also not been considered in respect of income arising on account of rented property occupied by the BSNL for both Delhi and Mumbai unit. The accumulated impact on the standalone Ind-AS financial statement of such income and liability under Goods and Services Tax (GST) for the current year and preceding years is not ascertained and quantified.

(iii) The Company has certain balances receivable from and payable to the Department of Telecommunication (DOT). The net amount recoverable of Rs. 7.16 Crores, is subject to reconciliation and confirmation. In view of non-reconciliation and non-confirmation, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on standalone Ind AS financial statements of the Company for the year ended March 31, 2024. (Also refer point no. (a) of note no. 70 to the standalone Ind-AS financial statements).

(iv) The Company has certain balances recoverable from its debtors on account of service tax amounting to Rs. 64.27 crores in the Delhi Wireless Unit. The balance is recoverable from BSNL and various private parties which are subject to reconciliation and confirmation. Further identification of balance on account of BSNL and other parties are not available. In the absence of reconciliation and confirmation we are not in a position to comment on the correctness of the outstanding balance as above and resultant impact on standalone Ind AS financial statements of the Company.

(v) Up to the financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL was worked out on accrual basis as against the terms of License agreements requiring deduction for expenditure from the gross revenue to be allowed on actual payment basis. Fromfinancial year 2012-13, the license fee payable to the DOT has been worked out strictly in terms of the license agreements. The Company continues to reflect the difference in license fee arising from working out the same on accrual basis as aforesaid for the period up to financial year 2011-12 by way of contingent liability of Rs. 140.36 Crores instead of actual liability resulting in understatement of current liabilities and understatement of loss to that extent. (Refer note no. 82 to the standalone Ind-AS financial statements).

(vi) Except for the impairment loss of assets of CDMA units provided in earlier years, no adjustment has been considered on account of impairment loss, if any, during the year, with reference to Indian Accounting Standard - 36 "Impairment of Assets" prescribed under Section 133 of the Act. In view of uncertainty in achievement of future projections made by the Company, we are unable to ascertain and comment on the provision required in respect of impairment in carrying value of cash generating units and its consequent impact on the loss for the year ended March 31, 2024, accumulated balance of other equity and also the carrying value of the cash generating units. (Refer note no. 72 to the standalone Ind-AS financial statements).

(vii) The Company does not follow a system of obtaining confirmations and performing reconciliation of balances in respect of amount receivables from trade receivables, deposits with Government Departments and others, claim recoverable from operators and other parties and amount payable to trade payables, claim payable to operators, and amount payable to other parties.

Accordingly, amounts receivable from and payable to the various parties are subject to confirmation and reconciliation. Pending such confirmation and reconciliation, the impact thereof on the standalone financial statements are not ascertainable and quantifiable. (Refer note no. 67 to the standalone Ind-AS financial statements).

(viii) The Company does not follow a system of reconciliation of difference between TDS balance as per book and as per TDS certificate and form 26AS under Income-tax Act as applicable. Pending such reconciliation the impact thereof if any on the standalone IND AS financial statement is not ascertainable and quantifiable

(ix) Unlinked credit of Rs. 86.63 Crore on account of receipts from subscribers against billing by the Company which could not be matched with corresponding receivables is appearing as liabilities in the balance sheet. To that extent, trade receivables and current liabilities are overstated. Pending reconciliations, the impact thereof on the standalone financial statements are not ascertainable and quantifiable. (Also refer note no. 66 to the standalone Ind-AS financial statements).

(x) Property, Plant and Equipment are generally capitalized on the basis of completion certificates issued by the engineering department or bills received by the finance department in respect of bought out capital items or inventory issued from the Stores. Due to delays in issuance of the completion certificates or receipt of the bills or receipt of inventory issue slips, there are cases where capitalization of the Property, Plant and Equipment gets deferred to next year. We are unable to comment whether the Capital Work-in-progress (CWIP) shown in books in the current year are actually part of CWIP or have already been commissioned. The resultant impact of the same on the standalone Ind AS financial statements by way of depreciation and amount of Property, Plant and Equipment capitalized in the balance sheet cannot be ascertained and quantified.

(xi) Department of Telecommunication (DOT) had raised a demand of Rs. 3,313.15 Crore in 2012-13 on account of one-time charges for 2G spectrum held by the Company for GSM and CDMA for the period of license already elapsed and also for the remaining valid period of license including spectrum given on trial basis.

Also as explained, pending finality of the issue by the Company regarding surrender of a part of the spectrum, crystallization of issue by the DOT in view of the claim being contested by private operators and because of the matter being sub-judice in the Court on account of dispute by other private operators on the similar demands the amount payable if any, is indeterminate. Accordingly, no liability has been created for the demand made by DOT on this account and Rs. 3,205.71 Crores has been disclosed as contingent liability till FY 2018- 19 although no further demand is there from DOT till date. However as explained further, the TDSAT while setting aside the levy of OTC on spectrum allotted beyond 6.2 MHz directed Govt. to review the demand for spectrum allotted after July 1st, 2008 and that too w.e.f, January 1, 2013 in case the spectrum beyond 6.2 MHz was allotted before January 1st, 2013. As explained as per the TDSAT orders also no further demand has been raised till now and as per management based on TDSAT direction the demand, if any cannot be more than Rs. 455 .15 crores the same is considered as contingent liability.

In view of the above we are not in a position to comment on the correctness of the stand taken by the Company and the ultimate implications of the same on the standalone Ind AS financial statement of the Company. (Also refer note no. 61 to the standalone Ind-AS financial statements).

(xii) The company has recovered Electricity Charges from the tenants, on which liability for Goods and Services Tax (GST) has not been considered, as the expenses recovered without installing sub meter in some of the cases. The actual impact of the same on the standalone Ind AS financial Statement for the year ended March 31, 2024, has not been ascertained and quantified.

(xiii) The TDS on provision for Expenses (Accrued Liability) has not been deducted under chapter XVII- B of Income Tax Act, 1961. The actual impact of the same on the standalone Ind-AS financial statement for the year ended March 31, 2024, has not been ascertained and quantified.

(xiv) The Company is making the provision for interest for late/non-payment to MSME vendors which is subject to deduction of tax under section 194A of Income Tax Act, 1961. The actual impact of the same on the standalone Ind-AS financial statements for the year ended March 31, 2024, is not ascertained and quantified.

(xv) The company has not recognized for loss allowance for trade receivables as per the requirements of Ind AS 109 "Financial Instruments" amounting to Rs.74.89 Crore relating to companies which are under insolvency process and certain trade receivables amounting to Rs.11.55 Crore pertaining to infrastructure business, wherein there is significant increase in credit risk.

The impact of the aforesaid on the standalone Ind-AS financial statements for the year ended March 31, 2024 lias not been ascertained and quantified.

The above basis for qualified opinion referred to in Para no. (i) to (iii) ,(v) to (vii) and (ix) to (xv) were subject matter of qualification in the Auditor''s Report for the year ended on M arch 31, 2023.

In the absence of information, the effect of which can''t be quantified, we are unable to comment on the possible impact of the items stated in the point nos. (i), (ii)(a), (iii), (iv),(v),

(vi), (vii),(viii), (ix), (x), (xi) (xii), (xiii),(xiv) and (xv) on the standalone Ind-AS financial statements of the Company for the year ended on March 31, 2024.

Emphasis of Matters

We draw attention to the following notes on the standalone Ind-AS financial statements being

matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us.

(i) Note no. 63 of Ind-AS financial statements regarding pending dispute with the Income Tax Department before the Hon''ble Courts regarding deduction claimed by the Company u/s 80 IA of the Income Tax Act, 1961 we are unable to comment on the adequacy or otherwise of the provision and/ or contingency reserve held by the Company.

(ii) Note no. 64(b) Impact of accounting of claims and counter claims of MTNL with M/S M&N Publications Ltd., in a dispute over printing, publishing and supply of telephone directories for MTNL, will be given in the year when the ultimate collection/ payment of the same becomes reasonably certain.

(iii) Note no. 15 &19 Amount receivable from BSNL & Other Operators have been reflected as loans and other financial assets instead of bifurcating the same into trade receivables and other financial assets.

(iv) Note No.80 The operations and maintenance of wireless network has been handed over to BSNL as an outsource agency from April 1, 2021 (in case of Delhi) and September 1, 2021 (in case of Mumbai) onwards. Pending finalization of standard operating procedures, the financial impact of the same (if any) will be accounted for on finalization of operational modalities.

(v) Note No.70(d) The Amounts recoverable from Department of Telecommunication (DOT) in respect of settlement of General Provident Fund (GPF) of Combined Service Optees absorbed employees in MTNL and the matter has been under review with DOT and the full amount of GPF including interest thereon, claimed of the Company in respect of which correspondence is going on between the Company and DOT are continued to be shown as recoverable from DOT and payable to GPF.

(vi) Note No.78 In pursuance of DoT letter No. F.No. 30-04/2019-PSU Affairs dt. October 29, 2019 and decision of Board of Directors of MTNL through circular regulation on November 4, 2019, the MTNL Voluntary Retirement Scheme has been introduced with effect from November 4, 2019 under which 14,387 number of MTNL employees opted for VRS and the expenditure of ex-gratia on account of compensation to be borne by the DOT/Government of India through budgetary supports as per approval of cabinet. Balance amount payable to VRS opted employees as on March 31, 2024 is shown in the financial statements of the company as receivable from DOT and payable to VRS retirees, to reflect the actual position with reference to VRS scheme of 2019 of MTNL.

(vii) Note No. 82 The payables towards license fees and spectrum usage charges have been adjusted with excess pension payouts to Combined Pensioners Optees recoverable from DOT in respect of which matter is under consideration and correspondence in going on between the Company and DOT.

(viii) Note No. 82 The License agreement between Company and DOT does not have any guidance on change in method of calculation of Adjusted Gross Revenue (AGR) due to migration to Ind-AS from I-GAAP. Provisioning and payment of liability in respect of license fees and spectrum usage charges payable to DOT has been done on the basis of Ind-AS based financial statements. The amount of difference in computation of Adjusted Gross Revenue (AGR) is under consideration of DOT.

(ix) Note No. 15(iv) Dues from the Operators being on account of revenue sharing agreements are not treated as debtors and consequently are not taken into account for making provision for doubtful debts. (Also refer clause no. (k) of note no. 3 to the standalone Ind-AS financial statements).

(x) Note 58(A) Certain immovable properties transferred from Department of Telecommunications (''DoT'') to MTNL in earlier years, which were taken on lease by DoT prior to incorporation of MTNL. On March 30, 1987, both DoT and MTNL entered into a sale deed for transfer of the several movable and immovable assets from DoT to MTNL. The said transfer includes the leasehold lands and buildings which are now in possession of MTNL since the execution of the sale deed. These leasehold immovable properties have not been mutated or renewed in the name of MTNL till date. However, considering MTNL is a Public Sector Undertaking (''PSU''), the sale deed not registered at that time and executed by DOT is deemed to have been registered for the purpose of transfer of all such assets in terms of section 90 of the Indian registration act, 1908 as considered by the MTNL and stamp duty payaCle, if any, will be borne and paid by Government as and when any such occasion arises as per sale deed. Accordingly, these leasehold immovable properties have been classified by the management under the heading ''Right of Use assets''.

(xi) Note No. 60 In certain cases of freehold and leasehold land the company is having title deeds which are in the name of the Company but the value of which are not lying in the books of accounts of the Company.

(xii) Note No. 67 Regarding amount of receivable and payables (Including NLD/ILD Roaming operators) are subject to confirmation & reconciliation. The recoverable and payable from operators are under constant review and regular efforts are being taken for reconciliation and recovery of old outstanding dues. Adjustment if any may be required will be done once the reconciliation process is done.

(xiii) Note No. 81 Regarding amount payable to GPF trust is currently in the process of reconciling its liabilities to determine the provident fund payables to employees. The adjustment if any resulting from this recomputation/ reconciliation will be recognized once the reconciliation process is completed.

Our opinion is not modified in respect of the aforesaid matters.

Material uncertainty related to going concern

We draw attention to Note no. 78 in the Ind-AS financial statements, which indicates that the Company has accumulated losses and its net worth has been fully/ substantially eroded, the Company has incurred net loss/net cash loss during the current and previous year(s) and the company''s current liabilities exceeded its current assets as at the balance date. These events or conditions, along with other matters as set forth in Note 78, indicate that a material uncertainty exists that may cast significant doubt on the Company''s ability to continue as a going concern.

Further, Government of India has also approved the "Revival plan of BSNL and MTNL" by reducing employee costs, administrative allotment of spectrum for 4G services, debt restructuring by raising of sovereign guaranteed bonds, monetization of assets and in principle approval for merger of BSNL and MTNL. Further, the Company implemented the Voluntary Retirement Scheme in FY 2019-20 resulted into reduction in Employees Cost and also raised funds by issuing Bonds for Rs. 6,500 Crore in the Financial Year 2020-21 in line with cabinet note.

Recently, as per F.NO.20-28/2022-PR dated August 2, 2022, the Union Cabinet in its meeting held on February 27, 2022 has approved the raising of the Sovereign Guarantee Bonds for MTNL with the tenure of 10 years or more for the amount of Rs. 17,571 Crore with the waiver of guaranteed fee to repay its highest cost debt and restructure it with new sustainable loan. During the year ended March 31, 2023, the Company has raised Rs. 10,910/- Crore and Rs. 6,660.99 Crores raised

during year ended March 31, 2024.

Further, in view of unsustainable debts of MTNL, a Committee of Secretaries (COS) was constituted by Government of India to examine matters such as asset monetization, AGR dues, debt restructuring etc for further course of action for merger of MTNL and BSNL. However, COS is reviewing various options submitted to them for solution of various issues related to MTNL which is under process.

Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone Ind-AS financial statements of the current period. These matters were addressed in the context of our audit of the standalone Ind-AS financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matters described in the basis of qualified opinion section, we have determined the matters described below to be the key audit matters to be communicated in our report

Sr. No.	Key Audit Matter	How our audit Addressed the key Audit Matter
1	Revenue Recognition: There is an inherent risk around the accuracy of revenue recorded given the complexity of systems and the impact of changing pricing models to revenue recognition (tariff structures, incentive arrangements, discounts etc.) Refer Notes no. 57 to the standalone Ind-AS financial statements.	Our audit approach included control testing and substantive procedures covering in particular: • Testing the IT environment (i.e., IT general controls) in which billing, rating and other relevant support systems reside, including the change control procedures in place around systems that bill material revenue streams. • Testing the end-to-end reconciliation from business support systems to billing and rating systems to the general ledger. This testing includes validating material journals processed between the billing system and general ledger. • Performing tests on the accuracy of customer bill generation on sample basis and testing of a sample of the credits and discounts applied to customer bills: and testing receipts for a sample of customers back to customer invoice.
2	Uncertain Taxation Matters: The Company has material uncertain tax matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Refer Note no. 50 and 63 to the standalone Ind-AS financial statements.	We have obtained details of completed tax assessments and demands up to March 31, 2024, from the management. We assessed the management''s underlying assumptions in estimating the tax provisions and the possible outcome of the disputes. We also considered legal precedence and other rulings, including in the Company''s own cases, in evaluating management''s position on these uncertain tax positions.

3	The Company holds investments comprising investments in Joint Ventures, and subsidiaries of Rs 106.13 Crore Investment in Joint Ventures and subsidiaries accounted for at cost less any provision for impairment. Investment is tested for impairment annually. If impairment exists, the recoverable amounts of the investment in Joint Ventures and subsidiaries are estimated in order to determine the extent of the impairment loss, if any. Any such impairment loss is recognized in the income statement. Refer to Note no. 9 of standalone Ind-AS financial statements.	We assessed the net assets values of the investment as at 31 March 2024 with the Company''s investment carrying values. -discussed and evaluated the management assessment of the impairment requirement of the investment.
4	Contingent liabilities There are numbers of litigations pending before various forums against the Company and the management''s judgement is required for estimating the amount to be disclosed as contingent liability. We identified this as a key audit matter because the estimates on which these amounts are based involve a significant degree of management judgement in interpreting the cases and it may be subject to management bias. (Refer to Note no. 50 of standalone Ind-ASFinandal statements.)	We have obtained an understanding of the Company''s internal instructions and procedures in respect of estimation and disclosure of contingent liabilities and adopted the following audit procedures. - understood and tested the design and operating effectiveness of controls as established by the management for obtaining all relevant information for pending litigation cases. - discussed with the management any material developments and latest status of legal matters. - read various correspondences and related documents pertaining to litigation cases and relevant external legal opinions obtained by the management and performed substantive procedures on calculations supporting the disclosures of contingent liabilities. - examined management''s judgements and assessment whether provisions are required. - considered the management assessments of those matters that are not disclosed as the probability of material outflow is considered to be remote. - reviewed the adequacy and completeness of disclosures.

Information Other than the Standalone Ind-AS Financial Statements and Auditor''s Report Thereon

The Company''s Board of Directors are responsible for the preparation of the other information. The other information comprises the information included in the Board''s Report including Annexures to Board''s report, Management Discussion and analysis and report on Corporate Governance but does not include the standalone Ind-AS financial statements and our auditor''s report there on. The above mentioned other information is expected to be made available to us after the date of this auditor''s report.

Our opinion on the standalone Ind-AS financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone Ind-AS financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone Ind-As financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.

When we read the other information, if we conclude that there is material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of the Management and those charged with governance for the Standalone Ind-AS Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone Ind AS financial statements, management is responsible for assessing the Company''s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those Board of Directors are also responsible for overseeing the Company''s financial reporting process.

Auditor''s Responsibilities for the Audit of the Standalone Ind-AS Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone Ind-AS financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor''s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone Ind-AS financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone Ind-AS financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3) (i) of the Act, we are also responsible for expressing our opinion on whether the Company has an adequate internal financial controls system with reference to standalone Ind-AS financial statements in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management''s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company''s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor''s report to the related disclosures in the standalone Ind-AS financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor''s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the standalone Ind-AS financial statements, including the disclosures, and whether the standalone Ind-AS financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone Ind-AS financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those Charged with governance, we determine those matters that were of most significance in the audit of the standalone Ind-AS financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor''s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Matters:

The comparative Ind-AS financial statements for the year ended 31st March 2023 included in these Standalone Ind-AS financial statements have been audited by SCV & Co.LLP Chartered Accountants jointly with SPMG & Co. another firm of chartered accountants, whose audit report dated May 29, 2023 expressed modified opinion on the comparative Ind-AS financial statements.

Our opinion is not modified in respect of this matter Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2020 ("the Order"), issued by the Central Government of India in term of sub section (11) of section 143 of the Act, we give in the ''''Annexure A'''' a statement on the matters specified in paragraph 3 and 4 of the Order, to the extent applicable.

2. As required by section 143(5) of the Act, we give in "Annexure B" a statement on the matters specified by the Comptroller and Auditor General of India for the Company.

3. As per the Notification No. GSR 463(E) dated 5th June 2015 issued by the Ministry of Corporate Affairs, Government of India, Section 197 is not applicable to the Government Companies. Accordingly, reporting in accordance with the requirement of provisions of section 197(16) of the Act is not applicable on the Company.

4. As required by Section 143(3) of the Act, based on our audit we report that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit except for the matters described in the Basis for Qualified Opinion Paragraph above.

b) Except for the possible effects of the matters described in the Basis for Qualified Opinion Paragraph above, in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, Statement of Changes in Equity and the Statement of Cash Flows dealt with by this Report are in agreement with the relevant books of account.

d) In our opinion, except for the matters described in the Basis of Qualified Opinion Paragraph above, the aforesaid standalone Ind-AS financial statements comply with the Ind AS specified under Section 133 of the Act, read with relevant rules issued thereunder.

e) Being the Government Company pursuant to the Notification No. GSR 463(E) dated 5 June 2015 issued by the Ministry of Corporate Affairs, Government of India, provisions of sub-section (2) of section 164 of the Act, are not applicable to the Company.

f) The matters described in the Basis of Qualified Opinion Paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

g) With respect to the adequacy of the internal financial controls with reference to standalone Ind-AS financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure C" wherein we have expressed a modified opinion.

h) The qualification relating to the maintenance of accounts and other matter connected there with are as stated in the Basis of Qualified Opinion Paragraph above.

i) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its standalone Ind-AS financial statements. (Refer to note no. 50 of the Standalone Ind-AS financial statements).

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts;

iii. There is no amount which is required to be transferred to Investor Education and Protection Fund by the Company. Accordingly, reporting under this clause is not applicable.

iv. (a) The Management has represented that, to the best of its knowledge and belief, no funds (which are material either individually or in the aggregate) have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person or entity, including foreign entity ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

(b) The Management has represented, that, to the best of its knowledge and belief, no funds (which are material either individually or in the aggregate) have been received by the Company from any person or entity, including foreign entity ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(c) Based on the audit procedures performed as considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (i) and (ii)

of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement.

v. The company has not declared or paid any dividend during the year. Accordingly, the provision of Section 123 of the Act is not applicable.

vi. Based on our examination, which included test checks, the Company has used accounting softwares for maintaining its books of account for the financial year ended March 31, 2024 which has a feature of recording audit trail (Edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the softwares. Further, as represented by the management the edit log is maintained through a "Database trigger" maintained in the system. The database trigger can only be altered by super user/DBA. However, as confirmed by the management there are no instance of the audit trail feature being tampered with during the year ended March 31, 2024.

As Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1, 2023, reporting under Rule 11(g) of Companies (Audit & Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024.

For D K Chhajer & Co. For B M Chatrath & Co. LLP

Chartered Accountants Chartered Accountants

FRN No. 304138E FRN No. 301011E / E300025

(CA Nand Kishore Sarraf) (CA Sanjay Sarkar)

Partner Partner

Membership No. 510708 Membership No. 064305

UDIN No.: 24510708BKBMPG6167 UDIN No.: 24064305DKFEEN6978

Place: New Delhi Date: 29^th May 2024

---

Mar 31, 2023

INDEPENDENT AUDITOR''S REPORT

To

The Members of

Mahanagar Telephone Nigam Limited

Report on the Audit of the Standalone Ind-AS Financial Statements
Qualified Opinion

We have audited the accompanying standalone Ind-AS financial statements of MAHANAGAR
TELEPHONE NIGAM LIMITED ("the Company"), which comprise the Balance Sheet as at
March 31, 2023, the Statement of Profit and Loss (including Other Comprehensive Income),
the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended,
and notes to financial statements, including a summary of the significant accounting policies
and other explanatory information (hereinafter referred to as "the standalone Ind- AS financial
statements").

In our opinion and to the best of our information and according to the explanations given to us,
except for the effects of the matters described in the basis for Qualified Opinion Section of our
report, the aforesaid standalone Ind- AS financial statements give the information required by
the Companies Act, 2013 ("the Act") in the manner so required and give a true and fair view in
conformity with the Indian Accounting Standards prescribed under section 133 of the Act read
with the Companies (Indian Accounting Standards) Rules, 2015, as amended, ("Ind-AS") and
other accounting principles generally accepted in India, of the state of affairs of the Company as
at March 31, 2023, net loss, changes in equity and its cash flows for the year ended on that date.

Basis for Qualified Opinion

We conducted our audit of the standalone Ind-AS financial statements in accordance with the
Standards on Auditing specified under section 143(10) of the Act (SAs). Our responsibilities
under those Standards are further described in the Auditor''s Responsibilities for the Audit
of the standalone Ind AS Financial Statements section of our report. We are independent
of the Company in accordance with the Code of Ethics issued by the Institute of Chartered
Accountants of India (ICAI) together with the ethical requirements that are relevant to our audit
of the standalone Ind AS financial statements under the provisions of the Act and the Rules
made there under, and we have fulfilled our other ethical responsibilities in accordance with
these requirements and the ICAI''s Code of Ethics. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the
standalone Ind AS financial statements.

(i) The Net Worth of the Company has been fully eroded; The Company has incurred net cash
loss during the year ended March 31st, 2023, as well as in the previous year and the current
liabilities exceeded the current assets substantially.

Furthermore, Department of Public Enterprises vide its Office Memorandum No.
DPE/5(1)/2014-Fin. (Part-IX-A) has classified the status of the Company as "Incipient Sick
CPSE". Department of Telecommunication (DOT) has also confirmed the status vide its
issue no. I/3000697/ 2017 through file no. 19-17/2017 - SU-II.

However, the standalone Ind AS financial statements of the Company have been prepared
on a going concern basis keeping in view the majority stake of the Government of India.

Further, Union Cabinet has also approved the "Revival plan of BSNL and MTNL" by reducing
employee costs, administrative allotment of spectrum for 4G services, debt restructuring by
raising of sovereign guaranteed bonds, monetization of assets and in principle approval
for merger of BSNL and MTNL. Further, the Company had implemented the Voluntary
Retirement Scheme in FY 2019-20 resulted into reduction in Employees Cost and raised
funds by issuing Bonds for ? 6,500 crore in FY 2020-21 in line with cabinet note. Recently,
as per F.NO.20-28/2022-PR dated 2nd August 2022, the Union Cabinet in its meeting held
on 27.07.2022 has approved the raising of Sovereign guaranteed bonds for MTNL with a
tenure of 10 years or more for an amount of Rs. 17,571 crores in two calendar years i.e., 2022
& 2023 with waiver of guaranteed fee to repay its high-cost debt and restructure it with
new sustainable loan. During the year ended March 31, 2023, the company has raised Rs.
10,910/- Crore (refer note no. 78 to the standalone Ind-AS financial statements)

(ii) Bharat Sanchar Nigam Limited (BSNL):

a) The Company has certain balances receivable from and payables to Bharat Sanchar
Nigam Limited (BSNL). The net amount recoverable of Rs. 3535.34 Crores is subject to
reconciliation and confirmation. In view of non-reconciliation and non-confirmation
and in view of various pending disputes regarding claims and counter claims, we are not
in a position to ascertain and comment on the correctness of the outstanding balances
and resultant impact of the same on the standalone Ind-AS financial statements of the
Company.

b) The Company has not provided a provision for doubtful claims in respect of lapsed
CENVAT Credit due to non-payment of service tax to service providers within the
period of 180 days and due to transition provision under Goods and Service Tax (GST)
where the aforesaid CENVAT credit amounting to Rs. 115.97 Crores has not been
carried forward resulting in overstatement of Current Assets and understatement of
loss to that extent.

(iii) The Company has certain balances receivable from and payable to the Department of
Telecommunication (DOT). The net amount recoverable of Rs. 124.04 Crores, out of which
Rs.123.89 Crores is subject to reconciliation and confirmation. In view of non-reconciliation
and non-confirmation, we are not in a position to ascertain and comment on the correctness
of the outstanding balances and resultant impact of the same on standalone Ind AS financial
statements of the Company. (Also refer point no. (a) of note no. 70 to the standalone Ind-AS
financial statements).

(iv) Up to the financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL
was worked out on accrual basis as against the terms of License agreements requiring
deduction for expenditure from the gross revenue to be allowed on actual payment basis.
From financial year 2012-13, the license fee payable to the DOT has been worked out strictly
in terms of the license agreements. The Company continues to reflect the difference in
license fee arising from working out the same on accrual basis as aforesaid for the period
up to financial year 2011-12 by way of contingent liability of Rs. 140.36 Crores instead of
actual liability resulting in understatement of current liabilities and understatement of loss
to that extent. (Refer note no. 82 to the standalone Ind-AS financial statements).

(v) Except for the impairment loss of assets of CDMA units provided in earlier years, no
adjustment has been considered on account of impairment loss, if any, during the year, with
reference to Indian Accounting Standard - 36 "Impairment of Assets" prescribed under
Section 133 of the Act. In view of uncertainty in achievement of future projections made by
the Company, we are unable to ascertain and comment on the provision required in respect
of impairment in carrying value of cash generating units and its consequent impact on the
loss for the year ended March 31^st, 2023, accumulated balance of other equity and also the
carrying value of the cash generating units. (Refer note no. 72 to the standalone Ind-AS
financial statements).

(vi) The Company does not follow a system of obtaining confirmations and performing
reconciliation of balances in respect of amount receivables from trade receivables, deposits
with Government Departments and others, claim recoverable from operators and other
parties and amount payable to trade payables, claim payable to operators, and amount
payable to other parties.

Accordingly, amounts receivable from and payable to the various parties are subject to
confirmation and reconciliation. Pending such confirmation and reconciliation, the impact
thereof on the standalone financial statements are not ascertainable and quantifiable. (Refer
note no. 67 to the standalone Ind-AS financial statements).

(vii) Unlinked credit of Rs. 88.69 Crore on account of receipts from subscribers against billing
by the Company which could not be matched with corresponding receivables is appearing
as liabilities in the balance sheet. To that extent, trade receivables and current liabilities
are overstated. Pending reconciliations, the impact thereof on the standalone financial
statement are not ascertainable and quantifiable. (Also refer note no. 66 and 77 to the
standalone Ind-AS financial statements).

(viii) Property, Plant and Equipment are generally capitalized on the basis of completion
certificates issued by the engineering department or bills received by the finance
department in respect of bought out capital items or inventory issued from the Stores.
Due to delays in issuance of the completion certificates or receipt of the bills or receipt
of inventory issue slips, there are cases where capitalization of the Property, Plant and
Equipment gets deferred to next year. We are unable to comment whether the Capital
Work-in-progress (CWIP) shown in books in the current year are actually part of CWIP
or have already been commissioned. The resultant impact of the same on the standalone
Ind AS financial statement by way of depreciation and amount of Property, Plant and
Equipment capitalized in the balance sheet cannot be ascertained and quantified.

(ix) Department of Telecommunication (DOT) had raised a demand of Rs. 3,313.15 Crore in
2012-13 on account of one-time charges for 2G spectrum held by the Company for GSM
and CDMA for the period of license already elapsed and also for the remaining valid
period of license including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA for Rs 107.44 Crore has been
withdrawn by DOT on account of rectification of actual usage.

Also as explained, pending finality of the issue by the Company regarding surrender of a
part of the spectrum, crystallization of issue by the DOT in view of the claim being contested
by private operators and because of the matter being sub-judice in the Apex Court on
account of dispute by other private operators on the similar demands, the amount payable,
if any, is indeterminate. Accordingly, no liability has been created for the demand made by
DOT on this account and Rs. 3,205.71 Crores has been disclosed as contingent liability till
FY 2018-19 although no further demand is there from DOT till date. However as explained
further, the TDSAT while setting aside the levy of OTSC on spectrum allotted beyond 6.2
MHz, directed Govt. to review the demand for spectrum allotted after 1-7-2008 and that
too w.e.f, 1-1-2013 in case the spectrum beyond 6.2 MHz was allotted before 1-1-2013. As
explained, as per the TDSAT orders also no further demand has been raised till now and as
per management based on TDSAT direction the demand, if any, cannot be more than Rs.
455.15 crores the same is considered as contingent liability.

In view of the above we are not in a position to comment on the correctness of the stand
taken by the Company and the ultimate implications of the same on the standalone Ind
AS financial statement of the Company. (Also refer note no. 61 to the standalone Ind-AS
financial statements).

(x) The company has recovered Electricity Charges from the tenants, on which liability for
Goods and Services Tax (GST) has not been considered, as the expenses recovered without
installing sub meter in some of the cases. The actual impact of the same on the standalone
Ind AS financial Statement for the year ended March 31st, 2023, has not been ascertained
and quantified.

(xi) The TDS on provision for Expenses (Accrued Liability) has not been deducted under
chapter XVII- B of Income Tax Act, 1961. The actual impact of the same on the standalone
Ind-AS financial statement for the year ended March 31^st, 2023, has not been ascertained
and quantified.

(xii) The Company is making the provision for interest for late/non-payment to MSME vendors
which is subject to deduction of tax under section 194A of Income Tax Act, 1961.The actual
impact of the same on the standalone Ind-AS financial statements for the year ended March
31, 2023, is not ascertained and quantified.

(xiii) The income arising on account of rental income in respect of property occupied by the
BSNL amounting to Rs. 8.38 Crores and Rs. 33.52 Crores accrued during the year ended
March 31^st, 2023, has not been recognized in Delhi unit in the Standalone Ind-AS financial
statement. Further, the Goods and Services Tax (GST) has also not been considered in
respect of income arising on account of rented property occupied by the BSNL for both
Delhi and Mumbai unit. The accumulated impact on the standalone Ind-AS financial
statement of such income and liability under Goods and Services Tax (GST) for the current
year and preceding years is not ascertained and quantified.

(xiv) Company''s investment in its associates "United Telecom Limited (UTL)” aggregating Rs.
35.85 Crore has been classified as ''Assets-held-for-sale'' however, we have not been made
available with the ''fair value less costs to sell'' to arrive at the lower of ''carrying amount'' and
''fair value less costs to sell'' as required pursuant to the measurement principles enumerated
in IND AS 105. On our review of the latest available financial statements of the UTL, we
have noticed that the net worth has been fully eroded and is negative. Further, the said
investment has been classified as Asset-held-for-sale since year 2018, which is contrary
to the recognition principles of IND AS 105 as the expected sale has not been completed
within one year from classification. The impact of the aforesaid on the for the year ended
March 31, 2023 has not been ascertained and quantified.

(xv) The company has not recognized for loss allowance for trade receivables as per the
requirements of Ind AS 109 "Financial Instruments" amounting to Rs.68.06 Crore relating
to companies which are under insolvency process and certain trade receivables amounting
to Rs.11.55 Crore pertaining to infrastructure business, wherein there is significant increase
in credit risk.

The impact of the aforesaid on the standalone Ind-AS financial statements for the year ended
March 31, 2023 has not been ascertained and quantified.

The above basis for qualified opinion referred to in Para no. (i) to (xiii) were subject matter of
qualification in the Auditor''s Report for the year ended on March 31, 2022.

In the absence of information, the effect of which can''t be quantified, we are unable to comment
on the possible impact of the items stated in the point nos. (i), (ii)(a), (iii), (v), (vi), (vii),(viii), (ix),
(x), (xi) (xii), (xiii)., (xiv) and (xv) on the standalone Ind-AS financial statements of the Company
for the year ended on March 31, 2023.

Emphasis of Matters

We draw attention to the following notes on the standalone IND-AS financial statements being
matterspertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us.

(i) Note no. 63 of Ind-AS financial statements regarding pending dispute with the Income Tax
Department before the Hon''ble Courts regarding deduction claimed by the Company u/s
80 IA of the Income Tax Act, 1961 we are unable to comment on the adequacy or otherwise
of the provision and/ or contingency reserve held by the Company.

(ii) Note no. 64(b) Impact of accounting of claims and counter claims of MTNL with M/S M&N
Publications Ltd., in a dispute over printing, publishing and supply of telephone directories
for MTNL, will be given in the year when the ultimate collection/ payment of the same
becomes reasonably certain.

(iii) Note no. 15 &19 Amount receivable from BSNL & Other Operators have been reflected as
loans and other financial assets instead of bifurcating the same into trade receivables and
other financial assets.

(iv) Note No.80 The operations and maintenance of wireless network has been handed over
to BSNL as an outsource agency from 1.4.2021 (in case of Delhi) and 1.9.2021 (in case of
Mumbai) onwards. Pending finalization of standard operating procedures, the financial
impact of the same (if any) will be accounted for on finalization of operational modalities.

(v) Note No.70(d) The Amounts recoverable from Department of Telecommunication (DOT)

in respect of settlement of General Provident Fund (GPF) of Combined Service Optees
absorbed employees in MTNL and the matter has been under review with DOT and the
full amount of GPF including interest thereon, claimed of the Company in respect of which
correspondence is going on between the Company and DOT are continued to be shown as
recoverable from DOT and payable to GPF.

(vi) Note No.78 In pursuance of DoT letter No. F.No. 30-04/2019-PSU Affairs dt. 29^th October,
2019 and decision of Board of Directors of MTNL through circular regulation on 4^th
November, 2019, the MTNL Voluntary Retirement Scheme has been introduced with
effect from 4^th November, 2019 under which 14,387 number of MTNL employees opted for
VRS and the expenditure of ex-gratia on account of compensation to be borne by the DOT/
Government of India through budgetary supports as per approval of cabinet. Balance
amount payable to VRS opted employees as on 31 March 2023 is shown in the financial
statements of the company as receivable from DOT and payable to VRS retirees, to reflect
the actual position with reference to VRS scheme of 2019 of MTNL

(vii) Note No. 82 The payables towards license fees and spectrum usage charges have been
adjusted with excess pension payouts to Combined Pensioners Optees recoverable from
DOT in respect of which matter is under consideration and correspondence in going on
between the Company and DOT.

(viii) Note No. 82 The License agreement between Company and DOT does not have any
guidance on change in method of calculation of Adjusted Gross Revenue (AGR) due to
migration to Ind-AS from I-GAAP. Provisioning and payment of liability in respect of
license fees and spectrum usage charges payable to DOT has been done on the basis of
Ind-AS based financial statements. The amount of difference in computation of Adjusted
Gross Revenue (AGR) is under consideration of DOT.

(ix) Note No. 15(iv) Dues from the Operators being on account of revenue sharing agreements
are not treated as debtors and consequently are not taken into account for making
provision for doubtful debts. (Also refer clause no. (k) of note no. 3 to the standalone Ind-
AS financial statements).

(x) Note 58(A) Certain immovable properties transferred from Department of
Telecommunications (''DoT'') to MTNL in earlier years, which were taken on lease by D oT
prior to incorporation of MTNL. On 30 March 1987, both DoT and MTNL entered into a
sale deed for transfer of the several movable and immovable assets from DoT to MTNL.
The said transfer includes the leasehold lands and buildings which are now in possession
of MTNL since the execution of the sale deed. These leasehold immovable properties
have not been mutated or renewed in the name of MTNL till date. However, considering
MTNL is a Public Sector Undertaking (''PSU''), the sale deed not registered at that time and
executed by DOT is deemed to have been registered for the purpose of transfer of all such
assets in terms of section 90 of the Indian registration act, 1908 as considered by the MTNL
and stamp duty payable, if any, will be borne and paid by Government as and when any
such occasion arises as per sale deed. Accordingly, these leasehold immovable properties
have been classified by the management under the heading ''Right of Use assets''.

(xi) Note No. 60 In certain cases of freehold and leasehold land the company is having title
deeds which are in the name of the Company but the value of which are not lying in the
books of accounts of the Company.

Our opinion is not modified in respect of the aforesaid matters.

Material uncertainty related to going concern

We draw attention to Note no. 78 in the Ind-AS financial statements, which indicates that the
Company has accumulated losses and its net worth has been fully/ substantially eroded, the
company has incurred net loss/net cash loss during the current and previous year(s) and the
company''s current liabilities exceeded its current assets as at the balance date. These events or
conditions, along with other matters as set forth in Note 78, indicate that a material uncertainty
exists that may cast significant doubt on the Company''s ability to continue as a going concern.

Further, Government of India has also approved the "Revival plan of BSNL and MTNL"
by reducing employee costs, administrative allotment of spectrum for 4G services, debt
restructuring by raising of sovereign guaranteed bonds, monetization of assets and in principle
approval for merger of BSNL and MTNL. Further, the Company implemented the Voluntary
Retirement Scheme in FY 2019-20 resulted into reduction in Employees Cost and also raised
funds by issuing Bonds for Rs. 6,500 Crore in FY 2020-21 in line with cabinet note.

Recently, as per F.NO.20-28/2022-PR dated 2^nd August 2022, the Union Cabinet in its meeting
held on 27.02.2022 has approved the raising of the Sovereign Guarantee Bonds for MTNL with
the tenure of 10 years or more for the amount of Rs. 17,571 Crore in two financial years i.e. 2022
& 2023 with the waiver of guaranteed fee to repay its highest cost debt and restructure it with
new sustainable loan. During the year ended March 31, 2023, the company has raised Rs 10,910
Crore. Our opinion is not modified in respect of this matter.

Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the standalone Ind-AS financial statements of the current period. These matters
were addressed in the context of our audit of the standalone Ind-AS financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.

In addition to the matters described in the basis of qualified opinion section, we have determined
the matters described below to be the key audit matters to be communicated in our report

Information Other than the Standalone Ind-AS Financial Statements and Auditor''s Report
Thereon

The Company''s Board of Directors are responsible for the preparation of the other information.
The other information comprises in the Company''s Annual Report but does not include the
standalone Ind-AS financial statements and our auditor''s report there on. The above mentioned
other information is expected to be made available to us after the date of this auditor''s report.

Our opinion on the standalone Ind-AS financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone Ind-AS financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the standalone Ind-As financial statements or our knowledge
obtained during the course of our audit or otherwise appears to be materially misstated.

When we read the other information, if we conclude that there is material misstatement therein,
we are required to communicate the matter to those charged with governance.

Responsibilities of the Management and those charged with governance for the Standalone

Ind-AS Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of
the Act with respect to the preparation of these standalone Ind-AS financial statements that
give a true and fair view of the financial position, financial performance including other
comprehensive income, changes in equity and the Statement of cash flows of the Company in
accordance with the accounting principles generally accepted in India, including the Indian
Accounting Standards (Ind-AS) specified under section 133 of the Act, read with the Companies
(Indian Accounting Standards) Rules, 2015, as amended.

This responsibility also includes maintenance of adequate accounting records in accordance with
the provisions of the Act for safeguarding of the assets of the Company and for preventing and
detecting frauds and other irregularities; selection and application of appropriate accounting
policies; making judgments and estimates that are reasonable and prudent; and design,
implementation and maintenance of adequate internal financial controls, that were operating
effectively for ensuring the accuracy and completeness of the accounting records, relevant to the
preparation and presentation of the standalone Ind AS financial statements that give a true and
fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone Ind AS financial statements, management is responsible for assessing
the Company''s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Company or to cease operations, or has no realistic alternative but to do
so.

Those Board of Directors are also responsible for overseeing the Company''s financial reporting
process.

Auditor''s Responsibilities for the Audit of the Standalone Ind-AS Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone Ind-AS financial
statements as a whole are free from material misstatement, whether due to fraud or error, and
to issue an auditor''s report that includes our opinion. Reasonable assurance is a high level of

assurance but is not a guarantee that an audit conducted in accordance with SAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these standalone Ind-AS financial
statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone Ind-AS financial
statements, whether due to fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.

• Obtain an understanding of internal financial controls relevant to the audit in order to
design audit procedures that are appropriate in the circumstances. Under section 143(3)
(i) of the Act, we are also responsible for expressing our opinion on whether the Company
has an adequate internal financial controls system in place and the operating effectiveness
of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management''s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company''s
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor''s report to the related disclosures in the
standalone Ind-AS financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor''s report. However, future events or conditions may cause the Company to cease to
continue as a going concern.

• Evaluate the overall presentation, structure and content of the standalone Ind-AS financial
statements, including the disclosures, and whether the standalone Ind-AS financial
statements represent the underlying transactions and events in a manner that achieves fair
presentation.

Materiality is the magnitude of misstatements in the standalone Ind-AS financial statements
that, individually or in aggregate, makes it probable that the economic decisions of a reasonably
knowledgeable user of the financial statements may be influenced. We consider quantitative
materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating
the results of our work; and (ii) to evaluate the effect of any identified misstatements in the
financial statements.

We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.

From the matters communicated with those Charged with governance, we determine those
matters that were of most significance in the audit of the standalone Ind-AS financial statements
of the current period and are therefore the key audit matters. We describe these matters in our
auditor''s report unless law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.

Other Matters:

The comparative Ind-AS financial statements for the year ended 31st March 2022 included in
these Standalone Ind-AS financial statements have been audited by SPMG & Co. Chartered
Accountants jointly with another firm of chartered accountants, whose audit report dated 30 th
May 2022 expressed modified opinion on the comparative Ind AS financial statements.

Our opinion is not modified in respect of this matter

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2020 ("the Order"), issued by the
Central Government of India in term of sub section (11) of section 143 of the Companies Act
2013, we give in the ''''Annexure A'''' a statement on the matters specified in paragraph 3 and
4 of the Order, to the extent applicable.

2. As required by section 143(5) of the Act, we give in "Annexure B" a statement on the matters
specified by the Comptroller and Auditor General of India for the Company.

3. As per the Notification No. GSR 463(E) dated 5^th June 2015 issued by the Ministry of
Corporate Aff airs, Government of India, Section 197 is not applicable to the Government
Companies. Accordingly, reporting in accordance with the requirement of provisions of
section 197(16) of the Act is not applicable on the Company.

4. As required by Section 143(3) of the Act, based on our audit we report that:

a) We have sought and obtained all the information and explanations which to the best of
our knowledge and belief were necessary for the purposes of our audit except for the
matters described in the Basis for Qualified Opinion Paragraph above.

b) Except for the possible effects of the matters described in the Basis for Qualified Opinion
Paragraph above, in our opinion, proper books of account as required by law have
been kept by the Company so far as it appears from our examination of those books.

c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive
Income, Statement of Changes in Equity and the Statement of Cash Flows dealt with by
this Report are in agreement with the relevant books of account.

d) In our opinion, except for the matters described in the Basis of Qualified Opinion
Paragraph above, the aforesaid standalone Ind-AS financial statements comply with
the Ind AS specified under Section 133 of the Act.

e) Being the Government Company pursuant to the Notification No. GSR 463(E) dated 5
June 2015 issued by the Ministry of Corporate Affairs, Government of India, provisions
of sub-section (2) of section 164 of the Act, are not applicable to the Company.

f) The matters described in the Basis of Qualified Opinion Paragraph above, in our
opinion, may have an adverse effect on the functioning of the company.

g) With respect to the adequacy of the internal financial controls over financial reporting
of the Company and the operating effectiveness of such controls, refer to our separate
Report in "Annexure C".

h) The qualification relating to the maintenance of accounts and other matter connected
there with are as stated in the Basis of Qualified Opinion Paragraph above.

i) With respect to the other matters to be included in the Auditor''s Report in
accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as
amended in our opinion and to the best of our information and according to the
explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial
position in its standalone Ind-AS financial statements. (Refer to note no. 50 of the
Standalone Ind-AS financial statements).

ii. The Company has made provision, as required under the applicable law or
accounting standards, for material foreseeable losses, if any, on long-term contracts
including derivative contracts; and

iii. There has been no delay in transferring the amounts required to be transferred to
the Investor Education and Protection Fund by the Company.

iv. (a) The Management has represented that, to the best of its knowledge and belief,
no funds (which are material either individually or in the aggregate) have been
advanced or loaned or invested (either from borrowed funds or share premium
or any other sources or kind of funds) by the Company to or in any other person
or entity, including foreign entity ("Intermediaries"), with the understanding,
whether recorded in writing or otherwise, that the Intermediary shall, whether,
directly or indirectly lend or invest in other persons or entities identified in any
manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or
provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

(b) The Management has represented, that, to the best of its knowledge and belief,
no funds (which are material either individually or in the aggregate) have been
received by the Company from any person or entity, including foreign entity
("Funding Parties"), with the understanding, whether recorded in writing or
otherwise, that the Company shall, whether, directly or indirectly,

lend or invest in other persons or entities identified in any manner whatsoever
by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any
guarantee, security or the like on behalf of the Ultimate Beneficiaries.

(c) Based on the audit procedures that have been considered reasonable and
appropriate in the circumstances, nothing has come to our notice that has caused
us to believe that the representations under sub-clause (i) and (ii) of Rule 11(e), as

provided under (a) and (b) above, contain any material misstatement.

v. The company has not declared or paid any dividend during the year. Accordingly,
the provision of Section 123 of the Act is not applicable.

vi. Proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 for maintaining
books of account using accounting software which has a feature of recording audit
trail (edit log) facility is applicable to the Company with effect from April 1, 2023,
and accordingly, reporting under Rule 11(g) of Companies (Audit & Auditors)
Rules, 2014 is not applicable for the financial year ended March 31, 2023.

For SPMG & Co. For SCV & Co. LLP

Chartered Accountants Chartered Accountants

Firm Registration No.: 509249C Firm Registration No.: 000235N/

N500089

CA Mandeep Singh Arora CA Abhinav Khosla

Partner Partner

Membership No.: 091243 Membership No.: 087010

UDIN: 23091243BGSKCK7314 UDIN: 23087010BGZFEP2308

Place: New Delhi
Date:29th May,2023

---

Mar 31, 2021

Mahanagar Telephone Nigam LimitedReport on the Audit of the Standalone Ind-AS Financial Statements Qualified Opinion

We have audited the accompanying standalone Ind-AS financial statements of MAHANAGAR TELEPHONE NIGAM LIMITED ("the Company"), which comprise the Balance Sheet as at March 31, 2021, the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended , and notes to financial statements,including a summary of the significant accounting policies and other explanatory information (hereinafter referred to as "the standalone Ind- AS financial statements").

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the basis for Qualified Opinion Section of our report, the aforesaid standalone Ind- AS financial statements give the information required by the Companies Act, 2013 ("the Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2021, total comprehensive loss (comprising of loss and other comprehensive income), changes in equity and its cash flows for the year ended on that date.

Basis for Qualified Opinion

We conducted our audit of the standalone Ind-AS financial statements in accordance with the Standards on Auditing specified under section 143(10) of the Act (SAs). Our responsibilities under those Standards are further described in the Auditor''s Responsibilities for the Audit of the Standalone Ind AS Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India(ICAI) together with the independence requirements that are relevant to our audit of the standalone Ind AS financial statements under the provisions of the Act and the Rules made there under, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI''s Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone Ind AS financial statements.

(i) The Net Worth of the Company has been fully eroded; The Company has incurred net cash loss during the current year ended March 31, 2021 as well as in the previous year and the current liabilities exceeded the current assets substantially.

Furthermore, Department of Public Enterprises vide its Office Memorandum No. DPE/5(1)/2014-Fin. (Part-IX-A) has classified the status of the Company as "Incipient Sick CPSE". Department of Telecommunication (DOT) has also confirmed the status vide its issue no. I/3000697/ 2017 through file no. 19-17/2017 - SU-II.

However, the standalone Ind AS financial statements of the Company have been prepared on a going concern basis keeping in view the majority stake of the Government of India and accompanying management note.

Further, Union Cabinet has also approved the "Revival plan of BSNL and MTNL" by reducing employee costs, administrative allotment of spectrum for 4G services, debt restructuring by raising of sovereign guarantee bonds, monetization of assets and in principle approval for merger of BSNL and MTNL. Further, the Company has implemented the Voluntary Retirement Scheme in FY 2019-20 resulted into reduction in Employees cost and also raised fund by issuing Bonds for Rs. 6,500 crores in FY 2020-21in line with cabinet note.(Also refer note no. 76 to the standalone Ind-AS financial statements)

(ii) Bharat Sanchar Nigam Limited (BSNL):

a) The Company has certain balances receivables from and payables to Bharat Sanchar Nigam Limited (BSNL). The net amount recoverable of Rs.3,608.71Crores is subject to reconciliation and confirmation. In view of non-reconciliation and non-confirmation and also in view of various pending disputes regarding claims and counter claims, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the standalone Ind-AS financial statements of the Company. (Also refer point no. (a) of note no. 63 to the standalone Ind-AS financial statements).

b) The Company has not provided a provision for doubtful claims in respect of lapsed CENVAT Credit due to non-payment of service tax to service providers within the period of 180 days and due to transition provision under Goods and Service Tax (GST) where the aforesaid CENVAT credit amounting to Rs. 144.66 Crores has not been carried forwardresulting in overstatement of current assets and understatement of loss to that extent.

(iii) The Company has certain balances receivables from and payables to Department of Telecommunication (DOT). The net amount recoverable of Rs. 299.07Crores, Out of which Rs. 298.92 Crores is subject to reconciliation and confirmation. In view of non- reconciliation and non-confirmation, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the standalone Ind-AS financial statements of the Company. (Also refer point no. (a) of note no. 68 to the standalone Ind-AS financial statements).

(iv) Up to financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL was worked out on accrual basis as against the terms of License agreements requiring deduction for expenditure from the gross revenue to be allowed on actual payment basis. From financial year 2012-13, the license fee payable to the DOT has been worked out strictly in terms of the license agreements. The Company continues to reflect the difference in license fee arising from working out the same on accrual basis as aforesaid for the period up to financial year 2011-12 by way of contingent liability of Rs. 140.36 Crores instead of actual liability resulting in understatement of current liabilities and understatement of loss to that extent. (Also refer note no. 78 to the standalone Ind-AS financial statements).

(v) The Company had allocated the overheads towards capital works in a manner which is not in line with the accepted accounting practices and Indian Accounting Standard -16 "Property, Plant and Equipment" prescribed under Section 133 of the Act, the same results into overstatement of capital work in progress/ property, plant and equipment and understatement of loss. The actual impact of the same on the standalone Ind-AS financial statements for year is not ascertained and quantified. (Also refer note no. 38, and 39 to the standalone Ind-AS financial statements).

(vi) Except for the impairment loss of assets of CDMA units provided in earlier years, no adjustment has been considered on account of impairment loss, if any, during the year, with reference to Indian Accounting Standard - 36 "Impairment of Assets" prescribed under Section 133 of the Act. In view of uncertainty in achievement of future projections made by the Company, we are unable to ascertain and comment on the provision required in respect of impairment in carrying value of cash generating units and its consequent impact on the loss for theyear ended March 31, 2021, accumulated balance of other equity and also the carrying value of the cash generating units. (Also refer note no. 70 to the standalone Ind-AS financial statements).

(vii) The Company does not follow a system of obtaining confirmations and performing reconciliation of balances in respect of amount receivables from trade receivables, deposits with Government Departments and others, claim recoverable from operators and others parties and amount payables to trade payables, claim payable to operators, and amount payable to other parties. Accordingly, amount receivables from and payables to the various parties are subject to confirmation and reconciliation. Pending such confirmation and reconciliations, the impact thereof on the standalone Ind-AS financial statements are not ascertainable and quantifiable. (Also refer note no. 65 to the standalone Ind-AS financial statements).

(viii) Unlinked credit of Rs. 88.22Crores on account of receipts from subscribers against billing by the Company which could not be matched with corresponding receivables is appearing as liabilities in the balance sheet. To that extent, trade receivables and current liabilities are overstated. Pending reconciliations, the impact thereof on the standalone Ind-AS financial statements are not ascertainable and quantifiable. (Also refer note no. 64 and 75 to the standalone Ind-AS financial statements).

(ix) Property, Plant and Equipment are generally capitalized on the basis of completion certificates issued by the engineering department or bills received by finance department in respect of bought out capital items or inventory issued from the Stores. Due to delays in issuance of the completion certificates or receipt of the bills or receipt of inventory issue slips, there are cases where capitalization of the Property, Plant and Equipment gets deferred to next year. The resultant impact of the same on the statement of profit and loss by way of depreciation and amount of Property, Plant and Equipment capitalized in the balance sheet cannot be ascertained and quantified.

(x) Certain Land and Buildings transferred to MTNL from DOT in earlier years have been reflected as leasehold. In the absence of relevant records, we are not in a position to comment on the classification, capitalization and amortization of the same as leasehold and also the consequential impacts, if any, of such classification, capitalization and amortization not backed by relevant records. In the absence of relevant records, impact of such classification on the standalone Ind-AS financial statements cannot be ascertained and quantified.

(xi) Department of Telecommunication (DOT) had raised a demand of Rs. 3313.15 Crores in 2012-13 on account of one time charges for 2G spectrum held by the Company for GSM and CDMA for the period of license already elapsed and also for the remaining valid period of license including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA for Rs 107.44 Crores has been withdrawn by DOT on account of rectification of actual usage.

Also as explained, pending finality of the issue by the Company regarding surrender of a part of the spectrum, crystallization of issue by the DOT in view of the claim being contested by private operators and because of the matter being sub-judice in the Apex Court on account of dispute by other private operators on the similar demands, the amount payable, if any, is indeterminate. Accordingly, no liability has been created for the demandmade by DOT on this account and Rs. 3205.71 Crores has been disclosed as contingent liability till FY 2018-19 although no further demand is there from DOT till date. However as explained further, the TDSAT while setting aside the levy of OTSC on spectrum allotted beyond 6.2 MHz , directed Govt. to review the demand for spectrum allotted after 1-7-2008 and that too w.e.f 1-1-2013 in case the spectrum beyond 6.2 MHz was allotted before 1-1-2013. As explained , as per the TDSAT orders also no further demand is raised till now and as per management based on TDSAT direction the demand, if any, cannot be more than Rs.455.15 crores the same is consideredas contingent liability.

In view of the above we are not in a position to comment on the correctness of the stand taken by the Company and the ultimate implications of the same on the standalone Ind-AS financial statements of the Company. (Also refer note no. 59 to the standalone Ind-AS financial statements).

(xii) The Company has deducted/collected Liquidated Damages and withheld charges from vendors on account of non-fulfilment of contracted conditions, on which Goods and Services Tax (GST) has not been considered. The actual impact of the same on the standalone Ind-AS financial statements for year is not ascertained and quantified.

(xiii) The company has recovered Electricity Charges from the tenants, on which liability for Goods and Services Tax (GST) has not been considered, as the expenses recovered without installing sub meter. The actual impact of the same on the standalone Ind- AS financial statements for the year has not been ascertained and quantified

(xiv) The company has not reversed the provision for expense (Accrued Liability) on regular intervals, thereby the provision for expenses account has been accumulated significantly. Accordingly, the provision for expenses remain unadjusted. Further TDS on provision for Expenses has not been deducted under chapter XVII- B of Income Tax Act, 1961. The actual impact of the same on the standalone Ind- AS financial statements for the year has not been ascertained and quantified

(xv) The Company is making the provision for interest for late/non-payment to MSME vendors which is subject to deduction of tax under section 194A of Income Tax Act, 1961.The actual impact of the same on the standalone Ind- AS financial statements for year is not ascertained and quantified.

(xvi) The income arising on account of rental in respect of property occupied by the BSNL amounting to Rs. 25.78 Crores accrued during the current financial year has not been recognised in the standalone Ind- AS financial statements. Accordingly, the Goods and Services Tax (GST) has also not been considered. The accumulated impact on the standalone Ind- AS financial statements of such income for the current year and preceding years is not ascertained and quantified.

The above basis for qualified opinion referred to in Para no. (i) to (xii) were subject matter of qualification in the Auditor''s Report for the year ended on March 3lst , 2020.

In the absence of information, the effect of which can''t be quantified, we are unable to comment on the possible impact of the items stated in the point nos. (i), (ii)(a), (ii)(b), (iii), (v), (vi), (vii),(viii), (ix), (x), (xi) ,(xii), (xiii), (xiv), (xv) and (xvi) on the standalone Ind-AS financial statements of the Company for the year ended on 31^st March 2021.

Emphasis of Matters

We draw attention to the following notes on the standalone IND-AS financial statements being matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us. Our opinion is not qualified in respect of these matters:

(i) Refer note no. 61 to the standalone Ind-AS financial statements regarding pending dispute with the Income Tax Department before the Hon''ble Courts regarding deduction claimed by the Company u/s 80 IA of the Income Tax Act, 1961 we are unable to comment on the adequacy or otherwise of the provision and / or contingency reserve held by the Company

(ii) Point no. (a) of note no. 62 to the standalone Ind-AS financial statements regarding impact of accounting of claims and counter claims of MTNL with M/S M&N Publications Ltd., in a dispute over printing, publishing and supply of telephone directories for MTNL, will be given in the year when the ultimate collection / payment of the same becomes reasonably certain

(iii) Amount receivable from BSNL & Other Operators have been reflected as loans and other financial assets instead of bifurcating the same into trade receivables and other financial assets (Also refer note no. 10, 15 and 18 to the standalone Ind-AS financial statements).

(iv) The Amounts recoverable from Department of Telecommunication (DOT) in respect of settlement of General Provident Fund (GPF) of Combined Service Optees absorbed employees in MTNL and the matter has been under review with DOT and the full amount of GPF including interest thereon, claimed of the Company in respect of which correspondence is going on between the Company and DOT are continued to be shown as recoverable from DOT and payable to GPF in the standalone Ind-AS financial statements and further explained in point no. (d) of Note no. 68 to the standalone Ind-AS financial statements.

(v) The payables towards license fees and spectrum usage charges have been adjusted with excess pension payouts to Combined Pensioners Optees recoverable from DOT in respect

of which matter is under consideration and correspondence in going on between the Company and DOT.

(vi) The License agreement between Company and DOT does not have any guidance on change in method of calculation of Adjusted Gross Revenue (AGR) due to migration to IND-AS from I-GAAP. Provisioning and payment of liability in respect of license fees and spectrum usage charges payable to DOT has been done on the basis of Ind-AS based financial statements. The amount of difference in computation of Adjusted Gross Revenue (AGR) is under consideration of DOT.

(vii) In certain cases of freehold and leasehold land the company is having title deeds which are in the name of the Company but the value of which are not lying in books of accounts of the Company.

(viii) Income arising on account of Revenue Sharing with BSNL in respect of lease circuits provided has not been recognized in terms of Memorandum of Understanding (MOU) between BSNL and MTNL. As per MOU, revenue and expenditure will be based on the price offered to the customers after applying the discount, if any at the time of acquiring the business. However, Revenue has been recognized on the basis of available information which is either based on the Company Card Rates or Old rates of BSNL. In Some Cases, BSNL has given the information in respect of updated rated but the same has not been considered at the time of booking of revenue sharing with BSNL. In the absence of relevant updated records, we are not in a position to comment on the impact thereof on the standalone Ind-AS financial statements.

(ix) Dues from the Operators being on account of revenue sharing agreements are not treated as debtors and consequently are not taken into account for making provision for doubtful debts. (Also refer clause no. (k)of note no. 3 to the standalone Ind-AS financial statements).

(x) In pursuance DoT letter No. F.No. 30-04/2019-PSU Affairs dt. 29 October, 2019 and decision of Board of Directors of MTNL through circular regulation on 4th November,2019, the MTNL Voluntary Retirement Scheme has been introduced with effect from 4th November, 2019, under which 14,387 number of MTNL employees opted for VRS and the expenditure of ex-gratia on account of compensation to be borne by the DOT/Government of India through budgetary supports as per approval of cabinet. Balance amount payable to VRS opted employees as on 31 March 2021 is shown in the financial statements of the company as receivable from DOT and payable to VRS retirees, to reflect the actual position with reference to VRS scheme of 2019 of MTNL. (Also refer note no. 76 to the standalone Ind AS financial statements).

Our opinion is not modified in respect of aforesaid matters.

Material uncertainty related to going concern

We draw attention to Note no. 76 in the financial statements, which indicates that the company has accumulated losses and its net worth has been fully/ substantially eroded, the company has incurred net loss/net cash loss during the current and previous year(s) and the company''s current liabilities exceeded its current assets as at the balance date. These events or conditions, along with other matter as set forth in Note 76, indicate that a material uncertainty exists that may cast significant doubt on the company''s ability to continue as a going concern.

Further, Union Cabinet has also approved the "Revival plan of BSNL and MTNL" by reducing employee costs, administrative allotment of spectrum for 4G services, debt restructuring by raising of sovereign guarantee bonds, monetization of assets and in principle approval for merger of BSNL and MTNL.Further, the Company has implemented the Voluntary Retirement Scheme in FY 2019-20 resulted into reduction in Employees Cost and also raised funds by issuing Bonds for Rs. 6,500 crores in FY 2020-21 in line with cabinet note.

Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone Ind-AS financial statements of the current period. These matters were addressed in the context of our audit of the standalone Ind-AS financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matters described in the basis of qualified opinion section, we have determined the matters described below to be the key audit matters to be communicated in ourreport

Sr. No.	Key Audit Matter	How our audit Addressed the key Audit Matter
1	Revenue Recognition: There is an inherent risk around the accuracy of revenue recorded given the complexity of systems and the impact of changing pricing models to revenue recognition (tariff structures, incentive arrangements, discounts etc.) Refer Notes no. 57 to the Standalone Ind-AS Financial Statements.	We assessed the Company''s process to identify the impact of adoption of the new revenue accounting standard. Our audit approach including controls testing and substantive procedures covering in particular: • Testing the IT environment in which billing, rating and other relevant support systems reside, including the change control procedures in place around systems that bill material revenue streams. • Testing the end to end reconciliation from business support systems to billing and rating systems to the general ledger. This testing includes validating material journals processed between the billing system and general ledger. • Performing tests on the accuracy of customer bill generation on sample basis and testing of a sample of the credits and discounts applied to customer bills: and testing receipts for a sample of customers back to customer invoice.
2	Uncertain Taxation Matters: The Company has material uncertain tax matters under dispute which involves significant judgment to determine the possible outcome of these disputes. Refer Notes no. 50 and 61 to the Standalone Ind-AS Financial Statements.	We have obtained details of completed tax assessments and demands up to March 31, 2021from management. We assessedthe management''s underlying assumptions in estimating the tax provisions and the possible outcome of the disputes. We also considered legal precedence and other rulings, including in the company''s own cases, in evaluating management''s position on these uncertain tax positions.

Sr. No.	Key Audit Matter	How our audit Addressed the key Audit Matter
3	The Company holds investments comprising investments in Associates, Joint Ventures and subsidiaries of Rs 106.13 Crores Investments in Associates, Joint Ventures and subsidiaries accounted forat cost less any provision for impairment Investments are tested for impairment annually. If impairment exists, the recoverable amounts of the investment in Associates, Joint Ventures and subsidiaries are estimated in order to determine the extent of the impairment loss, if any. Any such impairment loss is recognized in the income statement. Refer to Note no.9 of standalone Ind-AS Financial statements.	We assessed the net assets values of the investments as at 31 March 2021 with the Company''s investment carrying values. As a result of our work, we agreed with management that the carrying values of the investments held by the Company are supportable in the context of the Company''s standalone Ind-AS financial statements taken as a whole.
4	Contingent liabilities There are number of litigations pending before various forums against the company and the management''s judgement is required for estimating the amount to be disclosed as contingent liability. We identified this as a key audit matter because the estimates on which these amounts are based involve a significant degree of management judgement in interpreting the cases and it may be subject to management bias. (Refer to Note no. 50 of standalone Ind-AS Financial statements.)	We have obtained an understanding of the Company''s internal instructions and procedures in respect of estimation and disclosure of contingent liabilities and adopted the following audit procedures. - understood and tested the design and operating effectiveness of controls as established by the management for obtaining all relevant information for pending litigation cases; - discussed with the management any material developments and latest status of legal matters; - read various correspondences and related documents pertaining to litigation cases and relevant external legal opinions obtained by the management and performed substantive procedures on calculations supporting the disclosures of contingent liabilities; - examined management''s judgements and assessment whether provisions are required; - considered the management assessments of those matters that are not disclosed as the probability of material outflow is considered to be remote; - reviewed the adequacy and completeness of disclosures; Based on the above procedures performed, the estimation and disclosures of contingent liabilities are considered to be adequate and reasonable. (Refer to note no. 50 of the Standalone Ind-AS financial statements).

Information Other than the Standalone Ind-AS Financial Statements and Auditor''s Report Thereon

The Company''s Board of Directors is responsible for the preparation of the other information. The other information comprises the information included in the management discussion and analysis, Director''s Report, Corporate Governance report and Other Information included in Company''s Annual Report,but does not include the standalone Ind-AS financial statements and our auditor''s report thereon.

Our opinion on the standalone Ind-AS financial statements does not cover the other information and we do not express any form of assurance conclusionthereon.

In connection with our audit of the standalone Ind-AS financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materiallyinconsistent with the standalone Ind-AS financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materiallymisstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information,we are required to report that fact. We have nothing to report in thisregard.

Responsibilities of the Management and those charged with governance for the Standalone

Ind-AS Financial Statements

The Company''s Board of Directors is responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these standalone Ind-AS financial statements that give a true and fair view of the financial position, financial performance, total comprehensive loss, changes in equity and cash flows of the Company in accordance with the Ind AS and other accounting principles generally accepted in India. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind-AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud orerror.

In preparing the standalone Ind-AS financial statements, management is responsible for assessing the Company''s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to doso.

The Board of Directors are responsible for overseeing the Company''s financial reporting process.

Auditor''s Responsibilities for the Audit of the Standalone Ind-AS Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone Ind-AS financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor''s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone Ind-AS financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone Ind-AS financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that issufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3) (i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management''s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company''s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor''s report to the related disclosures in the standalone Ind-AS financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor''s report. However, future events or conditions may cause the Company to ceaseto continue as a going concern.

• Evaluate the overall presentation, structure and content of the standalone Ind-AS financial statements, including the disclosures, and whether the standalone Ind-AS financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone Ind-AS financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,

and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone Ind-AS financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor''s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report ) Order, 2016 ( "the Order"), issued by the Central Government of India in term of sub section (11) of section 143 of the Companies Act 2013, we give in the ''''Annexure A'''' a statement on the matters specified in paragraph 3 and 4 of the Order , to the extent applicable.

2. As required by section 143(5) of the Act, we give in "Annexure B" a statement on the matters specified by the Comptroller and Auditor General of India for the Company.

3. As required by Section 143(3) of the Act, based on our audit we reportthat:

a) We have sought and obtained all the information and explanations which to thebestofourknowledgeand belief were necessary for the purposes of ouraudit.

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of thosebooks.

c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, Statement of Changes in Equity and the Statement of Cash Flow dealt with by this Report are in agreement with the relevant books ofaccount.

d) In our opinion, the aforesaid standalone Ind-AS financial statements comply with the INDAS specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules,2014.

e) Being the Government Company pursuant to the Notification No. GSR 463(E) dated 5 June 2015 issued by the Ministry of Corporate Affairs, Government of India, provisions of sub-section (2) of section 164 of the Act, are not applicable to the Company.

f) The going concern matter described in material uncertainty related to going concern paragraph above, in our opinion, may have an adverse effect on the functioning of the company.

g) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure C". Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company''s internal financial controls over financialreporting.

h) As per the Notification No. GSR 463(E) dated 5 June 2015 issued by the Ministry of Corporate Affairs, Government of India, Section 197 is not applicable to the Government Companies. Accordingly, reporting in accordance with requirement of provisions of section 197 (16) of the Act is not applicable on the Company.

i) With respect to the other matters to be included in the Auditor''s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given tous:

i. The Company has disclosed the impact of pending litigations on its financial position in its standalone Ind-AS financial statements.(Refer to note no. 50 of the Standalone Ind-AS financial statements).

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts; and

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

For Vinod Kumar & Associates For SPMG & Co.

Chartered Accountants Chartered Accountants

Firm Registration No.: 002304N Firm Registration No.: 509249C

(CA Mukesh Dadhich) (CA Vinod Gupta)

Partner Partner

Membership No.: 511741 Membership No.: 090687

UDIN: 21511741AAAAIB6329 UDIN: 21090687AAAAGB4619

Place: New Delhi Date: 29 June, 2021

---

Mar 31, 2018

Report on the Standalone Ind-AS Financial Statements

We have audited the accompanying standalone Ind-AS financial statements of MAHANAGAR TELEPHONE NIGAM LIMITED, (“the Company’), which comprise the Balance Sheet as at 31st March, 2018, and the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Standalone Ind-AS Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone Ind-AS financial statements that give a true and fair view of the State of Affairs (financial position), profit or loss (financial performance including other comprehensive income), cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind-AS) prescribed under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities, selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that are operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind-AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error Auditor’s Responsibility

Our responsibility is to express an opinion on these standalone Ind-AS financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing Standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under

We conducted our audit of the standalone Ind-AS financial statements in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the standalone Ind-AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the standalone Ind-AS financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the standalone Ind-AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the standalone Ind-AS financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the standalone Ind-AS financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone Ind-AS financial statements.

Basis for Qualified Opinion

(i) The Net Worth of the Company has been fully eroded; The Company has incurred net cash loss during the current year ended March 31, 2018 as well as in the previous year and the current liabilities exceeded the current assets substantially.

Furthermore, Department of Public Enterprises vide its Office Memorandum No. DPE/5(1)/2014-Fin. (Part-IX-A) has classified the status of the Company as “Incipient Sick CPSE”. Department of Telecommunication (DOT) has also confirmed the status vide its issue no. I/3000697/2017 through file no. 19-17/2017 - SU-II.

However, the standalone Ind-AS financial statements of the Company have been prepared on a going concern basis keeping in view the majority stake of the Government of India and accompanying management note. (Also refer note no. 76 to the standalone Ind-AS financial statements)

(ii) Bharat Sanchar Nigam Limited (BSNL):

a) The Company has certain balances receivables from and payables to Bharat Sanchar Nigam Limited (BSNL). The net amount recoverable of Rs. 3,387.15 Crores is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation and also in view of various pending disputes regarding claims and counter claims, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the standalone Ind-AS financial statements of the Company. (Also refer point no. (a) of note no. 63 to the standalone Ind-AS financial statements)

b) Income arising on account of Revenue Sharing with BSNL in respect of lease circuits provided has not been recognized in terms of Memorandum of Understanding (MOU) between BSNL and MTNL. As per MOU, revenue and expenditure will be based on the price offered to the customers after applying the discount, if any at the time of acquiring the business. However, Revenue has been recognized on the basis of available information which is either based on the Company Card Rates or Old rates of BSNL. In Some Cases, BSNL has given the information in respect of updated rated but the same has not been considered at the time of booking of revenue sharing with BSNL. In the absence of relevant updated records, we are not in a position to comment on the impact thereof on the standalone Ind-AS financial statements.

c) The Company has not provided a provision for doubtful claims in respect of lapsed CENVAT Credit due to non-payment of service tax to service providers within the period of 180 days and due to transition provision under Goods and Service Tax (GST) where the aforesaid CENVAT credit amounting to Rs. 115.61 Crores has not been carried forward or ineligible credits amounting to Rs. 50.26 Crores excessively carried forward to TRANS-1 under GST laws resulting in overstatement of current assets and understatement of loss to that extent.

d) The Company has recognized Income and Expenditure arising on account of revenue sharing with BSNL excluding of Service Tax and Goods and Service Tax (GST) where the demand note/invoices are raised to and received from BSNL inclusive of the aforesaid taxes but the accounting treatment of the aforesaid taxes are being recognized by the Company at the time of settlement with BSNL. In the absence of any information/working, the impact thereof on the standalone Ind-AS financial statements cannot be ascertained and quantified.

(iii) The Company has certain balances receivables from and payables to Department of Telecommunication (DOT). The net amount recoverable ofRs. 6,464.15 Crores is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the standalone Ind-AS financial statements of the Company. (Also refer point no. (a) of note no. 68 to the standalone Ind-AS financial statements).

(iv) Up to financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL was worked out on accrual basis as against the terms of License agreements requiring deduction for expenditure from the gross revenue to be allowed on actual payment basis. From financial year 2012-13, the license fee payable to the DOT has been worked out strictly in terms of the license agreements. The Company continues to reflect the difference in license fee arising from working out the same on accrual basis as aforesaid for the period up to financial year 2011-12 by way of contingent liability ofRs. 140.36 Crores instead of actual liability resulting in understatement of current liabilities and understatement of loss to that extent. (Also refer note no. 58 to the standalone Ind-AS financial statements).

(v) The Company continues to allocate the overheads towards capital works in a manner which is not in line with the accepted accounting practices and Indian Accounting Standard - 16 “Property, Plant and Equipment” prescribed under Section 133 of the Act, the same results into overstatement of capital work in progress/ property, plant and equipment and understatement of loss. The actual impact of the same on the standalone Ind-AS financial statements for year is not ascertained and quantified. (Also refer note no. 36 and 39 to the standalone Ind-AS financial statements).

(vi) Except for the impairment loss of assets of CDMA units provided in earlier years, no adjustment has been considered on account of impairment loss, if any, during the year, with reference to Indian Accounting Standard - 36 “Impairment of Assets” prescribed under Section 133 of the Act. In view of uncertainty in achievement of future projections made by the Company, we are unable to ascertain and comment on the provision required in respect of impairment in carrying value of cash generating units and its consequent impact on the loss for the year, accumulated balance of reserve and surplus and also the carrying value of the cash generating units. (Also refer note no. 70 to the standalone Ind-AS financial statements).

(vii) The Company does not follow a system of obtaining confirmations and performing reconciliation of balances in respect of amount receivables from trade receivables, deposits with Government Departments and others, claim recoverable from operators and others parties and amount payables to trade payables, claim payable to operators, and amount payable to other parties. Accordingly, amount receivables from and payables to the various parties are subject to confirmation and reconciliation. Pending such confirmation and reconciliations, the impact thereof on the standalone Ind-AS financial statements are not ascertainable and quantifiable. (Also refer note no. 65 to the standalone Ind-AS financial statements).

(viii) Dues from the Operators are not taken into account for making provision for doubtful debts. In the absence of any working, the impact thereof on the standalone Ind-AS financial statements cannot be ascertained and quantified. (Also refer clause no. (k) of note no. 3 to the standalone Ind-AS financial statements).

(ix) (a) In Delhi Wireless Unit, reconciliation of balances of subscriber’s deposits as per subsidiary records with financial books (WFMS) is still in progress and the impact, if any, of the differences arising out of such reconciliation on standalone Ind-AS financial statements cannot be ascertained and quantified at present.

(b) Unlinked credit of Rs. 37.68 Crores on account of receipts from subscribers against billing by the Company which could not be matched with corresponding receivables is appearing as liabilities in the balance sheet. To that extent, trade receivables and current liabilities are overstated. (Also refer note no. 64 and 75 to the standalone Ind-AS financial statements).

(x) Property, Plant and Equipment are generally capitalized on the basis of completion certificates issued by the engineering department or bills received by finance department in respect of bought out capital items or inventory issued from the Stores. Due to delays in issuance of the completion certificates or receipt of the bills or receipt of inventory issue slips, there are cases where capitalization of the Property, Plant and Equipment gets deferred to next year. The resultant impact of the same on the statement of profit and loss by way of depreciation and amount of Property, Plant and Equipment capitalized in the balance sheet cannot be ascertained and quantified.

(x) Property, Plant and Equipment are generally capitalized on the basis of completion certificates issued by the engineering department or bills received by finance department in respect of bought out capital items. Due to delays in issuance of the completion certificates or receipt of the bills, there are cases where capitalization of the Property, Plant and Equipment gets deferred to next year. The resultant impact of the same on the statement of profit and loss by way of depreciation and amount of Property, Plant and Equipment capitalized in the balance sheet cannot be ascertained and quantified.

(xi) Certain Land and Buildings transferred to MTNL from DOT in earlier years have been reflected as leasehold. In the absence of relevant records, we are not in a position to comment on the classification, capitalization and amortization of the same as leasehold and also the consequential impacts, if any, of such classification, capitalization and amortization not backed by relevant records. In the absence of relevant records, impact of such classification on the standalone Ind-AS financial statements cannot be ascertained and quantified.

(xii) Department of Telecommunication (DOT) had raised a demand ofRs. 3313.15 Crores in 2012-13 on account of one time charges for 2G spectrum held by the Company for GSM and CDMA for the period of license already elapsed and also for the remaining valid period of license including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA has been revised by Rs. 107.44 Crores on account of rectification of actual usage.

Also as explained, pending finality of the issue by the Company regarding surrender of a part of the spectrum, crystallization of issue by the DOT in view of the claim being contested by the Company and because of the matter being sub-judice in the Apex Court on account of dispute by other private operators on the similar demands, the amount payable, if any, is indeterminate. Accordingly, no liability has been created for the demand made by DOT on this account and Rs. 3205.71 Crores has been disclosed as contingent liability.

In view of the above we are not in a position to comment on the correctness of the stand taken by the Company and the ultimate implications of the same on the standalone Ind-AS financial statements of the Company. (Also refer note no. 57 to the standalone Ind-AS financial statements).

(xiii) In Mumbai Unit, the Company has been awarded a long duration contract from Larsen & Turbro (L&T) for design, development, implementation & Maintenance of CCTV based surveillance system for Mumbai City. The Company has not recognized profit/loss on the basis of percentage of completion method of accounting as prescribed under Indian Accounting Standard (Ind-AS) - 18 on “Revenue”. In the absence of any working/detail, we are not in a position to comment on the impact thereof on the standalone Ind-AS financial statements. (Also refer note no. 77 to the standalone Ind-AS financial statements).

(xiv) During the year, the Company has booked an income amounting to Rs. 136.74 Crores as Other Income on account of difference between the estimated amounts of Pension Payout Orders (PPO), accounted for in the past years pertaining to Delhi Units and actual arrived on completion of issuance of PPO’s by the Department of Telecommunication (DOT), Government of India (GOI). Similar effect of the same in respect of Mumbai Units has not been given during the year ended 31st March, 2018 due to non-finalization of the actual reports by the Company. In the absence of relevant records, we are not in a position to comment on the impact thereof on the standalone Ind-AS financial statements. (Also refer note no. 78 to the standalone Ind-AS financial statements).

In the absence of information, the effect of which can’t be quantified, we are unable to comment on the possible impact of the items stated in the point nos. (i), (ii)(a), (ii)(b), (ii)(d), (iii), (v), (vi), (vii), (viii), (ix)(a), (x),(xi), (xii), (xiii), and (xiv) on the standalone Ind-AS financial statements of the Company for the year ended on 31st March 2018.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the aforesaid standalone Ind-AS financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including the Indian Accounting Standards (Ind-AS), of the state of affairs (financial position) of the Company as at 31st March, 2018 and its loss (financial performance including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.

Emphasis of Matters

We draw attention to the following notes on the standalone Ind-AS financial statements being matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us. Our opinion is not qualified in respect of these matters:

(i) Impairment in the value of investments in subsidiary, joint ventures, and associates are considered temporary in nature by management and no provision for impairment in value of these investments has been done.

(ii) Refer note no. 61 to the standalone Ind-AS financial statements regarding the adequacy or otherwise of the provision and / or contingency reserve held by the Company with reference to pending dispute with the Income Tax Department before the Hon’ble Courts regarding deduction claimed by the Company u/s 80 IA of the Income Tax Act,1961.

(iii) Point no. (a) of note no. 62 to the standalone Ind-AS financial statements regarding accounting of claims and counter claims of MTNL with M/S M&N Publications Ltd., in a dispute over printing, publishing and supply of telephone directories for MTNL, in the year when the ultimate collection / payment of the same becomes reasonably certain.

(iv) Classification of trade receivables as unsecured without considering the security deposit which the Company has received from the subscribers. (Also refer note no. 15 to the standalone Ind-AS financial statements).

(v) Amount receivable from BSNL & Other Operators have been reflected as loans and other financial assets instead of bifurcating the same into trade receivables and other financial assets. (Also refer note no. 9, 15 and 18 to the standalone Ind-AS financial statements).

(vi) Disclosure of consumption of imported and indigenous stores and spares and percentage to the total consumption as required by Division II of Schedule III of the Companies Act, 2013 has not been made by the Company in the standalone Ind-AS financial statements.

(vii) The Amounts recoverable from Department of Telecommunication (DOT) in respect of settlement of General Provident Fund (GPF) of Combined Service Optee absorbed employees in MTNL; wherein DOT has not accepted/sanctioned the full amount of GPF including interest thereon, claimed of the Company in respect of which correspondence in going on between the Company and DOT are continued to be shown as recoverable from DOT and payable to GPF in the standalone Ind-AS financial statements and further explained in point no. (d) of Note no. 68 to the standalone Ind-AS financial statements.

(viii) The payables towards license fees and spectrum usage charges have been adjusted with excess pension payouts to Combined Pensioners Optees recoverable from DOT in respect of which matter is under consideration and correspondence in going on between the Company and DOT

(ix) The License agreement between Company and DOT does not have any guidance on change in method of calculation of Adjusted Gross Revenue (AGR) due to migration to Ind-AS from I-GAAP Provisioning and payment of liability in respect of license fees and spectrum usage charges payable to DOT has been done on the basis of Ind-AS based financial statements. The amount of difference in computation of Adjusted Gross Revenue (AGR) is under consideration of DOT

(x) In certain cases of freehold and leasehold land the company is having title deeds which are in the name of the Company but the value of which are not lying in books of accounts of the Company.

Our opinion is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”) issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure - ‘A’ a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by Section 143(5) of the Act, we give in Annexure - ‘B’, a statement on the matters specified by the Comptroller and Auditor-General of India for the Company

3. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit except for the matters described in point nos. (i), (ii)(a), (ii)(b), (ii)(d), (iii), (v), (vi), (vii), (viii), (ix)(a), (x), (xi), (xii), (xiii), and (xiv) of the paragraph on Basis of Qualified Opinion given above;

(b) In our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for our comments under the head ‘Basis for Qualified Opinion’ stated above;

(c) The Balance Sheet, the Statement of Profit and Loss (including Other Comprehensive Information), the Cash Flow Statement and the Statement of Changes in Equity dealt with by this Report are in agreement the books of account;

(d) In our opinion and based on our comments in point nos. (i), (ii)(c), (iv), (v), (vi), (x), (xi), (xii), (xiii), and (xiv) of the paragraph on Basis for Qualified Opinion given above, the aforesaid standalone Ind-AS financial statements comply with the Indian Accounting Standards prescribed under Section 133 of the Act except for Ind-As - 1 regarding Presentation of Financial Statements, Ind-AS - 16 regarding Property, Plant and Equipment, Ind-AS - 17 regarding Leases, Ind-AS - 18 regarding Revenue, Ind-AS - 36 regarding Impairment of Assets and Ind-AS 37 on Provisions, Contingent Liabilities and Contingent Assets;

(e) In view of the Government notification No. GSR 463 (E) dated 5th June 2015, government companies are exempt from the applicability of Section 164 (2) of the Act;

(f) With respect to the adequacy of internal financial controls over financial reporting of the Company and operating effectiveness of such controls, refer to our separate report in “Annexure C”:

(g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.

(h) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us;

i. the Company has disclosed the impact of pending litigations, wherever quantifiable, on its financial position in its standalone Ind-AS financial statements. Refer note no. 48 to the standalone Ind-AS financial statements.

ii. the Company is not required to make any provision for any material foreseeable losses, as required under applicable laws or accounting standards, on long terms contracts. Also the Company is not dealing into derivatives contracts. Refer note no. 74 to the standalone Ind-AS financial statements.

iii. There were no amounts which were required to be transferred to the Investor, Education and Protection Fund. Refer note No. 73 to the standalone Ind-AS financial statements.

REFERRED TO IN OUR INDEPENDENT AUDITORS’ REPORT OF EVEN DATE TO THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE IND-AS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH, 2018.

(i) (a) Delhi unit has maintained records of fixed assets. However in MS unit-Delhi, identification numbers are not mentioned. It has been noticed that records of the Estates Department in respect of land and building do not match with the records as per financial books. In case of Mumbai units (both basic and WS), fixed assets registers have been maintained w.e.f. 01.04.2002. However, the fixed assets records maintained by the Mumbai units are not updated and reconciled with the financial records. Also identification numbers are not mentioned in respect of most of the items. Corporate office has maintained fixed assets records showing full particulars including quantitative details and situation of fixed assets.

(b) As per the accounting policy of the Company, fixed assets are required to be physically verified by the management on rotation basis, once in three years, which in our opinion is reasonable and adequate in relation to the size of the Company and the nature of its business. As certified by the management, Office Machinery and Equipments, Leased Premises and Cables were physically verified in accordance with programme of verification by the management during the year and no material discrepancies were noticed on such verification. The accuracy, reliability and completeness of the fixed assets verification procedure could not be verified by us.

(c) Title deeds of most of the immovable properties recorded in the books of the Company are not held in the name of the Company. Details of such properties are given hereunder:

(Rs. in Crores)
PARTICULARS	DELHI UNIT	MUMBAI UNIT
Free Hold Land
-Total Number of Cases	1	23#
-Gross Block	0.06	4.15
Lease Hold Land
-Total Number of Cases	! 8	12#
-Gross Block	219.53	2.65
-Net Block	152.03	1.78
Building
-Total Number of Cases	53!!	3##
-Gross Block	32.37	1.53
-Net Block	3.89	0.76

In respect of Delhi Units:

* In respect of 43 cases out of 89 where the lease hold land acquired from DOT have been capitalized by MTNL and no data is available in respect of depreciation and net WDV of such assets as the same is not identifiable from the fixed assets register

** No information is available in respect of lease hold buildings allotted by the various govt. authorities to MTNL but the same has been capitalized by MTNL and due to non availability of information, the aforesaid cases has not been included in the above details.

In respect of Mumbai Units:

# In respect of 12 cases where the possession of freehold and leasehold land are lying with the Company but the value of which are not lying in books of accounts of Mumbai units. Out of which tile deeds of 1 freehold lands and 6 leasehold lands are not in the name of the Company.

## In respect of 5 cases where the possession of freehold and leasehold buildings are lying with the Company but the value of which are not lying in books of accounts of Mumbai units. Out of which tile deeds of 1 leasehold building are not in the name of the Company.

Further, in most of the cases, value of the immovable properties as per title deeds are not matching with books of accounts and in respect of 9 cases, court cases are pending with the various authorities out of which title deed of 1 freehold land and 1 leasehold land are not in the name of the Company.

Furthermore, in respect of 9 cases of freehold and leasehold land where total area measuring 21,160 square meter have been encroached by the various persons in respect of which matter is either pending in court or perusing with the various authorities for clearing the encroachment. Out of total 9 cases, title deed of 2 freehold land measuring 1840 square meter and 1 leasehold land measuring 200 square meters are not in the name of the Company.

(ii) In respect of Delhi Units:

In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals except in case of Sub-stores of Basic Unit Delhi, Store of Wireless Unit Delhi.

In respect of Mumbai Units:

In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals except in case of Area Stores of East-1, HQ Transmission and Planning Units, ANC Area Stores and Sub-Stores of Mumbai Basic Units and inventory of Wireless Unit Mumbai. Further, reconciliation of the physically verified inventory with books of accounts has not been done by the units except by Material Management (MM) Unit.

Discrepancies noticed on physical verification of inventory as compared to book records were not material and have been properly dealt with in the books of accounts.

(iii) The Company has not granted any secured or unsecured loans to companies, firms, limited liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013 (‘the Act’). Thus, paragraph 3(iii) of the Order is not applicable

(iv) The Company has not entered any transaction involving compliance with the provisions of Section 185 and 186 of the Companies Act 2013. Thus, paragraph 3(iv) of the Order is not applicable

(v) The Company has not accepted any deposits from the public within the meaning of Section 73 to Section 76 or any other relevant provisions of the Companies Act, 2013 or rules framed there under

(vi) As per information and explanation given to us, Company is required to maintain the cost records under Section 148(1) of the Companies Act 2013. As explained the Company has not yet maintained the required cost records for year 2017-18.

(vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including provident fund, employees’ state insurance, income tax, sales tax, service tax, duty of customs, duty of excise, value added tax, cess and other material statutory dues, wherever applicable, have generally been regularly deposited with the appropriate authorities though there has been a slight delay in few cases.

According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees’ state insurance, income tax, sales tax, service tax, duty of customs, duty of excise, value added tax, cess or other statutory dues were in arrears as at 31st March 2018 for a period of more than six months from the date they became payable except in respect of the following:

Name of the Statue	Nature of the Dues	Amount (in Rs.)	Period to which the amount relates	Due Date	Date of Payment
Luxury Tax Act, 1987	Luxury Tax	11,49,680	April, 2017 to June, 2017	21st day of the following month/quarter	Amount has not been paid

TOTAL

11,49,680

The amounts of Luxury Tax collected and not deposited are lying with the company. The same should be deposited along with interest. The amount of Interest has not been provided in the financial statements. Considering the quantum of irregularity, the same has not been considered in the basis of qualified opinion paragraph.

(b) According to the information and explanations given to us, there are no dues of income tax, sales tax, service tax, duty of customs, duty of excise, value added tax which have not been deposited with the appropriate authorities on account of any dispute except for the following dues:

In respect of Delhi Units:

i. Sales Tax

Name of the Statute	Amount (Rs. in Crores) (Net)	Period to which amount relates	Forum where the dispute is pending
Delhi Value Added Tax Act, 2004	12.21	2007-08	Delhi Value Added Tax,Tribunal
Delhi Value Added Tax Act, 2004	62.60	2009-10 & 201011 (CWG 2010)	Delhi Value Added Tax,Tribunal
Central Sales Tax Act, 1956	0.04	2012-13	Addl. Comm. Sales Tax
TOTAL	74.85

ii. Service Tax

Name of the Statute	Amount (Rs. in Crores) (Net)	Period to which amount relates	Forum where the dispute is pending
Finance Act, 1994	8.45	2005-06	Commissioner of Central Excise and Service Tax
Finance Act, 1994	22.13	2006-08	Custom Excise and Service Tax Appellate Tribunal
Finance Act, 1994	0.08	2000-03	Commissioner of Central Excise and Service Tax
Finance Act, 1994	0.71	2008-12	Commissioner of Central Excise and Service Tax
TOTAL	31.37

iii. Labour Cess

Name of the Statute	Amount (Rs. in Crores) (Net)	Period to which amount relates	Forum where the dispute is pending
Building and other Construction Workers Welfare Cess Act, 1996.	9.73	1996 to 2001	Deputy Labour Commissioner

In respect of Mumbai Basic Units i. Income Tax:

Name of the Statute	Amount	Period to which	Forum where the dispute is
	(Rs. in Crores) (Net)	amount relates	pending
Income Tax Act, 1961	1.03	2000-08	Hon’ble Supreme Court of India
Total	1.03

ii. Sales Tax:

Name of the Statute	Amount (Rs. in Crores) (Net)	Period to which amount relates	Forum where the dispute is pending
Bombay Sales Tax Act, 1959	0.17	1993-94	Maharashtra Sales Tax Tribunal, Mumbai
Bombay Sales Tax Act, 1959	5.27	1996-97	Hon’ble High Court of Bombay
Bombay Sales Tax Act, 1959	351.85	1997-98	Hon’ble Supreme Court of India
Bombay Sales Tax Act, 1959	216.01	2003-04	Maharashtra Sales Tax Tribunal, Mumbai
Bombay Sales Tax Act, 1959	101.32	2004-05	Joint Commissioner of Sales Tax, Mumbai
Bombay Sales Tax Act, 1959	14.97	2009-10	Joint Commissioner of Sales Tax, Mumbai
Bombay Sales Tax Act, 1959	6.11	2011-12	Joint Commissioner of Sales Tax, Mumbai
Bombay Sales Tax Act, 1959	26.47	2012-13	Joint Commissioner of Sales Tax, Mumbai
Total	722.16

iii. Luxury Tax

Name of the Statute	Amount (Rs. in Crores) (Net)	Period to which amount relates	Forum where the dispute is pending
Luxury Tax Act, 1987	0.64	2007-08	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	1.11	2008-09	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	0.26	2009-10	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	0.51	2010-11	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	0.93	2011-12	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	2.17	2012-13	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Total	5.63

iv. Service Tax:

Name of the Statute	Amount	Period to which	Forum where the dispute is
	(Rs. in Crores) (Net)	amount relates	pending
Finance Act, 1994	0.07	2013-14	Custom, Excise and Service Tax Appellate Tribunal
Total	0.07

In respect of Mumbai MS Unit: Central Excise:

Name of the Statute	Amount (Rs. in Crores) (Net)	Period to which amount relates	Forum where the dispute is pending
Central Excise Act, 1944	0.29	2004-05	Commissioner of Central Excise
Central Excise Act, 1944	0.32	2006-07	Commissioner of Central Excise
Central Excise Act, 1944	0.53	2013-14	Commissioner of Central Excise
Central Excise Act, 1944	0.11	2006-07	Commissioner of Central Excise
Central Excise Act, 1944	2.73	2005-06	Commissioner of Central Excise
Total	3.62

In respect of Corporate Office: Income Tax:

Name of the Statute	Amount (Rs. in Crores) (Net)	Period to which amount relates	Forum where the dispute is pending	Remarks
Income Tax Act, 1961	0.00	1998-2010	Hon’ble High Court of Delhi, Income Tax Appellant Tribunal and Commissioner of Income Tax (Appeal)	Total disputed demand of Rs. 775.75 Crores either paid by the Company or deducted by the Income Tax Department from refund due to the Company
Total	0.00

(viii) The Company has not defaulted in the repayment of loans or borrowings to a financial institution, bank, Government or dues to debenture holders.

(ix) The Company has not raised any money by way of initial public offer or further public offer (including debt instruments) during the year and term loans have been generally applied for the purposes for which they were raised.

(x) Based on audit procedures applied and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the course of our audit for the year ended on 31st March 2018.

(xi) In view of the Government notification No. GSR 463 (E) dated 5th June, 2015; Government Companies are exempt from the applicability of Section 197 of the Companies Act 2013. Accordingly clause 3 (xi) of the Order is not applicable to the Company.

(xii) In our opinion and according to the information and explanations given to us, the Company is not a Nidhi Company. Hence, Clause 3 (xii) of the Order is not applicable to the Company.

(xiii) In our opinion and as per the information and explanation given to us, the company has not entered into any transaction requiring compliance with Section 177 and 188 of the Companies Act, 2013. Hence, Clause 3 (xiii) of the Order is not applicable to the Company.

(xiv) Based on the information and explanation given to us, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review requiring compliance with Section 42 of the Companies Act, 2013. Hence, Clause 3 (xiv) of the Order is not applicable to the Company.

(xv) Based on the information and explanation given to us, the Company has not entered into any non-cash transactions with directors or persons connected with him. Hence, Clause 3 (xv) of the Order is not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to us, Company is not required to register under Section 45 - IA of the Reserve Bank of India Act, 1934. Hence, Clause 3 (xvi) of the Order is not applicable to the Company.

REPORT ON THE INTERNAL FINANCIAL CONTROLS UNDER CLAUSE (I) OF SUB-SECTION 3 OF SECTION 143 OF THE COMPANIES ACT, 2013 (“THE ACT”)

We have audited the internal financial controls over financial reporting of Mahanagar Telephone Nigam Limited (“the Company”) as of 31st March 2018 in conjunction with our audit of the standalone Ind-AS financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (‘ICAI’). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the standalone Ind-AS financial statements, whether due to fraud or error

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of standalone Ind-AS financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of standalone Ind-AS financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the standalone Ind-AS financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit, the following material weaknesses have been identified in the operating effectiveness of the Company’s internal financial controls over financial reporting as at March 31, 2018:

(i) The Company does not have an appropriate internal control system for identification of overheads to be capitalized with the cost of Property, Plant and Equipment which could potentially result into under /over capitalization of Property, Plant and Equipment and corresponding impact on the operational results of the Company.

(ii) The Company does not have appropriate internal control system for ensuring capitalization of Property, Plant and Equipment as and when the same is ready for use due to delayed issue of completion certificate by engineering department or due to delay in receipt of bills from the vendors for bought out items or due to delay of inventory issue slip by stores. Hence, the date of capitalization is not reliable. This could potentially result into delayed capitalization and corresponding impact on the operational results due to lower charge of depreciation.

(iii) The Company does not have appropriate internal control system for ensuring de-commissioning and de-capitalization of Property, Plant and Equipment in respect of assets which are no longer in use and held for disposal as scrap. This could potentially result into overstatement of gross block and corresponding impact on the operational results due to higher charge of depreciation and lower provision for impairment of assets.

(iv) The Company does not have an appropriate internal control system to ensure that provisions made pending receipt of bills from vendors / contractors / operators / government departments at the quarter end and year end are duly reversed when actual bills are received and accounted for. This could potentially result in the same being accounting twice.

(v) The Company does not have an appropriate internal control system to track open purchase orders, work orders, agreements and contracts which have been entered with vendors / contractors / operators / government departments and are lying open. This could have a bearing on efficiency of operations and recording of financial liabilities and provisions pertaining to the same.

(vi) The Company does not have an integrated ERP system. Different software packages used by the company are interfaced through software links or manual intervention leaving gaps between them. This could potentially result into impaired financial reporting.

(vii) The Company does not have an appropriate internal control system for reconciliation of vendors / contractors / operators / government departments, accounts which could potentially result in some changes in the standalone Ind-AS financial statements. The cases identified by us have been appropriately qualified at various places in our report.

(viii) The Company does not have effective internal audit system so as to cover all major areas with extensive scope. The extent and depth of coverage, manner of conduct and reporting in respect of internal audit is very weak. This could potentially result into weak checks and balances and unreported financial irregularities ultimately resulting into distorted financial reporting.

(ix) The Company does not have an appropriate internal control system for reconciliation of items of unlinked debits and credits because of receipts from the subscriber and the amount debited by the banks. This could potentially lead unreported financial adjustments ultimately resulting into distorted financial reporting.

(x) The Company does not have an appropriate internal control system for invoicing which are due and payable based on manual invoicing. The invoicing systems does not have reliability of measurement and reconciliation of items. This leads to multiple revisions and errors in invoicing. This could potentially lead errors in revenue recognition.

(xi) The Company does not have appropriate internal control system for ensuring end use of issued inventory. The accounting is done based on the requisition statement of item and not actual installation or commission of item. This could potentially result into non-identification of pilferage and also early capitalization of equipments.

(xii) The Company does not have appropriate internal control system for ensuring billing and recovery of water and electricity charges from the lessee. This could potentially result into non-recovery and delayed recovery of such charges causing financial loss of the absolute expenses and also finance cost on the delay in realization. This could also result in inaccurate expense values in the financial statements of the company.

A ‘material weakness’ is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the effects / possible effects of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has maintained, in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as of March 31, 2018, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

We have considered the material weaknesses identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the March 31, 2018 standalone Ind-AS financial statements of the Company, and these material weaknesses do not affect our opinion on the standalone Ind-AS financial statements of the Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.

CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS

Firm Registration No.: 000517N Firm Registration No.: 007814N

(NIKHIL AGARWAL) (ROOPA GARG)

PARTNER PARTNER

Membership No.: 419806 Membership No.: 500677

PLACE : NEW DELHI

DATED : 30^th May, 2018

---

Mar 31, 2017

to, THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LIMITED Report on the Standalone IND AS Financial Statements

We have audited the accompanying Standalone IND AS financial statements of Mahanagar Telephone Nigam Limited, (“the Company''), which comprise the Balance Sheet as at 31st March, 2017, the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Standalone IND AS Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these Standalone IND AS financial statements that give a true and fair view of the State of Affairs (financial position), Profit or Loss (financial performance including Other Comprehensive Income), Cash flows and Changes in Equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (IND AS) prescribed under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities, selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that are operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Standalone IND AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these Standalone IND AS financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing Standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Standalone IND AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Standalone IND AS financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the Standalone IND AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company''s preparation of the Standalone IND AS financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies

used and the reasonableness of accounting estimates made by the Company''s Directors, as well as evaluating the

overall presentation of the Standalone IND AS financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified

audit opinion on the Standalone IND AS financial statements.

Basis for Qualified Opinion

(i) The Company has certain balances receivables from and payables to BSNL. The net amount recoverable of Rs,3729.78 Crores is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation and also in view of various pending disputes regarding claims and counter claims, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the Standalone IND AS financial statements of the Company. (Also refer point no. (a) of note no. 65 to the Standalone IND AS financial statements).

(ii) The Company has certain balances receivables from and payables to Department of Telecommunication (DOT). The net amount recoverable of Rs,7263.61 Crores is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the Standalone IND AS financial statements of the Company. (Also refer point no. (a) of note no. 70 to the Standalone IND AS financial statements).

(iii) Up to financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL was worked out on accrual basis as against the terms of License agreements requiring deduction for expenditure from the gross revenue to be allowed on actual payment basis. From financial year 2012-13, the license fee payable to the DOT has been worked out strictly in terms of the license agreements. The Company continues to reflect the difference in license fee arising from working out the same on accrual basis as aforesaid for the period up to financial year 2011-12 by way of contingent liability of ''140.36 Crores instead of actual liability resulting in understatement of current liabilities and understatement of loss to that extent. (Also refer note no. 59 to the Standalone IND AS financial statements).

(iv) The Company continues to allocate the overheads towards capital works in a manner which is not in line with the accepted accounting practices and Indian Accounting Standard - 16 “Property, Plant and Equipment"prescribed under Section 133 of the Act, the same results into overstatement of capital work in progress/Property, Plant and Equipment and understatement of loss. The actual impact of the same on the Standalone IND AS financial statements for year is not ascertained and quantified. (Also refer note no. 36 and 39 to the Standalone IND AS financial statements).

(v) Except for the impairment loss of assets of CDMA units, no adjustment has been considered on account of impairment loss, if any, during the year, with reference to Indian Accounting Standard - 36 “Impairment of Assets” prescribed under Section 133 of the Act. In view of uncertainty in achievement of future projections made by the Company, we are unable to ascertain and comment on the provision required in respect of impairment in carrying value of cash generating units and its consequent impact on the loss for the year, accumulated balance of reserve and surplus and also the carrying value of the cash generating units. (Also refer note no. 72 to the Standalone IND AS financial statements).

(vi) Amount receivables from and payables to the various parties are subject to confirmation and reconciliation. Pending such confirmation and reconciliations, the impact thereof on the Standalone IND AS financial statements are not ascertainable and quantifiable. (Also refer, note no. 67 to the Standalone IND AS financial statements).

(vii) Dues from the operators are not taken into account for making provision for doubtful debts. In the absence of any working, the impact thereof on the Standalone IND AS financial statements cannot be ascertained and quantified. (Also refer clause no. l (ii) of note no. 3 to the Standalone IND AS financial statements).

(viii) (a) In Delhi Unit, reconciliation of balances of subscriber’s deposits as per subsidiary records with financial books (WFMS) is still in progress and the impact, if any, of the differences arising out of such reconciliation on Standalone IND AS financial statements cannot be ascertained and quantified at present. (Also refer point no.

(a) of note no. 66 to the Standalone IND AS financial statements).

(b) Unlinked credit of ''36.91 Crores on account of receipts from subscribers against billing by the Company which could not be matched with corresponding receivables is appearing as liabilities in the balance sheet. To that extent, trade receivables and other current liabilities are overstated. (Also refer point no. (c) of note no. 66 and 77 to the Standalone IND AS financial statements).

(ix) In the absence of detailed information i.e. break up of amount received with relation to the individual invoices raised through MACH; invoice wise reconciliation of the roaming debtors is pending in Delhi Unit. Pending such reconciliation, the impact of the same on the Standalone IND AS financial statements cannot be ascertained and quantified. (Also refer note no. 68 to the Standalone IND AS financial statements).

(x) Property, Plant and Equipment are generally capitalized on the basis of completion certificates issued by the engineering department or bills received by finance department in respect of bought out capital items. Due to delays in issuance of the completion certificates or receipt of the bills, there are cases where capitalization of the Property, Plant and Equipment gets deferred to next year. The resultant impact of the same on the statement of profit and loss by way of depreciation and amount of Property, Plant and Equipment capitalized in the balance sheet cannot be ascertained and quantified.

(xi) Certain Land and Buildings transferred to MTNL from DOT in earlier years have been reflected as leasehold. In the absence of relevant records, we are not in a position to comment on the classification, capitalization and amortization of the same as leasehold and also the consequential impacts, if any, of such classification, capitalization and amortization not backed by relevant records. In the absence of relevant records, impact of such classification on the Standalone IND AS financial statements cannot be ascertained and quantified.

(xii) Department of Telecommunication (DOT) had raised a demand of ''3313.15 Crores in 2012-13 on account of one time charges for 2G spectrum held by the Company for GSM and CDMA for the period of license already elapsed and also for the remaining valid period of license including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA has been revised by Rs,107.44 Crores on account of rectification of actual usage.

Also as explained, pending finality of the issue by the Company regarding surrender of a part of the spectrum, crystallization of issue by the DOT in view of the claim being contested by the Company and because of the matter being sub-judice in the Apex Court on account of dispute by other private operators on the similar demands, the amount payable, if any, is indeterminate. Accordingly, no liability has been created for the demand made by DOT on this account and Rs,3205.71 Crores has been disclosed as contingent liability.

In view of the above we are not in a position to comment on the correctness of the stand taken by the Company and the ultimate implications of the same on the Standalone IND AS financial statements of the Company. (Also refer note no. 58 to the Standalone IND AS financial statements).

In the absence of information, the effect of which can''t be quantified, we are unable to comment on the possible impact of the items stated in the point nos. (i), (ii), (iv), (v), (vi), (vii), (viii)(a), (ix), (x), (xi), and (xii) on the Standalone IND AS financial statements of the Company for the year ended on 31st March 2017.

We further state that without considering the impact of items stated in preceding para, the effect of which could not be determined, had the observations made by us in point nos (iii) and (viii)(b) been considered in the Standalone IND AS financial statements, loss for the year would have been Rs,3081.44 Crores as against the reported figure of Rs,2941.08

Crores in the Statement of Profit and Loss and Trade receivables under the head Current Assets would have been ''454.67 Crores as against the reported figure of Rs,491.58 Crores, Other Financial Liabilities would have been ''1362.25 Crores as against the reported figure of ''1258.80 Crores in the Balance Sheet.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the Standalone IND AS financial statements give the information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including the Indian Accounting Standards (IND AS), of the state of affairs (financial position) of the Company as at 31st March, 2017 and its losses (financial performance including other comprehensive income) and its cash flows and the changes in equity for the year ended on that date.

Emphasis of Matters

We draw attention to the following notes on the Standalone IND AS financial statements being matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us. Our opinion is not qualified in respect of these matters:

(i) Note no. 79 to the Standalone IND AS financial statements regarding non provision of diminution in the value of investments in joint ventures/subsidiary as these diminutions are considered temporary in nature.

(ii) Note no. 62 to the Standalone IND AS financial statements regarding the adequacy or otherwise of the provision and / or contingency reserve held by the Company with reference to pending dispute with the Income Tax Department before the Hon''ble Courts regarding deduction claimed by the Company u/s 80 IA of the Income Tax Act,1961.

(iii) Point no.(a) of note no. 64 to the Standalone IND AS financial statements regarding accounting of claims and counter claims of MTNL with M/S M&N Publications Ltd., in a dispute over printing, publishing and supply of telephone directories for MTNL, in the year when the ultimate collection / payment of the same becomes reasonably certain.

(iv) Classification of trade receivables as unsecured without considering the security deposit which the Company has received from the subscribers. (Also refer note no. 15 to the Standalone IND AS financial statements).

(v) Amount receivable from BSNL & Other Operators have been reflected as loans and other financial assets instead of bifurcating the same into trade receivables and other receivables. (Also refer note no. 15 to the Standalone IND AS financial statements).

(vi) Disclosure of consumption of imported and indigenous stores and spares and percentage to the total consumption as required by Schedule III of the Companies Act, 2013 has not been made by the Company in the Standalone IND AS financial statements.

(vii) The Standalone IND AS financial statements of the Company reflect that net worth of the Company has virtually eroded; The Company has incurred net cash loss during the current year as well as in the previous year and the current liabilities exceeded the current assets substantially. All these conditions indicate the existence of material uncertainty that may cast significant doubts about the Company''s ability to continue as a going concern. However, the Standalone IND AS financial statements of the Company have been prepared on a going concern basis for the reasons stated in the note no. 78 to the Standalone IND AS financial statements.

Other Matters

The comparative financial information of the Company for the transition date opening balance sheet as at 01st April, 2015 included in these Standalone IND AS financial statements, are based on the previously issued statutory financial statements prepared in accordance with the Companies (Accounting Standard) Rules, 2006 audited by predecessor auditor whose report for the year ended 31st March, 2015 dated 30th May, 2015 expressed qualified opinion on those

standalone financial statements, as adjusted for the differences in accounting principles adopted by the Company on

transition to the Indian Accounting Standard (IND AS), which have been audited by us.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2016 (“the Order”) issued by the Central Government

of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure - ''A'' a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by Section 143(5) of the Act, we give in Annexure - ''B'', a statement on the matters specified by the

Comptroller and Auditor-General of India for the Company.

3. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit except for the matters described in point nos. (i),

(ii), (iv), (v), (vi), (vii), (viii)(a), (ix), (x), (xi), and (xii) of the paragraph on Basis of Qualified Opinion given above ;

(b) In our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for our comments under the head ''Basis for Qualified Opinion'' stated above;

(c) The Balance Sheet, the Statement of Profit and Loss (including Other Comprehensive Information), the Cash Flow Statement and the Statement of Changes in Equity dealt with by this Report are in agreement the books of account;

(d) In our opinion and based on our comments in point nos. (iii), (iv), (v), (x), (xi) and (xii) of the paragraph on Basis for Qualified Opinion given above, the aforesaid Standalone IND AS financial statements comply with the Indian Accounting Standards prescribed under Section 133 of the Act except for IND AS - 16 regarding Property, Plant and Equipment , IND AS - 36 regarding Impairment of Assets and IND AS 37 on Provisions, Contingent Liabilities and Contingent Assets;

(e) In view of the Government notification No. GSR 463 (E) dated 5th June 2015, government companies are exempt from the applicability of Section 164 (2) of the Act;

(f) With respect to the adequacy of internal financial controls over financial reporting of the Company and operating effectiveness of such controls, refer to our separate report in “Annexure C”:

(g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.

(h) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us;

i. the Company has disclosed the impact of pending litigations, wherever quantifiable, on its financial position in its Standalone IND AS financial statements. Refer Note no. 48 to the Standalone IND AS financial statements.

ii. the Company is not required to make any provision for any material foreseeable losses under any law or accounting standards on long terms contracts. Also the Company is not dealing into derivatives contracts. Refer Note no. 76 to the Standalone IND AS financial statements.

iii. There has been no delay in transferring any amount to the Investor, Education and Protection Fund during the year. Refer Note No. 75 to the Standalone IND AS financial statements.

iv. The Company has provided requisite disclosures in the Standalone IND AS financial statements as to holding as well as dealings in specified Bank Notes during the period from 08th November, 2016 to 30th December, 2016. Based on audit procedures and relying on the management representations, we report that the disclosures are in accordance with books of accounts maintained by the Company and as produced to us by the management. Refer point no. (iv) of Note No. 16 to the Standalone IND AS financial statements.

REFERRED TO IN OUR INDEPENDENT AUDITORS'' REPORT OF EVEN DATE TO THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE IND AS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH, 2017.

(i) (a) Delhi unit has maintained records of fixed assets. However in MS unit-Delhi, identification numbers are not mentioned. It has been noticed that records of the Estates Department in respect of land and building do not match with the records as per financial books. In case of Mumbai unit (both basic and WS), fixed assets registers have been maintained w.e.f. 01.04.2002. However, the fixed assets records maintained by the Mumbai unit are not updated and reconciled with the financial records. Also identification numbers are not mentioned in respect of most of the items. The corporate office has maintained fixed assets records showing full particulars including quantitative details and situation of fixed assets.

(b) As per the accounting policy of the company, fixed assets are required to be physically verified by the management on rotation basis, once in three years, which in our opinion is reasonable and adequate in relation to the size of the Company and the nature of its business. As certified by the management, Electrical Appliances, Furniture and Fixtures, Lines & Wires and Computers were physically verified in accordance with programme of verification by the management during the year and no material discrepancies were noticed on such verification.

(c) Title deeds of most of the immovable properties recorded in the books of the Company are not held in the name of the Company. Details of such properties are given hereunder:

(Rs,in Crores)
PARTICULARS	DELHI UNIT	MUMBAI UNIT
Free Hold Land
-Total Number of Cases	1	16
-Gross Block	0.06	Rs,3.13
Lease Hold Land
-Total Number of Cases	89*	6
-Gross Block	219.53	Rs,3.45
-Net Block	156.46	Rs,2.44
Building
-Total Number of Cases	531	NIL
-Gross Block	32.37	NIL
-Net Block	4.92	NIL

* In respect of 43 cases out of 89 where the lease hold land acquired from DOT have been capitalized by MTNL and no data is available in respect of depreciation and net WDV of such assets as the same is not identifiable from the fixed assets register.

(iv) The Company has not entered any transaction involving compliance with the provisions of Section 185 and 186 of the Companies Act 2013. Thus, paragraph 3(iv) of the Order is not applicable

(v) The Company has not accepted any deposits from the public within the meaning of Section 73 to Section 76 or any other relevant provisions of the Companies Act, 2013 or rules framed there under.

(vi) As per information and explanation given to us, Company is required to maintain the cost records under Section 148(1) of the Companies Act 2013. As explained the Company has not yet maintained the required cost records for year 2016-17.

(vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including provident fund, employees'' state insurance, income tax, sales tax, service tax, duty of customs, duty of excise, value added tax, cess and other material statutory dues, wherever applicable, have generally been regularly deposited with the appropriate authorities though there has been a slight delay in few cases.

According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees'' state insurance, income tax, sales tax, service tax, duty of customs, duty of excise, value added tax, cess or other material statutory dues were in arrears as at 31 March 2017 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, there are no dues of income tax, sales tax, service tax, duty of customs, duty of excise, value added tax which have not been deposited with the appropriate authorities on account of any dispute except for the following dues::

Delhi Unit

i. Sales Tax

Name of the Statute	Amount (Rs,in Crores) (Net)	Period	Authority where Forum where the dispute is pending
Delhi Value Added Tax Act, 2004	12.21	2007-08	Delhi Value Added Tax, Tribunal
Delhi Value Added Tax Act, 2004	62.60	2009-10 & 2010-11 (CWG 2010)	Delhi Value Added Tax, Tribunal
Central Sales Tax Act, 1956	0.04	2012-13	Addl. Comm. Sales Tax
TOTAL	74.85

ii. Service Tax

Name of the Statute	Amount (Rs,in Crores) (Net)	Period	Forum where the dispute is pending
Finance Act, 1994	8.45	2005-06	Commissioner of Central Excise and Service Tax
Finance Act, 1994	22.13	2006-08	Custom Excise and Service Tax Appellate Tribunal
Finance Act, 1994	0.08	2000-03	Commissioner of Central Excise and Service Tax
Finance Act, 1994	0.71	2008-12	Commissioner of Central Excise and Service Tax
TOTAL	31.37

iii. Labour Cess

Name of the Statute	Amount (Rs,in Crores) (Net)	Period	Forum where the dispute is pending
Building and other Construction Workers Welfare Cess Act, 1996.	9.73	1996 to 2001	Deputy Labor Commissioner

Mumbai Basic Unit

i. Income Tax:

Name of the Statute	Amount (Rs,in Crores) (Net)	Year to which amount relates	Forum where the dispute is pending
Income Tax Act, 1961	0.02	2000-01	Commissioner of Income Tax
Income Tax Act, 1961	0.64	2001-02	Commissioner of Income Tax
Income Tax Act, 1961	0.05	2002-03	Commissioner of Income Tax
Income Tax Act, 1961	0.28	2003-04	Commissioner of Income Tax
Income Tax Act, 1961	0.03	2006-07	Commissioner of Income Tax
Income Tax Act, 1961	0.01	2007-08	Commissioner of Income Tax
Total	1.03

ii. Sales Tax:

Name of the Statute	Amount (Rs,in Crores) (Net)	Year to which amount relates	Forum where the dispute is pending
Bombay Sales Tax Act, 1959	0.17	1993-94	Maharashtra Sales Tax Tribunal, Mumbai
Bombay Sales Tax Act, 1959	5.27	1996-97	Hon''ble High Court
Bombay Sales Tax Act, 1959	351.85	1997-98	Hon''ble Supreme Court of India
Bombay Sales Tax Act, 1959	216.01	2003-04	Maharashtra Sales Tax Tribunal, Mumbai
Bombay Sales Tax Act, 1959	101.32	2004-05	Joint Commissioner of Sales Tax, Mumbai
Bombay Sales Tax Act, 1959	14.97	2009-10	Joint Commissioner of Sales Tax, Mumbai
Bombay Sales Tax Act, 1959	6.11	2011-12	Joint Commissioner of Sales Tax, Mumbai
Total	695.70

iii. Luxury Tax

Name of the Statute	Amount (Rs,in Crores) (Net)	Year to which amount relates	Forum where the dispute is pending
Luxury Tax Act, 1987	0.64	2007-08	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai

Name of the Statute	Amount (Rs,in Crores) (Net)	Year to which amount relates	Forum where the dispute is pending
Luxury Tax Act, 1987	1.11	2008-09	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	0.26	2009-10	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	0.51	2010-11	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Luxury Tax Act, 1987	0.93	2011-12	Joint Commissioner of Sales Tax (Appeal) - IV, Mumbai
Total	3.45

iv. Service Tax:

Name of the Statute	Amount (Rs,in Crores) (Net)	Year to which amount relates	Forum where the dispute is pending
Finance Act, 1994	0.20	2004-05	Custom Excise and Service Tax Appellate Tribunal
Finance Act, 1994	2.44	2006-14	Custom Excise and Service Tax Appellate Tribunal
Total	2.64

Mumbai MS Unit Central Excise:

Name of the Statute	Amount (Rs,in Crores) (Net)	Year to Which Amount Relates	Forum where the dispute is pending
Central Excise Act, 1944	0.58	2004-05	Commissioner of Central Excise
Central Excise Act, 1944	0.32	2006-07	Commissioner of Central Excise
Central Excise Act, 1944	0.53	2013-14	Commissioner of Central Excise
Central Excise Act, 1944	0.11	2006-07	Commissioner of Central Excise
Central Excise Act, 1944	4.75	2005-06	Commissioner of Central Excise
Total	6.29

(viii) The Company has not defaulted in the repayment of loans or borrowings to a financial institution, bank, Government or dues to debenture holders.

(ix) The Company has not raised any money by way of initial public offer or further public offer (including debt instruments) during the year and term loans has been applied for the purposes for which they were raised.

(x) Based on audit procedures applied and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the course of our audit for the year ended on 31st March 2017 except for the following case:

Nature of Fraud	Amount (Rs,in Crores)	Remarks
Misappropriation of cable store item in Transmission Unit	Rs,1.076	FIR Lodged

(xi) In view of the Government notification No. GSR 463 (E) dated 5th June 2015, Government Companies are exempt from the applicability of Section 197 of the Companies Act 2013. Accordingly clause 3 (xi) of the Order is not applicable to the Company.

(xii) In our opinion and according to the information and explanations given to us, the Company is not a Nidhi Company. Hence, Clause 3 (xii) of the Order is not applicable to the Company.

(xiii) In our opinion and as per the information and explanation given to us, the company has not entered into any transaction requiring compliance with Section 177 and 188 of the Companies Act, 2013. Hence, Clause 3 (xiii) of the Order is not applicable to the Company.

(xiv) Based on the information and explanation given to us, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review requiring compliance with Section 42 of the Companies Act, 2013. Hence, Clause 3 (xiv) of the Order is not applicable to the Company.

(xv) Based on the information and explanation given to us, the Company has not entered into any non-cash transactions with directors or persons connected with him. Hence, Clause 3 (xv) of the Order is not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to us, Company is not required to register under Section 45 - IA of the Reserve Bank of India Act, 1934. Hence, Clause 3 (xvi) of the Order is not applicable to the Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.

CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS

Firm Registration No.: 000517N Firm Registration No.: 007814N (NITISH KUMAR CHUGH) (ROOPA GARG)

PARTNER PARTNER

Membership No.: 512742 Membership No.: 500677 PLACE : NEW DELHI DATED : May 30, 2017

REFERRED TO IN OUR INDEPENDENT AUDITORS'' REPORT OF EVEN DATE TO THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE IND AS FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2017.

Directions indicating the areas to be examined by the Statutory Auditors during the course of audit of annual accounts of Mahanagar Telephone Nigam Limited (Standalone) for the year 2016-17 issued by the Comptroller & Auditor General of India under section 143(5) of the Companies Act, 2013.

Based on the information and explanations given to us we report as under:

Sr. No.	Areas Examined	Observation / Finding
1	Whether the company has clear title/lease deeds for freehold and leasehold respectively? If not please state the area of freehold and leasehold land for which title/lease deeds are not available.	The Company does not have clear title/lease deeds in a number of cases. Summarized position of such cases is as under : DELHI UNIT The Company does not have clear title deeds in respect of 1 land property at Minto Road, Delhi and classified as freehold. Also Company does not have any lease deed in respect of 89 cases of land properties spread across Delhi and classified as Leasehold. MUMBAI UNIT The Company does not have clear title deeds in respect of 16 cases of land properties spread across Mumbai and classified as freehold. Also, Company does not have lease deeds in respect of 6 cases of land properties spread across Mumbai and classified as Leasehold.
2	Please report whether there are any cases of waiver / write off of debts / loans / interest etc. if, yes, the reason therefore and the amount involved.	The details of cases of waiver / write off of debts / loans / interest by the Company during the year are as under:
		Particulars	('' in Crores)
		Write off of debts Due to non recoverability	25.87
		Waiver of penalty & interest	0.00
		TOTAL	25.87

Sr. No.	Areas Examined	Observation / Finding
3	Whether proper records are maintained for inventories lying with third parties & assets received as gift from Govt. or other authorities.	a. There are no inventories lying with third parties. b. The Company has not received any assets as gifts from Government or other authorities during the year.
4	Amount of Revenue Share (License Fee and Spectrum Usage Charges) appearing in the Financial Statements should be thoroughly checked for its correctness.	The details have been verified by us.

REPORT ON THE INTERNAL FINANCIAL CONTROLS UNDER CLAUSE (I) OF SUB-SECTION 3 OF SECTION 143 OF THE COMPANIES ACT, 2013 (“THE ACT”)

We have audited the internal financial controls over financial reporting of Mahanagar Telephone Nigam Limited (“the Company”) as of 31st March 2017 in conjunction with our audit of the Standalone IND AS financial statements of the Company for the year ended on that date.

Management''s Responsibility for Internal Financial Controls

The Company''s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (''ICAI''). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company''s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors'' Responsibility

Our responsibility is to express an opinion on the Company''s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the Standalone IND AS financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company''s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company''s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Standalone IND AS financial statements for external purposes in accordance with generally accepted accounting principles. A company''s internal financial control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of Standalone IND AS financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company''s assets that could have a material effect on the Standalone IND AS financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit, the following material weaknesses have been identified in the operating effectiveness of the Company''s internal financial controls over financial reporting as at March 31, 2017:

(i) The company did not have an appropriate internal control system for identification of overheads to be capitalized with the cost of Property, Plant and Equipment which could potentially result into under /over capitalization of Property, Plant and Equipment and corresponding impact on the operational results of the Company.

(i) The company did not have appropriate internal control system for ensuring capitalization of Property, Plant and Equipment as and when the same is ready for use due to delayed issue of completion certificate by engineering department or due to delay in receipt of bills from the vendors for bought out items. This could potentially result into under capitalization and corresponding impact on the operational results due to lower charge of depreciation.

(ii) The company did not have an appropriate internal control system to ensure that provisions made pending receipt of bills from vendors/contractors at the quarter end and year end are duly reversed when actual bills are received and accounted for. This could potentially result in the same being accounting twice.

(iii) The company did not have an integrated ERP system. Different software packages used by the company are interfaced through software links or manual intervention leaving gaps between them. This could potentially result into impaired financial reporting.

(iv) The company did not have an appropriate internal control system for reconciliation of vendor/contractor accounts which could potentially result in some changes in the Standalone IND AS financial statements.

(v) The company did not have effective internal audit system so as to cover all major areas with extensive scope. This could potentially result into weak checks and balances and unreported financial irregularities ultimately resulting into distorted financial reporting.

A ''material weakness'' is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company''s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the effects / possible effects of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has maintained, in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as of March 31, 2017, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

We have considered the material weaknesses identified and reported above in determining the nature, timing, and extent of audit tests applied in our audit of the March 31, 2017 Standalone IND AS financial statements of the Company, and these material weaknesses do not affect our opinion on the Standalone IND AS financial statements of the Company.

FOR MEHRA GOEL & CO. FOR KUMAR VIJAY GUPTA & CO.

CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS

Firm Registration No.: 000517N Firm Registration No.: 007814N

(NITISH KUMAR CHUGH) (ROOPA GARG)

PARTNER PARTNER

Membership No.: 512742 Membership No.: 500677

PLACE : NEW DELHI

DATED : May 30, 2017

---

Mar 31, 2015

We have audited the accompanying standalone financial statements of MAHANAGAR TELEPHONE NIGAM LIMITED, ("the Company''), which comprise the Balance Sheet as at 31st March, 2015, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

The Company''s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash fows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities, selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that are operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing Standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. 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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company''s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Company''s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone financial statements.

Basis for Qualified Opinion

(i) The Company has certain balances receivables from and payables to BSNL. The net amount recoverable of Rs. 2762.24 crores is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation and also in view of various pending disputes regarding claims and counter claims, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the financial statements of the Company. (Also refer point no. 15 (a) of note no.35 to the financial statements).

(ii) The Company has certain balances receivables from and payables to Department of Telecommunication (DOT). The net amount recoverable of Rs.8314.32 crores is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the financial statements of the Company. (Also refer point no. 21 (a) of note no.35 to the financial statements).

(iii) Up to financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL was worked out on accrual basis as against the terms of License agreements requiring deduction for expenditure from the gross revenue to be allowed on actual payment basis. From financial year 2012-13, the license fee payable to the DOT has been worked out strictly in terms of the license agreements. The Company continues to reflect the difference in license fee arising from working out the same on accrual basis as aforesaid for the period up to financial year 2011-12 by way of contingent liability of Rs. 140.36 crores instead of actual liability resulting in understatement of current liabilities and understatement of loss to that extent. (Also refer point no. 5 of note no.35 to the financial statements).

(iv) The Company continues to allocate the establishment overheads towards capital works on estimated / adhoc basis. In view of the basis being not in line with the accepted accounting practices and Accounting Standard -10 "Accounting for Fixed Assets" specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules 2014, the same results into overstatement of capital work in progress/ fixed assets and understatement of loss. The actual impact of the same on the financial statements for year is not ascertained and quantified. (Also refer note no. 25 and 28 to the financial statements).

(v) Except for impairment of CDMA assets of Delhi unit due to closure of CDMA operations, no adjustment has been considered on account of impairment loss during the year, with reference to AS-28 "Impairment of Assets" specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules 2014. In view of uncertainty in achievement of future projections made by the Company, we are unable to ascertain and comment on the provision required in respect of impairment in carrying value of cash generating units and its consequent impact on the loss for the year, accumulated balance of reserve and surplus and also the carrying value of the cash generating units. (Also refer point no. 30 of note no.35 to the financial statements).

(vi) To work out the liability towards wealth tax, vacant land and guest houses/inspection quarters are taken at their book values instead of valuation of the same as per Wealth Tax Act / Rules resulting into understatement of loss resulting from lower wealth tax and also corresponding understatements of liabilities. In the absence of valuation as at the year end, we are not in a position to ascertain and quantify the impact thereof on financial statements. (Also refer point no. 12 of note no.35 to the financial statements).

(vii) Amount receivables from and payables to the various parties are subject to confirmation and reconciliation. Pending such confirmation and reconciliations, the impact thereof on the financial statements is not ascertainable and quantifiable. (Also refer, point no. 18 of note no.35 to the financial statements).

(viii) Dues from the operators are not taken into account for making provision for doubtful debts. Also no provision for doubtful debts is made for disputed cases outstanding for less than one year in Basic and for less than 180 days in GSM/CDMA. In the absence of any working, the impact thereof on the financial statements cannot be ascertained and quantified. (Also refer point no. 3(b) of note no.1 to the financial statements).

(ix) (a) In Delhi Unit, reconciliation of balances of subscriber''s deposits as per subsidiary records with financial books (WFMS) is still in progress and the impact, if any, of the differences arising out of such reconciliation on financial statements cannot be ascertained and quantified at present. (Also refer point no. 17(a) of note no.35 to the financial statements).

(b) Unlinked credit of Rs. 10.43 crores on account of receipts from subscribers against billing by the Company which could not be matched with corresponding receivables are appearing as liabilities in the balance sheet. To that extent, trade receivables and other current liabilities are overstated. (Also refer point no. 17(d) of note no.35 to the financial statements).

(x) In the absence of detailed information i.e. break up of amount received with relation to the individual invoices raised through MACH, invoice wise reconciliation of the roaming debtors is pending. Pending such reconciliation, the impact of the same on the financial statements cannot be ascertained and quantified. (Also refer point no19 of note no.35 to the financial statements).

(xi) Fixed assets are generally capitalised on the basis of completion certificates issued by the engineering department. Due to delays in issuance of the completion certificates, there are cases where capitalization of the fixed assets gets deferred to next year. The resultant impact of the same on the statement of profit and loss by way of depreciation and amount of fixed assets capitalized in the balance sheet cannot be ascertained.

(xii) Pending reconciliation of income from recharge coupons/ITC cards/prepaid calling cards and stock of such coupons/cards, the impact thereof on the financial statements cannot be ascertained and quantified.

(xiii) In respect of sundry creditors, in Mobile Services, Mumbai, liability towards one of the vendors of Rs. 106.73 crores is appearing in the financial books as against the liability of Rs. 42.01 crores to be retained as per the other available records. Pending reconciliation and review of records spread over the years from 2006-07 to 2012-13, no corrective entries have been passed in the financial books during the year. Impact of the same on the financial statements of the Company cannot be ascertained pending the said reconciliation and review. (Refer point no 6 of Note no. 35 to the financial statements).

(xiv) The Company had invested Rs.100 crores in 8.75% Cumulative Preference Shares of M/S. ITI Limited during the year 2001-02. As per the terms of allotment, the said preference shares were to be redeemed in five equal installments. As per letter no. U-59011-10/2002-FAC dated 31.07.2009 issued by DOT, the repayment schedule of the said preference shares was deferred to 2012-13 onwards in five equal installments. M/s. ITI Ltd. has failed to meet its rescheduled obligation in respect of first three installments of Rs. 20 crores each payable in 2012-13, 2013-14 & 2014-15. Since M/s. ITI Ltd. has not complied with even rescheduled commitments, the Company has made a provision for the first three installment of Rs. 60 crores only instead of providing for full investment of Rs. 100 crores. This has resulted into understatement of loss by Rs. 40 crores and overstatement of noncurrent investments by Rs. 20 crores and also overstatement of current investments by Rs. 20 crores. (Also refer point no. 7 of note no.35 to the financial statements).

(xv) Certain Land and Buildings transferred to MTNL from DOT in earlier years have been reflected as leasehold. In the absence of relevant records, we are not in a position to comment on the classification of the same as leasehold and also the consequential impacts, if any, of such classification not backed by relevant records. In the absence of relevant records, impact of such classification on the financial statements cannot be ascertained and quantified.

(xvi) Department of Telecommunication (DOT) had raised a demand of Rs. 3313.15 crores in 2012-13 on account of one time charges for 2G spectrum held by the Company for GSM and CDMA for the period of license already elapsed and also for the remaining valid period of license including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA has been revised by Rs. 107.44 crores on account of rectification of actual usage.

Also as explained, pending finality of the issue by the Company regarding surrender of a part of the spectrum, crystallization of issue by the DOT in view of the claim being contested by the Company and because of the matter being sub-judice in the Apex Court on account of dispute by other private operators on the similar demands, the amount payable, if any, is indeterminate. Accordingly, no liability has been created for the demand made by DOT on this account and Rs. 3205.71 crores has been disclosed as contingent liability.

In view of the above we are not in a position to comment on the correctness of the stand taken by the Company and the ultimate implications of the same on the financial statements of the Company. (Also refer point no.4 of note no.35 to the financial statements).

(xvii) Other current assets include claim of Income tax refund for F.Y. 1999-2000 of Rs. 101.54 crores arising from pending appeal effect / rectification under Section 154 of Income Tax Act, 1961 by income tax department. This includes tax amount of Rs. 60.30 crores and interest accrued thereon amounting to Rs. 41.24 crores. In the absence of complete records, we are not in a position to comment on the correctness and recoverability of the same and consequential impact on the financial statements of the Company.

(xviii) The balances appearing in the advance tax/income tax receivable / tax deducted at source / interest on income tax and provisions for taxes are subject to reconciliation with the tax records. Pending reconciliations we are not in a position to comment on the correctness of the same and consequential impact of the same on the financial statements of the Company.

(xix) In Mumbai unit, on reconciliation of balance outstanding under refund due to subscribers account with actual amount due for refund, Rs. 37.13 crores was identified as excess liability appearing in the financial books. Pending decision on the final treatment of this excess amount, the same has been retained as liability in the financial books resulting into overstatement of loss and overstatement of current liabilities. (Refer point no. 17(c) of note no.35 to the financial statements).

In the absence of information, the effect of which cannot be quantified, we are unable to comment on the possible impact of the items stated in the point nos.(i), (ii), (iv), (v), (vi), (vii), (viii), (ix)(a), (x), (xi), (xii),(xiii), (xv), (xvi), (xvii) and (xviii) on the standalone financial statements of the Company for the year ended on 31st March 2015.

We further state that without considering the impact of items stated in preceding para, the effect of which could not be determined, had the observations made by us in point nos (iii),(ix)(b), (xiv) and(xix) ) been considered in the standalone financial statements, loss for the year would have been Rs. 3036.62 crores as against the reported figure of Rs. 2893.39 crores in the Statement of Profit and Loss and Trade receivables under the head Current Assets would have been Rs.284.09 crores as against the reported figure of Rs. 294.52 crores, Non Current Investments and Current Investments would have been Rs. 141.98 crores and Rs. NIL as against the reported figures of Rs. 161.98 crores and Rs. 20 crores respectively, Other Current Liabilities would have been Rs. 3163.28 crores as against the reported figure of Rs. 3070.48 crores in the Balance Sheet.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the standalone financial statements give the information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2015 and its losses and its cash fowls for the year ended on that date.

Emphasis of Matters

We draw attention to the following notes on the standalone financial statements being matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us. Our opinion is not qualified in respect of these matters:

(i) Point no. 27 of note no.35 to the financial statements regarding non provision of diminution in the value of investments in joint ventures/subsidiary as these diminutions are considered temporary in nature.

(ii) Point no. 9(a) of note no.35 to the financial statements regarding the adequacy or otherwise of the provision and / or contingency reserve held by the Company with reference to pending dispute with the Income Tax Department before the Hon''ble Courts regarding deduction claimed by the Company u/s 80 IA of the Income Tax Act,1961.

(iii) Point no.14(a) of note no.35 to the financial statements regarding accounting of claims and counter claims of MTNL with M/S M&N Publications Ltd., in a dispute over printing, publishing and supply of telephone directories for MTNL, in the year when the ultimate collection / payment of the same becomes reasonably certain.

(iv) Point no. 15(d)of note no.35 to the financial statements regarding non deduction of tax at source for IUC services rendered by BSNL based on the expert opinion taken by the Company.

(v) Classification of trade receivables as unsecured without considering the security deposit which the Company has received from the subscribeRs. (Also refer note no.19 to the financial statements).

(vi) Amount receivable from BSNL has been reflected as loans and advances instead of bifurcating the same into trade receivables and other receivables. (Also refer note no. 19 to the financial statements).

(vii) Disclosure of consumption of imported and indigenous stores and spares and percentage to the total consumption as required by Schedule III of the Companies Act, 2013 has not been made by the Company in the financial statements.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2015 ("the Order") issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure - ''A'' a statement on the matters specified in paragraphs 3 and 4 of Order, to the extent applicable.

2. As required by Section 143(5) of the Act, we give in Annexure B, a statement on the matters specified by the Comptroller and Auditor-General of India for the Company.

3. As required by section 143 (3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit except for the matters described in point nos. (i), (ii), (iv), (v), (vi), (vii), (viii), (ix)(a), (x), (xi), (xii), (xiii), (xv), (xvi), (xvii) and (xviii)of the paragraph on Basis of Qualified Opinion given above ;

(b) In our opinion proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books except for our comments under the head ''Basis for Qualified Opinion'' stated above;

(c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement the books of account;

(d) In our opinion and based on our comments in point nos. (iii), (iv), (v), (xi), (xii), (xiv), (xv) and (xvi) of the paragraph on Basis for Qualified Opinion given above, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules 2014 except for AS-2 regarding Valuation of Inventories, AS-6 regarding Depreciation Accounting, AS-9 regarding Revenue recognition, AS-10 regarding Accounting of Fixed Assets, AS-13 regarding Accounting of Investments, AS-28 regarding Impairment of Assets and AS 29 on Provisions, Contingent Liabilities and Contingent Assets.

(e) On the basis of written representations received from the directors as on 31st March, 2015 and taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of Section 164 (2) of the Act; and

(f) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the Basis for Qualified Opinion paragraph above.

(g) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us;

i. the Company has disclosed the impact of pending litigations, wherever quantifiable, on its financial position in its financial statements. Refer point no. 1 and 14 of Note no. 35 to the financial statements.

ii. the Company is not required to make any provision for any material foreseeable losses under any law or accounting standards on long terms contracts. Also the Company is not dealing into derivatives contracts. Refer point no. 37 of Note no. 35 to the financial statements.

iii. There has been no delay in transferring any amount to the Investor Education and protection Fund during the year. Refer point no 36 of Note No. 35 to the financial statements.

ANNEXURE TO THE INDEPENDENT AUDITORS'' REPORT

REFERRED TO IN OUR INDEPENDENT AUDITORS'' REPORT OF EVEN DATE TO THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LIMITED ON THE STANDALONE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31st MARCH 2015.

(i) (a) Delhi unit has maintained records of fixed assets. However in MS unit-Delhi, identification number are not mentioned. It has been noticed that records of the Estates Department in respect of land and building do not match with the records as per financial books. In case of Mumbai unit (both basic and WS), fixed assets registers have been maintained w.e.f. 01.04.2002. However, the fixed assets records maintained by the Mumbai unit are not updated and reconciled with the financial records. Also identification numbers are not mentioned in respect of most of the items. the corporate office has maintained fixed assets records showing full particulars including quantitative details and situation of fixed assets.

(b) As per the accounting policy of the company, fixed assets are required to be physically verified by the management on rotation basis, once in three years, which in our opinion is reasonable and adequate in relation to the size of the Company and the nature of its business. As certified by the management, the office machinery and equipments, leased premises and cables were physically verified in accordance with programme of verification by the management during the year and no material discrepancies were noticed on such verification. However no documentary evidence in respect of physical verification of cables was made available to us for our verification. Therefore, we are unable to comment on material discrepancies, if any, noticed on such verification.

(ii) (a) In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals during the year.

(b) In our opinion, the procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the records of inventory, we are of the opinion that the Company is maintaining proper records of inventory. Discrepancies noticed on physical verification of inventory as compared to book records were not material and have been properly dealt with in the books of accounts.

(iii) The Company has not granted any secured or unsecured loans to companies, forms or other parties covered in the register maintained under section 189 of the Companies Act, 2013 (''the Act''). Thus , paragraph 3(iii) of the Order is not applicable

(iv) In our opinion and according to the information and explanations given to us, internal control system is reasonably adequate and broadly commensurate with the size of the Company and the nature of its business with regard to purchase of inventory and fixed assets and for the sale of goods and services. The same needs to be strengthened further. We have not observed any continuing failure to correct major weakness in the internal control system during the course of the audit.

(v) The Company has not accepted any deposits from the public within the meaning of Section 73 to Section 76 or any other relevant provisions of the Companies Act, 2013 or rules framed there under.

(vi) As per information and explanation given to us, Company is required to maintain the cost records under Section 148(1) of the Companies Act 2013. As explained the Company has not yet maintained the required cost records for 2014-15.

(vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including provident fund, employee''s state insurance, income tax, sales tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and other material statutory dues, wherever applicable, have been regularly deposited during the year by the Company with the appropriate authorities.

According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employee''s state insurance, income tax, sales tax, wealth tax, service tax duty of customs, duty of excise, value added tax, cess or other material statutory dues were in arrears as at 31 March 2015.

(b) According to the information and explanations given to us, there are no dues of Income tax, Sale tax, service tax, wealth tax, duty of customs, duty of excises, value added tax and cess which have not been deposited with the appropriate authorities on account of any dispute except for the following dues:

Delhi Unit

i. Sales Tax Name of Amount Period Authority where Forum where the Statute (Rs,in Crores) the dispute is pending L.S.T (Net)

Delhi Sales Tax Act 12.21 2007-08 Addl. Comm. Sales Tax

Delhi Sales Tax Act 62.60 2009-10 & 2010-11 Addl. Comm. Sales Tax (CWG 2010)

Delhi Sales Tax Act 0.04 2012-13 Addl. Comm. Sales Tax

TOTAL 74.85

ii. Service Tax

Name of the Statute Amount (Rs,in Period Forum where the dispute is pending Crores) (Net)

Service tax 7.96 2005-06 Addl. Comm. Service Tax Service tax 22.03 2007-08 Addl. Comm. Service Tax

TOTAL 29.99

iii. Labour Cess

Name of the Statute Amount (Rs,in Period Forum where the dispute is Crores) (Net) pending

Building and other 2.68 1996 to 2001 Deputy Labor Commissioner Construction Workers Welfare Cess Act, 1996.

Building and other 5.93 2002 to 2005 Deputy Labor Commissioner Construction Workers Welfare Cess Act, 1996.

Building and other 1.48 2005 to 31.03. 2015 Deputy Labor Commissioner Construction Workers

Welfare Cess Act, 1996.

TOTAL 10.09

Mumbai Basic Unit Sales Tax:

Name of the Nature of Dues Amount under Year to which Statute dispute(Rs,in amount relates Crores) (Net)

BST ACT Assessed Amount 0.36 1993-94

BST ACT Assessed Amount 5.32 1996-97

BST ACT Assessed Amount 1.91 1998-99

BST ACT Assessed Amount 3.52 1999-200

BST ACT Assessed Amount 5.48 2000-01

BST ACT Assessed Amount 10.16 2001-02

BST ACT Assessed Amount 216.11 2003-04

BST ACT Assessed Amount 101.57 2004-05

Total 344.43

Name of the Statute Forum where the dispute is pending

BST ACT mAHARASHTRA SALES tAX Tribunal, Mumbai

BST ACT Maharashtra Sales Tax Tribunal Mumbai

BST ACT Jt. Commissioner of sales Tax (Appeal) II Mumbai

BST ACT Jt. Commissioner of Sales Tax (Appeal) II Mumbai

Bst ACT Maharashtra sales tax Tribunal Mumbai

Bst ACT Maharashtra sales tax Tribunal Mumbai

Bst ACT Maharashtra sales tax Tribunal Mumbai

Bst ACT Maharashtra sales tax Tribunal Mumbai

Mumbai MS Unit Central Excise:

Name of the Statute Nature of dues Amount Under Year to Which dispute not Amount deposited (Rs,in Relates Crores)

Central Excise Act Installation of BTS Site 0.29 2004-05

Central Excise Act Installation of BTS Site 0.26 2005-06

Central Excise Act Installation of BTS Site 0.32 2006-07

Total 0.87



Name of the Statute Form where the dispute is pending

Central Excise Act CESTAT

Central Excise Act CESTAT

Central Excise Act CESTAT



(c) According to the information and explanations given to us the amounts required to be transferred to the investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules there under have been transferred to such fund within time .

(viii) The company does not have accumulated losses as at 31st March 2015. The Company has incurred cash losses during the current financial year. However, the Company did not have cash losses in the preceding financial year.

(ix) The Company has not defaulted in the repayment of dues to banks or debenture holders. The Company has not taken any loan from any financial institution.

(x) In our opinion and according to the information and the explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

(xi) The Company has not taken any term loan during the year.

(xii) Based on audit procedures applied and according to the information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the course of our audit for the year ended on 31st March 2015 except for the following three cases:

Nature of Fraud Amount Remarks (Rs,in Crores)

Major Discrepancy found in reconciliation of 0.02 Investigation in Progress E-recharge through Demo Sim. Short remittances of E-recharge.

Improper record keeping of recharge coupons, non 0.11 Investigation in Progress

reconciliation of stock time to time and probable siphoning of amount collected.

Theft of blank cheques and enacted by forged 0.05 Amount has been credited to signature. MTNL Account by Bank.

TOTAL 0.18

For V. K. DHINGRA & CO. For ARUN K. AGARWAL & ASSOCIATES

CHARTERED ACCOUNTANTS CHARTERED ACCOUNTANTS

Firm Regn. No. 000250N Firm Regn. No. 003917N



(SANJAY JINDAL) (SANJAY GUPTA) PARTNER PARTNER M. NO. 087085 M. NO. 095506

PLACE : NEW DELHI DATED : MAY 30, 2015

---

Mar 31, 2014

We have audited the accompanying financial statements of Mahanagar Telephone Nigam Limited ("the Company"), which comprise the Balance sheet as at March 31, 2014 and the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards notified under the Companies Act, 1956 ("the Act") read with the General Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. 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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

(i) The Company has certain balances receivables from and payables to BSNL. The net amount recoverable of Rs. 23640.05 million is subject to reconciliation and confirmation. In view of non reconciliation/ confirmation and also in view of various pending disputes regarding each other''s claims, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the financial statements of the Company. (Also refer point no. 11 of note no.35 to the financial statements).

(ii) The Company has certain balances receivables from and payables to Department of Telecommunication (DOT). The net amount recoverable of Rs. 84202.51 million is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the financial statements of the Company.. (Also refer point no. 15 of note no.35 to the financial statements).

(iii) Upto financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL was worked out on accrual basis as against the terms of License agreements requiring deduction for expenditure from the gross revenue to be allowed on actual payment basis. From financial year 2012-13, the license fee payable to the DOT has been worked out strictly in terms of the license agreements. The Company continues to reflect the difference in license fee arising from working out the same on accrual basis as aforesaid for the period upto financial year 2011-12 byway of contingent liability of Rs. 1403.63 million instead of actual liability resulting in under statement of current liabilities and over statement of profit to that extent. (Also refer point no.17 of note no.35 to the financial statements).

(iv) The Company continues to allocate the establishment overheads towards capital works on estimated basis. In view of the basis being not in line with the accepted accounting practices and Accounting Standard -10 "Accounting for Fixed Assets" issued under the Companies (Accounting Standards) Rules, 2006, the same results into ove Rs. statement of capital work in progress/ fixed assets and overstatement of profits. The actual impact of the same on the financial statements for year is not ascertainable and quantifiable. (Also refer note no.25 and 28 to the financial statements).

(v) No adjustment has been considered on account of impairment loss during the year, with reference to AS-28 "Impairment of Assets" issued under Companies (Accounting Standards) Rules, 2006. In view of uncertainty in achievement of future projections made by the Company, we are unable to ascertain and comment on the provision required in respect of impairment in carrying value of cash generating units and its consequent impact on the profit for the year, accumulated balance of reserve and surplus and also the carrying value of the cash generating units. (Also refer point no. 36 of note no.35 to the financial statements).

(vi) To work out the liability towards wealth tax, vacant land and guest houses/inspection quartetrs are taken at their book values instead of valuation the same as per Wealth Tax Act /Rules resulting into over statement of profit resulting from lower wealth tax and also corresponding understatements of liabilities. In the absence of valuation as at the year end, we are not in a position to ascertain and quantify the impact thereof on financial statements. (Also refer point no. 26 of note no.35 to the financial statements).

(vii) Amount receivables from and payables to the various parties are subject to confirmation and reconciliation. Pending such confirmation and reconciliations, the impact thereof on the financial statements is not ascertainable and quantifiable. (Also refer point no. 23 of note no.35 to the financial statements).

(viii) Dues from the operators are not taken into account for making provision for doubtful debts. Also no provision for doubtful debts is made for disputed cases outstanding for less than one year in Basic and for less than 180 days in GSM/CDMA. In the absence of any working, the impact thereof on the financial statements cannot be ascertained and quantified. (Also refer point no. 3(b) of note no. 1 to the financial statements).

(ix) (a) In Delhi Unit, reconciliation of balances of subscriber''s deposits as per subsidiary records with financial books (WFMS) is still in progress and the impact, if any, of the differences arising out of such reconciliation on financial statements cannot be ascertained and quantified at present. (Also refer point no. 16(a) of note no.35 to the financial statements).

(b) Unlinked credit of Rs. 212.42 million on account of receipts from subscribers against billing by the Company which could not be matched with corresponding receivables are appearing as liabilities in the balance sheet. To that extent, both assets and liabilities are overstated. (Also refer point no. 16(e) of note no.35 to the financial statements).

(c) The aggregate balance of trade receivables as per the ageing summary in subsidiary records is lower by Rs. 66.56 million as compared to the balance in general ledger and is under reconciliation. The same has been provided for Pending reconciliation, the impact of the same on the financial statements cannot be ascertained and quantified. (Also refer point no. 16(f) of note no.35 to the financial statements).

(x) In the absence of detailed information i.e. break up of amount received with relation to the individual invoices raised through MACH, invoice wise reconciliation of the roaming debtors is pending. Pending such reconciliation, the impact of the same on the financial statements can not be ascertained and quantified. (Also refer point no.40 of note no.35 to the financial statements).

(xi) Fixed assets are generally capitalized on the basis of completion certificates issued by the engineering department. Due to delays in issuance of the completion certificates, there are cases where capitalization of the fixed assets gets deferred to next year-. The resultant impact of the same on the statement of profit and loss by way of depreciation and amount of fixed assets capitalized in the balance sheet cannot be ascertained.

(xii) Pending reconciliation of income from recharge coupons/ITC cards/prepaid calling cards and stock of such coupons/cards, the impact thereof on the financial statements cannot be ascertained and quantified.

(xiii) The Company had invested Rs. 1000 million in 8.75% Cumulative Preference Shares of M/S. ITI Limited during the year 2001-02. As per the terms of allotment, the said preference shares were to be redeemed in five equal installments. As per letter no. U-59011-10/2002- FAC dated 31.07.2009 issued by DOT, the repayment schedule of the said preference shares was deferred to 2012-13 onwards in five equal installments. M/s. ITI Ltd. has failed to meet its rescheduled obligation in respect of first two installment of Rs. 200 million each payable in 2012-13 & 2013-14. Since M/s. ITI Ltd. has not complied with even rescheduled commitments, the Company has made a provision for the first two installment of Rs. 400 million only instead of providing for full investment of Rs. 1000 million. This has resulted into over statement of profit by Rs. 600 million and overstatement of non current investments by Rs. 400 million and also overstatement of current investments by Rs. 200 million. (Also refer point no. 14 of note no.35 to the financial statements).

(xiv) Certain Land and Buildings transferred to MTNL from DOT in earlier years have been reflected as leasehold. In the absence of relevant records, we are not in a position to comment on the classification of the same as leasehold and also the consequential impacts, if any, of such classification not backed by relevant records. In the absence of relevant records, impact of such classification on the financial statements cannot be ascertained and quantified.

(xv) Department of Telecommunication (DOT) had raised a demand of Rs. 33131.50 million in 2012-13 on account of one time charges for2G spectrum held by the Company for GSM and CDMA for the period of licence already elapsed and also for the remaining valid period of licence including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA has been revised by Rs. 1074.40 million on account of rectification of actual usage.

Also as explained, pending finality of the issue by the Company regarding surrender of a part of the spectrum, crystallization of issue by the DOT in view of the claim being contested by the Company and because of the matter being sub-judice in the Apex Court on account of dispute by other private operators on the similar demands, the amount payable, if any, is indeterminate. Accordingly, no liability has been created for the demand made by DOT on this account and Rs. 32057.10 million has been disclosed as contingent liabilityy.

In view of the above we are not in a position to comment on the correctness of the stand taken by the Company and the ultimate implications of the same on the financial statements of the Company. (Also refer point no. 39 of note no.35 to the financial statements).

(xvi)Segment Assets and Segment Liabilities in respect of primary segment have not been ascertained and disclosed by the Company. In the absence of required information, we are not in a position to ascertain and quantify the impact of the same on segment results. (Also refer point no. 33 of note no.35 to the financial statements).

(xvii) Other current assets include claim of Income tax refund for F.Y. 1999-2000 of Rs. 1015.43 million arising from pending appeal effect/rectification under Section 154 of Income Tax Act, 1961 by income tax department . This includes tax amount of Rs. 603.03 million and interest accrued thereon amounting to Rs. 412.40 million. In the absence of complete records, we are not in a position to comment on the correctness and recoverability of the same and consequential impact on the financial statements of the Company.

(xviii) The balances appearing in the advance tax/income tax receivable / tax deducted at source / interest on income tax and provisions for taxes are subject to reconciliation with the tax records. Pending reconciliations we are not in a position to comment on the

correctness of the same and consequential impact of the same on the financial statements of the Company.

(xix)In respect of absorbed combined service pension optee employees of MTNL, part of the pensionary benefits paid in the earlier years were capitalized along with the capital work in progress. However while reversing the same in the current year in view of the same having been taken over by Govt. of India as per notification dated March 03,2014, capitalized portion of earlier years has also been taken to Statement of Profit and Loss and reflected as part of exceptional items without decapitalising the portion capitalized in earlier years. In the absence of details pertaining to previous years, we are not in a position to comment on the impact of the same on the financial statements.

In the absence of information, the effect of which can not be quantified, we are unable to comment on the possible impact of the items stated in the point nos.(i), (ii), (iv), (v), (vi), (vii), (viii), (ix)(a),(ix)(c), (x), (xi), (xii),(xiv), (xv), (xvi), (xvii), (xviii) and (xix) on the financial statements of the Company for the year ended on 31st March 2014.

We further state that without considering the impact of items stated in preceding para, the effect of which could not be determined, had the observations made by us in point nos (iii), (ix)(b) and, (xiii) ) been considered in the financial statements, profit for the year would have been Rs. 76247.68 million as against the reported figure of Rs. 78251.31 million in the Statement of Profit and Loss and Trade receivables under the head Current Assets would have been Rs. 2705.58 million as against the reported figure of Rs. 2918.00 million, Non Current Investments and Current Investments would have been Rs. 1419.79 million and Rs. nil million as against the reported figures of Rs. 1819.79 million and Rs. 200 million respectively, Other Current Liabilities would have been Rs. 30047.60 million as against the reported figure of Rs. 28856.39 million in the Balance Sheet.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with accounting principles generally accepted in India:

a) in the case of Balance Sheet, of the state of affairs of the Company as at March 31,2014;

b) in the case of Statement of Profit and Loss, of the profit for the year ended that date; and

c) in case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Emphasis of Matters

We draw attention to the following notes on the financial statements being matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us. Our opinion is not qualified in respect of these matters:

(i) Point no.4 of note no. 35 to the financial statements regarding non provision of pensionary benefits viz. pension and gratuity in respect of absorbed combined service pension optees to be paid by the Govt. of India vide gazette notification no.GSR 138(E) dated 3rd March 2014.

(ii) Point no.22 of note no.35 to the financial statements regarding non provision of diminution in the value of investments in joint ventures/subsidiary as these diminutions are considered temporary in nature.

(iii) Point no.5(a) of note no.35 to the financial statements regarding the adequacy or otherwise of the provision and / or contingency reserve held by the Company with reference to pending dispute with the Income Tax Department before the Hon''ble Courts regarding deduction claimed by the Company u/s 80 IA of the Income Tax Act,1961.

(iv) Point no. 8(b) of note no.35 to the financial statements regarding accounting of claims and counter claims of MTNL with M/S M&N Publications Ltd., in a dispute over printing, publishing and supply of telephone directories for MTNL, in the year when the ultimate collection / payment of the same becomes reasonably certain.

(v) Point no. 38 of note no.35 to the financial statements regarding non deduction of tax at source for IUC services rendered by BSNL based on the expert opinion taken by the Company.

(vi) Classification of trade receivables as unsecured without considering the security deposit which the Company has received from the subscribers. (Also refer note no.19 to the financial statements).

(vii) Amount receivable from BSNL has been reflected as loans and advances instead of bifurcating the same into trade receivables and other receivables. (Also refer note no.16 to the financial statements).

(viii) Disclosure of consumption of imported and indigenous stores and spares and percentage to the total consumption as required by Schedule VI of the Companies Act, 1956 has not been made by the Company in the financial statements.

(ix) Point no. 16(b) of note no.35 to the financial statements regarding impact if any, arising out of reconciliation of Balances of customer''s deposits in the CSMS billing system with financial books (WFMS) in Mumbai Unit.

(x) Point no. 16(d) of note no.35 to the financial statements regarding impact if any, arising out of reconciliation of Balance outstanding under refund due to subscribers account with actual amount due for refund in Mumbai Unit.

(xi) Point no. 27 of note no. 35 to the financial statements regarding exceptional items to the tune of Rs. 116209.31 million accounted for during the year.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of the Section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by Section 227(3) of the Act, 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 except for the matters described in point nos. (i), (ii), (iv), (v), (vi), (vii), (viii), (ix)(a), (ix)(c), (x), (xi), (xii), (xiv), (xv), (xvi), (xvii), (xviii) and (xix) of paragraph on Basis of Qualified Opinion given above;

b. In our opinion proper books of accounts as required by law have been kept by the Company so far as appears from our examination of those books;

c. The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with books of account;

d. In our opinion and based on our comments in point nos. (iii), (iv), (v), (xi), (xii), (xiii), (xiv), (xv), (xvi) & (xix) of the paragraph on Basis for Qualified opinion given above, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Act read with the General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013, except AS-2 regarding Valuation of Inventories, AS-6 regarding Depreciation Accounting, AS-9 regarding Revenue Recognition, AS-10 regarding Accounting of Fixed Assets, AS-13 regarding Accounting for Investments, AS-17 regarding Segment Reporting, AS-28 regarding Impairment of Assets, AS- 29 on Provisions, Contingent Liabilities and Contingent Assets;

e. In view of the Government notification no. GSR 829 (E) dated 21st October 2003, Government companies are exempt from the applicability of provisions of clause(g) sub-section (1) of Section 274 of the Act;

ANNEXURE TO INDEPENDENT AUDITORS'' REPORT

REFERRED TO IN PARAGRAPH 1 UNDER THE HEADING OF "REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS" OF OUR REPORT OF EVEN DATE TO THE MEMBERS OF MAHANAGAR TELEPHONE NIGAM LTD SHALL ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31ST MARCH 2014.

1. (a) Delhi unit has maintained records of fixed assets. However in MS unit- Delhi, identification number is not mentioned. It is noticed that records of the Estates Department in respect of Land and Building do not match with the records as per financial books. In case of Mumbai Unit (both basic and WS unit), fixed assets registers have been maintained w.e.f. 01.04.2002. However, the fixed assets records maintained by the Mumbai unit are not up dated and reconciled with the financial records. Also identification number is not mentioned in respect of most of the items. The corporate office has maintained fixed assets records showing full particulars including quantitative details and situation of fixed assets.

(b) As per the Accounting Policy of the company, Fixed Assets are required to be physically verified by the Management on rotation basis, once in three years, which in our opinion is reasonable and adequate in relation to the size of the Company and the nature of its business. As certified by the management, the Electric Appliances (excluding lights & fans), Furniture & Fixtures, line & wire and computers were physically verified in accordance with programme of verification by the management during the year and no material discrepancies were noticed on such verification. However no documentary evidence in respect of physical verification of lines & wires was made available to us for our verification. Therefore we are unable to comment on material discrepancies noticed on such verification, if any.

(c) The company has not disposed off any substantial part of its fixed assets during the year except surrender of spectrum of BWA services which is not effecting the going concern.

2. (a) In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals during the year .

(b) In our opinion, the procedures of physical verification of the inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion, the Company is maintaining proper records of inventory. As per the information provided to us, discrepancies noticed on physical verification of inventory were not material and have been properly dealt with in the books of accounts.

3. As explained to us, the Company has neither taken nor granted any loans, secured or unsecured, from/to companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly clause 4(iii) of the Companies (Auditors Report) Order, 2003 is not applicable to the Company.

4. In our opinion and according to the information and explanations given to us there are internal control procedures which are generally adequate and commensurate with the size and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. However, the same needs to be further strengthened. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control systems.

5. Based on the audit procedures applied by us and the information and explanations provided by the management, there was no transaction during the year ended 31.03.2014 that need to be entered in the register maintained under Section 301 of the Companies Act 1956.

6. As informed to us, the Company has not accepted any deposits from the public during the year within the meaning of Section 58 A and 58 AA of the Companies Act, 1956 and the rules framed there under.

7. In our opinion, the Internal Audit System of the company is not commensurate with the size of the Company and the nature of its business. Moreover, extent of coverage of the areas of operations, frequency / quality of reporting/ timeliness of the reporting and the follow up of internal audit observations need to be strengthened.

8. The Central Government has prescribed the maintenance of cost records under clause

(d) of sub section (1) of section 209 of Companies Act, 1956 .The company has not maintained the required Cost Records for the year 2013-2014.

9. (a) According to the information and explanations given to us and the records of the company examined by us, in our opinion, the company is generally regular in depositing undisputed Statutory Dues including Contributory Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, service tax, Custom Duty, Excise Duty, Cess and any Other material Statutory Dues as applicable with the appropriate authorities. As informed to us, the provisions of Employees State Insurance Act are not applicable to the company. According to the information and explanation given to us no undisputed amounts payable in respect of aforesaid dues were outstanding as at 31.03.2014, for a period of more than six months from the date they become payable.

(b) According to the information and explanation given to us, there are no dues in respect of Custom Duty, Excise Duty and Cess that have not been deposited with the appropriate authorities on account of any dispute. However, the Company has not deposited Sales Tax /VAT Dues, Service Tax and Income Tax Dues on account of disputes as under:

Local Sales Tax and Central Sales Tax / VAT:

Delhi Unit

(i) Sales Tax

Name of Amount (Rs. ) Period Authority where the Statute L.S.T (Net)

Delhi Sales 122100562 2007-08 Addl. Comm. Tax Act Sales Tax

Delhi Sales 625986672 2009-10 & 2010-11 Addl. Comm. Sales Tax Act (CWG 2010) Tax

TOTAL 748087234

Name of Amount (Rs. ) Period Authority where the Statute L.S.T (Net)

Service tax 79553540 2005-06 Addl. Comm. Service Tax Service tax 220288844 2007-08 Addl. Comm. Service Tax TOTAL 299842384

Mumbai Unit

Name of Nature of Dues Amount under Year to the Statute dispute which (Rs.) Net amount relates

BST ACT Assessed Amount 672968 1993-94 BST ACT Assessed Amount 52693370 1996-97 BST ACT Assessed Amount 59424662 1998-99 BST ACT Assessed Amount 30201675 1999-2000 BST ACT Assessed Amount 54029094 2000-01 BST ACT Assessed Amount 101128984 2001-02 BST ACT Assessed Amount 2161090302 2003-04 BST ACT Assessed Amount 1015717015 2004-05 Total 3474958070

Name of Forum where the Statute the dispute is pending

BST ACT Maharashtra Sales Tax Tribunal, Mumbai

BST ACT Maharashtra Sales Tax Tribunal, Mumbai

BST ACT Jt. Commissioner of Sales Tax (Appeal) II Mumbai

BST ACT Jt. Commissioner of Sales Tax (Appeal) II Mumbai

BST ACT Maharashtra Sales Tax Tribunal, Mumbai

BST ACT Maharashtra Sales Tax Tribunal, Mumbai

BST ACT Maharashtra Sales Tax Tribunal, Mumbai

BST ACT Maharashtra Sales Tax Tribunal, Mumbai

Statutory dues which have not been deposited in respect of Mumbai MS unit as on 31st March, 2014.

Name of Nature of Dues Amount under Year to Forum where the Statute dispute which the dispute (Rs.) Net amount is pending relates

Central Installation 2909233 2004-05 CESTAT Excise Act of BTS Site Central Installation 2617816 2005-06 CESTAT Excise Act of BTS Site

Central Installation 3210353 2006-07 CESTAT Excise Act of BTS Site

Total 8737402

10. The company does not have any accumulated losses at the end of the financial year. However, it has incurred cash losses during the current financial year as well as in the immediately preceding financial year.

11. As per the records of the company and according to the explanation provided by the management, we report that there is no default in repayment of dues from the loan taken from banks during the year under audit

12. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, clause 4 (xii) of the Order is not applicable.

13. The Company is not a Chit Fund or a Nidhi Mutual Benefit Fund / Society. Accordingly, clause 4(xiii) of the Order is not applicable.

14. The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, clause 4(xiv) of the Order is not applicable

15. According to the information and explanation given to us, the Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the Order is not applicable.

16. In our opinion, the term loans have been applied for the purpose for which they were raised.

17. In our opinion and according to the information and explanations given to us and on the basis of overall examination of the Balance Sheet & Cash Flow Statement of the company, we report that the funds raised by the company on short term basis have, prima facie, not been used for long term investments to the extent of Rs. 888.50 million.

18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act.

19. The Company has issued Non Convertible Debentures (in the form of bonds) under Sovereign Guarantee on private placement basis. As per information and explanation given to us, no charge or security is required to be created for the same.

20. The Company has not raised any money by public issues during the year. Accordingly, clause 4(xx) of the Order is not applicable.

21. According to the information and explanations given to us, no major fraud on or by the company has been noticed or reported during the year.

For Arun K. Agarwal & Associates For V.K. Dhingra & Co. Chartered Accountants Chartered Accountants FRN - 003917N FRN - 000250N

sd/- sd/- (Vimal Kumar Jain) (Lalit Ahuja) (Partner) (Partner) (Mem. No. 086657) (Mem. No. 085842)

Place: New Delhi Date: MAY 30, 2014

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Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of Mahanagar Telephone Nigam Limited ("the company"), which comprise the Balance sheet as at March 31, 2013, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards on auditing issued by the Institute of Chartered Accountants of India. 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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the companies preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

(i) The company has certain balances receivables from and payables to BSNL. The net amount recoverable ofRs. 19752.26 million is subject to reconciliation and confirmation. In view of non reconciliation/ confirmation and also in view of various pending disputes regarding each other''s claims, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the financial statements of the company. (Also refer point no.11 of note no.34 to the financial statements).

(ii) The company has certain balances receivables from and payables to Department of Telecommunication (DOT). The net amount recoverable ofRs. 34427.11 million is subject to reconciliation and confirmation. In view of non reconciliation and non confirmation, we are not in a position to ascertain and comment on the correctness of the outstanding balances and resultant impact of the same on the financial statements of the company. (Also refer point no.15 of note no.34 to the financial statements).

(iii) Upto financial year 2011-12 License Fee payable to the DOT on IUC charges to BSNL was worked out on accrual basis as against the terms of License agreements requiring deduction for expenditure from the gross revenue to be allowed on actual payment basis. From financial year 2012-13, the license fee payable to the DOT has been worked out strictly in terms of the license agreements. The company continues to reflect the difference in license fee arising from working out the same on accrual basis as aforesaid for the period upto financial year 2011-12 by way of contingent liability ofRs. 1403.63 million instead of actual liability resulting in under statement of current liabilities and losses to that extent. (Also refer point no.16 of note no.34 to the financial statements).

(iv) The Company continues to allocate the establishment overheads towards capital works on estimated basis. In view of the basis being not in line with the accepted accounting practices and Accounting Standard -10 "Accounting for Fixed Assets" issued under the Companies (Accounting Standards) Rules, 2006, the same results into overstatement of capital work in progress/ fixed assets and understatement of losses. The actual impact of the same on the capitalization & losses for year is not ascertainable and quantifiable. (Also refer note no.25 and 28 to the financial statements).

(v) No adjustment has been considered on account of impairment loss during the year, with reference to AS-28 "Impairment of Assets" issued under Companies (Accounting Standards) Rules, 2006. In view of continuous losses over the years resulting into full erosion of net worth of the company and uncertainty in achievement of future projections made by the company, we are unable to ascertain and comment on the provision required in respect of impairment in carrying value of cash generating units and its consequent impact on the loss for the year, accumulated balance of loss and also the carrying value of the cash generating units. (Also refer point no. 38 of note no.34 to the financial statements).

(vi) Provision for actuarial liability on account of medical expenses for retired employees and continuing employees has not been worked out and provided for as required under AS-15 "Employee Benefits" issued under Companies (Accounting Standards) Rules, 2006. Instead annual insurance premium for the policy taken by the company for this purpose is charged to statement of profit and loss. In the absence of actuarial valuation as on 31.03.2013, we are not in a position to ascertain and quantify the impact thereof on the financial statement. (Also refer point no. 34 of note no.34 to the financial statements).

(vii) Insurance claim for the fire loss in Data Center in July, 2009 amounting to Rs. 40 Million has been considered good. However, insurance company has disputed the claim and has informed the company to consider only the part of the claim which is not accepted by the Company.

As the dispute is still pending, we are not in a position to comment on the appropriateness of the claim recoverable being considered as good and the ultimate recovery of the same in full. Pending final outcome of the dispute, the impact thereof on the financial statements cannot be ascertained and quantified. (Also refer point no. 30(b) of note no.34 to the financial statements).

(viii)To work out the liability towards wealth tax, vacant land and guest houses/inspection quarters are taken at their book values instead of valuation the same as per Wealth Tax Act / Rules resulting into understatement of losses resulting from lower wealth tax and also corresponding understatements of liabilities. In the absence of valuation as at the year end, we are not in a position to ascertain and quantify the impact thereof on financial statements. (Also refer point no. 27 of note no.34 to the financial statements).

(ix) Amount receivables from and payables to the various parties are subject to confirmation and reconciliation. Pending such confirmation and reconciliations, the impact thereof on the financial statements is not ascertainable and quantifiable. (Also refer point no. 24 of note no.34 to the financial statements).

(x) Dues from the operators are not taken into account for making provision for doubtful debts. Also no provision for doubtful debts is made for disputed cases outstanding for less than 3 years in Basic and for less than 6 months in GSM/CDMA. In the absence of any working, the impact thereof on the financial statements cannot be ascertained and quantified. (Also refer point no. 1 (ii)(b) of note no.1 to the financial statements).

(xi) (a) In Delhi Unit, reconciliation of balances of customer''s deposits as per subsidiary records with financial books (WFMS) is still in progress and the impact, if any, of the differences arising out of such reconciliation on financial statements cannot be ascertained and quantified at present. (Also refer point no. 15(b) of note no.34 to the financial statements).

(b) Unlinked credit ofRs. 420.30 million on account of receipts from subscribers against billing by the company which could not be matched with corresponding receivables are appearing as liabilities in the balance sheet. To that extent, both assets and liabilities are overstated. (Also refer point no. 15(f) of note no.34 to the financial statements).

(c) The aggregate balance of sundry debtors as per the ageing summary in subsidiary records is lower by Rs. 73.83 million as compared to the balance in general ledger and is under reconciliation. The same has been provided for. Pending reconciliation, the impact of the same on the financial statements cannot be ascertained and quantified. (Also refer point no. 15(g) of note no.34 to the financial statements).

(xii) In the absence of detailed information i.e. break up of amount received with relation to the individual invoices raised through MACH, invoice wise reconciliation of the roaming debtors is pending. Pending such reconciliation, the impact of the same on the financial statements can not be ascertained and quantified. (Also refer point no.42 of note no.34 to the financial statements).

(xiii) Fixed assets are generally capitalized on the basis of completion certificates issued by the engineering department. Due to delays in issuance of the completion certificates, there are cases where capitalization of the fixed assets gets deferred to next year. The resultant impact of the same on the statement of profit and loss by way of depreciation and amount of fixed assets capitalized in the balance sheet cannot be ascertained.

(xiv) Out ofRs. 2850 million on account of wet lease of infrastructure and other services provided in respect of Commonwealth Games and accounted for in 2010-11, a sum ofRs. 430 million remains unrecovered and unconfirmed. Also the said amount ofRs. 430 million is yet to be approved by the concerned authorities. Pending confirmation, approval or any other document from the concerned authorities to substantiate the claim of the company, the recoverability of the amount outstanding is not certain. The company continues to treat the said amount as good for recovery and no provision for doubtful debts has been made for the same. To that extent, loss is understated and current assets are overstated. (Also refer point no. 44 of note no.34 to the financial statements).

(xv) Pending reconciliation of income from recharge coupons/ITC cards/prepaid calling cards and stock of such coupons/cards, the impact thereof on the financial statements cannot be ascertained and quantified.

(xvi)On material exchanged with BSNL on barter basis, VAT liability has not been ascertained and provided for. In the absence of detailed information, we are not in a position to comment on the likely impact of the same on the financial statements of the company.

(xvii) The company had invested Rs.1000 million in 8.75% Cumulative Preference Shares of M/ S. ITI Limited during the year 2001-02. As per the terms of allotment, the said preference shares were to be redeemed in five equal installments. As per letter no. U-59011-10/2002- FAC dated 31.07.2009 issued by DOT, the repayment schedule of the said preference shares was deferred to 2012-13 onwards in five equal installments. M/s. ITI Ltd. has failed to meet its rescheduled obligation in respect of first installment of Rs. 200 million payable in 2012-13. Since M/s. ITI Ltd. has not complied with even rescheduled commitments, the company has made a provision for the first installment of Rs.. 200 million only instead of providing for full investment of Rs.1000 million. This has resulted into understatement of losses by Rs.800 million and overstatement of non current investments by Rs. 600 million and also overstatement of current investments by Rs. 200 million. (Also refer point no. 14 of note no.34 to the financial statements).

(xviii) Certain works were carried out in earlier years by Mumbai Unit for Defence Network of Govt. of India in respect of alternate communication system. In context of the same following explanations has been given to us:-

"In respect of usage of the same Rs.338.3 million has been received at Corporate Office. Out of this Rs.59.82 million has been decapitalised in 2011-12 accounts and ATD sent to Corporate Office. The AT for the balance amount ofRs.278.48 million has been received from Corporate Office in 2012-13. Out of this amountRs.18.98 million has been decapitalised in 2012-13, Rs.32.33 million has been reduced from prior period expenses. Balance amount of Rs.227.17 million is relating to revenue for usage of the ducts. The work was completed in March-2011, the revenue is to be spread over a period of 18 years which is the life considered for depreciation of Cables. During the year Rs.25.24 million has been booked as income and balance of Rs.201.93 million is taken as unearned revenue to be recognised as income in the next 16 years."

In the absence of any agreement / documentary evidence / third party confirmation in respect of aforesaid accounting treatment / adjustments, we are not in a position to comment on the correctness or otherwise of such accounting treatment. (Also refer point no. 21 of note no.34 to the financial statements).

(xix)Certain Land and Buildings transferred to MTNL from DOT in earlier years have been reflected as leasehold. In the absence of relevant records, we are not in a position to comment on the classification of the same as leasehold and also the consequential impacts, if any, of such classification not backed by relevant records. In the absence of relevant records, impact of such classification on the financial statements cannot be ascertained and quantified.

(xx) During the year Department of Telecommunication (DOT) has raised a demand of Rs. 33131.50 million on account of one time charges for 2G spectrum held by the company for GSM and CDMA for the period of licence already elapsed and also for the remaining valid period of licence including spectrum given on trial basis.

As explained the demand for spectrum usage for CDMA will need revision by Rs.1074.40 million on account of rectification of actual usage.

As explained, pending finality of the issue by the company regarding surrender of a part of the spectrum , crystallization of issue by the DOT in view of the claim being contested by the Company and because of the matter being sub judice in the Apex Court on account of dispute by other private operators on the similar demands, the amount payable, if any, is indeterminate. Accordingly, no liability has been created for the demand made by DOT on this account and Rs. 32057.10 million has been disclosed as contingent liability.

In view of the above we are not in a position to comment on the correctness of the stand taken by the company and the ultimate implications of the same on the financial statements of the company. (Also refer point no. 41 of note no.34 to the financial statements).

(xxi)Segment Assets and Segment Liabilities in respect of primary segment have not been ascertained and disclosed by the company. In the absence of required information, we are not in a position to ascertain and quantify the impact of the same on segment results. (Also refer point no. 35 of note no.34 to the financial statements).

In the absence of information, the effect of which can not be quantified, we are unable to comment on the possible impact of the items stated in the point nos.(i), (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi)(a)&(c), (xii), (xiii),(xv), (xvi), (xviii), (xix), (xx) and (xxi) on the financial statements of the company for the year ended on 31st March 2013.

We further state that without considering the impact of items stated in preceding para, the effect of which could not be determined, had the observations made by us in point nos (iii),(xi)(b),(xiv) and (xvii) been considered in the financial statements, loss for the year would have been Rs. 55844.86 million as against the reported figure ofRs. 53211.23 million in the Statement of Profit and Loss and Trade receivables under the head Current Assets would have been Rs. 3389.68 million as against the reported figure of Rs. 3809.98 million, Short Term Loans and Advances under the head Current Assets would have been Rs. 7167.60 million as against the reported figure ofRs. 7597.60 million, Non Current Investments and Current Investments would have been Rs. 1419.79 million and Rs. nil million as against the reported figures ofRs. 2019.79 million and Rs. 200 million respectively, Other Current Liabilities would have been Rs. 29876.50 million as against the reported figure ofRs. 28893.17 million in the Balance Sheet.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with accounting principles generally accepted in India:

a) in the case of Balance Sheet, of the state of affairs of the Company as at march 31, 2013;

b) in the case of Statement of Profit and Loss, of the loss for the year ended that date; and

c) in case of the Cash Flow Statement, of the cash flows for the year ended on that date. Emphasis of Matters

We draw attention to the following notes on the financial statements being matters pertaining to Mahanagar Telephone Nigam Limited requiring emphasis by us. Our opinion is not qualified in respect of these matters:

(i) Point no.28 of note no.34 to the financial statements regarding preparation of financial statements on Going Concern basis in spite of the negative net worth of the company as on 31st March, 2013.

(ii) Point no.20(e) of note no.34 to the financial statements regarding the issue of pension liability on account of absorbed employees yet to be settled with the DOT.

(iii) Point no.22 of note no.34 to the financial statements regarding retaining of outstanding liability ofRs. 736.20 million on account of decommissioned assets pending arbitration case.

(iv) Point no.23 of note no.34 to the financial statements regarding non provision of diminution in the value of investments in joint ventures/subsidiary as these diminution are considered temporary in nature.

(v) Point no.5(a) of note no.34 to the financial statements regarding the adequacy or otherwise of the provision and / or contingency reserve held by the company with reference to pending dispute with the Income Tax Department at High Court level with reference to deduction claimed by the company u/s 80 IA of the Income Tax Act,1961.

(vi) Point no. 5(b) of note no. 34 to the financial statements regarding pending appeal effect by income tax authorities ofRs. 1015.43 million pertaining to financial year 1999-00.

(vii) Point no.5(c) of note no.34 to the financial statements regarding non reconciliation of advance tax, provisions for tax and interest on income tax refunds with the tax records of the company.

(viii) Point no. 8(b) of note no.34 to the financial statements regarding accounting of claims and counter claims of MTNL with M/S M&N Publications Ltd., in a dispute over printing, publishing and supply of telephone directories for MTNL, in the year when the ultimate collection / payment of the same becomes reasonably certain.

(ix) Point no. 40 of note no.34 to the financial statements regarding non deduction of tax at source for IUC services rendered by BSNL based on the expert opinion taken by the company.

(x) Classification of trade receivables as unsecured without considering the security deposit which the company has received from the subscribers. (Also refer note no.19 to the financial statements).

(xi) Amount receivable from BSNL has been reflected as loans and advances instead of bifurcating the same into trade receivables and other receivables. (Also refer note no.16 to the financial statements).

(xii) Disclosure of consumption of imported and indigenous stores and spares and percentage to the total consumption as required by Schedule VI of the Companies Act, 1956 has not been made by the company in the financial statements.

(xiii) Point no. 15(d) of note no.34 to the financial statements regarding impact if any, arising out of reconciliation of Balances of customer''s deposits in the CSMS billing system with financial books (WFMS) in Mumbai Unit.

(xiv) Point no. 15(e) of note no.34 to the financial statements regarding impact if any, arising out of reconciliation of Balance outstanding under refund due to subscribers account with actual amount due for refund in Mumbai Unit.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of the Section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by Section 227(3) of the Act, 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 except for the matters described in point nos. (i), (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi)(a)&(c), (xii), (xiii), (xv), (xvi), (xviii), (xix), (xx) and (xxi) of paragraph on Basis of Qualified Opinion given above;

b. In our opinion proper books of accounts as required by the law have been kept by the company so far as appears from our examination of those books;

c. The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with books of account;

d. In our opinion and based on our comments in point nos. (iii), (iv), (v), (vi), (xi), (xiii), (xix) & (xxi) of the paragraph on Basis for Qualified opinion given above, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Act, except AS-2 regarding Valuation of Inventories, AS-6 regarding Depreciation Accounting, AS-9 regarding Revenue Recognition , AS-10 regarding Accounting of Fixed Assets , AS-15 regarding Employee Benefits, AS-17 regarding Segment Reporting, AS-28 regarding Impairment of Assets, AS-29 on Provisions, Contingent Liabilities and Contingent Assets;

e. In view of the Government notification no. GSR 829 (E) dated 21st October 2003, Government companies are exempt from the applicability of provisions of clause (g) sub-section (1) of Section 274 of the Act;

ANNEXURE TO INDEPENDENT AUDITORS'' REPORT

(REFERRED TO IN PARAGRAPH 1 UNDER THE HEADING OF " REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS" OF OUR REPORT OF EVEN DATE)

1. (a) Delhi unit has maintained records of fixed assets. However in MS unit- Delhi, identification number is not mentioned. It is noticed that records of the Estates Department in respect of Land and Building do not match with the records as per financial books. In case of Mumbai Unit (both basic and WS unit), fixed assets registers have been maintained w.e.f. 01.04.2002. However, the fixed assets records maintained by the Mumbai unit are not up dated and reconciled with the financial records. Also identification number is not mentioned in respect of most of the items. The corporate office has maintained fixed assets records showing full particulars including quantitative details and situation of fixed assets.

(b) As per the Accounting Policy of the company, Fixed Assets are required to be physically verified by the Management on rotation basis, once in three years, which in our opinion is reasonable and adequate in relation to the size of the Company and the nature of its business. As certified by the management, the Apparatus & Plants, vehicles and land and buildings were physically verified in accordance with programme of verification by the management during the year. No material discrepancies were noticed on such verification.

(c) The company has not disposed off any substantial part of its fixed assets during the year and as such there is no effect on the going concern.

2. (a) In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals during the year .

(b) In our opinion, the procedures of physical verification of the inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) On the basis of our examination of the inventory records, in our opinion, the Company is maintaining proper records of inventory. As per the information provided to us, discrepancies noticed on physical verification of inventory were not material and have been properly dealt with in the books of accounts.

3. As explained to us, the Company has neither taken nor granted any loans, secured or unsecured, to/from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly clause 4(iii) of the Companies (Auditor''s Report ) Order, 2003 is not applicable to the Company.

4. In our opinion and according to the information and explanations given to us there are internal control procedures which are generally adequate and commensurate with the size and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. However, the same needs to be further strengthened. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control systems,

5. Based on the audit procedures applied by us and the information and explanations provided by the management, there was no transaction during the year ended 31.03.2013 that need to be entered in the register maintained under Section 301 of the Companies Act 1956.

6. As informed to us, the Company has not accepted any deposits from the public during the year within the meaning of section 58 A and 58 AA of the Companies Act, 1956 and the rules framed there under.

7. In our opinion, the Internal Audit System of the company is not commensurate with the size of the Company and the nature of its business. Moreover, extent of coverage of the areas of operations, frequency / quality of reporting/ timeliness of the reporting and the follow up of internal audit observations need to be strengthened.

8. The Central Government has prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of Companies Act, 1956 .The company has not maintained the required Cost Records for the year 2012-2013..

9. (a) According to the information and explanations given to us and the records of the company examined by us , in our opinion, the company is generally regular in depositing undisputed Statutory Dues including Contributory Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, service tax, Custom Duty, Excise Duty, Cess and any Other material Statutory Dues as applicable with the appropriate authorities. As informed to us, the provisions of Employees State Insurance Act are not applicable to the company. According to the information and explanation given to us no undisputed amounts payable in respect of aforesaid dues were outstanding as at 31.03.2013, for a period of more than six months from the date they become payable.

(b) According to the information and explanation given to us, there are no dues in respect of Custom Duty, Excise Duty and Cess that have not been deposited with the appropriate authorities on account of any dispute. However, the Company has not deposited Sales Tax /VAT Dues, Service Tax and Income Tax Dues on account of disputes as under:

Local Sales Tax and Central Sales Tax / VAT:

The unit has already deposited Rs. 157233054/- out of the total disputed liability stated above. Mumbai Unit

Name of Nature of Dues Amount under Year to Forum where the Statute dispute which the dispute (Rs.) amount is pending relates

BST ACT Assessed Amount 3552968 1993-94 MSTT

BST ACT Assessed Amount 53193370 1996-97 DC

BST ACT Assessed Amount 59424662 1998-99 MSTT

BST ACT Assessed Amount 35201675 1999-2000 MSTT

BST ACT Assessed Amount 54829094 2000-01 MSTT

BST ACT Assessed Amount 101628984 2001-02 Jt. Commr. of Sales Tax Appeals

BST ACT Assessed Amount 2161090302 2003-04 Jt. Commr. of Sales Tax Appeals

BST ACT Assessed Amount 1015717015 2004-05 Jt. Commr. of Sales Tax Appeals

Finance Act Service Tax 5600000 2003-04 CESTAT 1994

Total 3490238070

The unit has already deposited Rs. 9680000/- with BST Act and Rs. 500000 with CESTAT out of the total disputed liability stated above

Statutory dues which have not been deposited in respect of Mumbai MS unit as on 31st March, 2013.

SL. Nature of Dues Amount under Year to Forum where No. dispute which the dispute (Rs.) amount is pending relates

1 Installation of BTS Site 2909233 2004-05 CESTAT

2 Installation of BTS Site 2617816 2005-06 CESTAT

3 Installation of BTS Site 3210353 2006-07 CESTAT

Total 8737402

10. The accumulated losses of the company exceed fifty percent of its net worth at the end of the financial year. It has incurred cash losses in the financial year and in the immediately preceding financial year.

11. As per the records of the company and according to the explanation provided by the management, we report that there is no default in repayment of dues from the loan taken from banks during the year under audit.

12. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, clause 4 (xii) of the Order is not applicable.

13. The Company is not a Chit Fund or a Nidhi Mutual Benefit Fund / Society. Accordingly, clause 4(xiii) of the Order is not applicable.

14. The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, clause 4(xiv) of the Order is not applicable.

15. According to the information and explanation given to us, the Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the Order is not applicable.

16. In our opinion, the term loans have been applied for the purpose for which they were raised.

17. On the basis of overall examination of the Balance Sheet and Cash Flow Statement of the company, we report that the funds raised by the company on short term basis have been used for long term investments. Out of the short term borrowings, a sum ofRs. 2400 million has been used for long term investments in fixed assets including Capital Work in Progress.

18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Act.

19. The Company has issued Non Convertible Debentures (in the form of bonds) under Sovereign Guarantee on private placement basis. As per information and explanation given to us, no charge or security is required to be created for the same.

20. The Company has not raised any money by public issues during the year. Accordingly, clause 4(xx) of the Order is not applicable.

21. According to the information and explanations given to us, no major fraud on or by the company has been noticed or reported during the year.

For Arun K. Aggarwal & Associates For V.K. Dhingra & Co.

Chartered Accountants Chartered Accountants

FRN - 003917N FRN - 000250N

sd/- sd/-

(Arun Agarwal) (Vipul Girotra)

(Partner) (Partner)

(Mem. No. 082899) (Mem. No. 084312)

Place: New Delhi

Date: MAY 30, 2013

---

Mar 31, 2012

1. We have audited the attached Balance Sheet of Mahanagar Telephone Nigam Limited as at March 31, 2012, the Statement of Profit and Loss and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto, in which, the accounts of 3 units namely Delhi unit, Mumbai unit and Mobile Service Unit (Delhi & Mumbai both) are incorporated, which have been audited by us. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the Auditing Standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor's Report) Order 2003, as amended by the Companies (Auditor's Report) Order, 2004 (together the 'Order'), issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, and on the basis of such checks as we considered appropriate and according to the information and explanation given to us, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable to the company.

4. Further to our comments in the Annexure referred to in paragraph 3 above and subject to:

a) Point No.6 (a) to Note No. 40 regarding deduction under section 80IA of the Income Tax Act claimed by the company of which 75% has already been allowed upto Tribunal level and the company has preferred an appeal for the remaining 25% with the High Court.The company is maintaining a provision for income tax amounting to Rs.4003.31 millions for the years 1997-98 to 1999-2000 on this account whereas the similar claims for subsequent years involving a tax liability of Rs.3948.46 Millions have been shown as Contingent Liability.In view of the pending disputes with the Income Tax Departments at the High Court level, we are unable to comment on the adequacy or requirement of the provision or contingency held in this regard.

b) Point No. 6 (b) to Note No. regarding accounting of appeal effect of Rs.1015.43 millions including accrued Interest of Rs.412.04 millions (Rs.101.86 Millions for the year) as recoverable is subject to adjustment as per the final orders to be passed by the Income Tax Department. Besides, the balances appearing in Advance Tax, Provisions for Income Tax and Interest on income Tax Refund are subject to reconciliation with the figures of the Income Tax Department.

c) Points No.11 & 14 to Note No.40 regarding the amounts recoverable from BSNL/DOT are subject to reconciliation and confirmation and in view of various pending disputes regarding each other's claims we are unable to comment on the impact of the same on the profitability of the company.

d) Point No. 1(k) of Note 40 regarding disclosure of contingent liability of Rs.1403.63 Million instead of actual provision on account of License Fee to the DOT which is being worked out on accrual basis as against the terms of License Agreements according to which the expenditures/ deductions from the Gross revenue are allowed on actual payment basis.

e) The company has allocated the establishment overheads as per Note 25 and Administrative overheads as per Note 28.The company's policy in this regard needs to be made more scientific and the same should avoid capitalizing the loss due to idle time of labour and machines.

f) Point No.32 of Note No. 40 regarding no impairment adjustment required to the carrying value of the fixed assets as at 31 March 2012. In our view, due to recurring losses incurred by the Company and uncertainty in the achievement of projections made by the Company, we are unable to comment on the provisions, if any, required in respect of impairment of carrying value of the fixed assets (including capital work in progress), other than land, and its consequential impact, if any, on the loss for the year, accumulated balance in the Profit and Loss Account and the carrying value of the fixed assets as at 31 March 2012.

g) Point No.27 (ii) of Note No.40 regarding the provision for employees benefits which have been made on the basis of actuarial valuation. the issue being technical, we are unable to comment on the adequacy or otherwise of these provisions.

h) Point No. 28 of Note No. 40 regarding Non provision of actuarial liability on account of medical expenses for retired employees and continuing employees as the Insurance policy has been taken by the company and yearly premium is only charged.

i) Insurance claim for the fire loss in Data Center in July, 2009 amounting to Rs. 40 Millions has been considered as good despite of the same being still pending with the Insurance Company.

j) Accounting Policy No.2 (iv) regarding valuation of scrapped/ decommissioned assets which are not being revalued every year.

k) Accounting Policy No. 1(ii)(b) regarding exclusion of dues from operators for making provision for Doubtful debts and non provision of disputed cases which are outstanding for less than three years in Basic and less than six months in wireless services.

l) Point No. 22 of Note No. 40 regarding non valuation of vacant land and Guest Houses/ Inspection quarters at fair market value as at the year end for the purpose of wealth tax provisions.

m) Point No.18 of Note No.40 regarding non confirmation and reconciliation of amounts receivable and payable from various parties.

n) Point No.14(b) regarding balance in subscriber's deposits account of Rs. 6588.81 Million, unlinked receipts from subscribers Rs..412.60 Million are subject to reconciliation. Balance of sundry debtors as per Ageing Summary is short by Rs. 94.70 Million with comparison to balance is general ledger though the same has been fully provided for ( Refer Note No. 14(c)). The reconciliation of metered and billed calls in various units and leased, operational and billed circuits is in process. The final impact of above on the accounts is presently not ascertainable and the same may have an impact on the Profitability of the company.

o) The matching of Billings for roaming receivables/payable with the actual traffic intimated by the MACH is not being made and the amounts received are allocated on estimated basis. The impact thereof, on profitability ,if any, is unascertainable.

p) The system of issuance of completion certificates by engineering department needs to be strengthened. The impact due to the delay in issuance of completion certificate on Fixed Assets and Depreciation is not ascertainable.

q) Point No.23 of Note No. 40 regarding provision for ADCC recoverable from Project Development Company amounting to Rs. 91.25 Million and non accounting of interest thereon in absence of explicit agreement to that effect.

r) Point No. 34 of Note No. 40 regarding non deduction of tax at source on services received from BSNL and treatment of the expenditure on account of Pension liability on the basis of actuarial valuation as an allowable expense based on experts opinion.

s) The Company had accounted for Rs. 2850.00 millions towards wet lease for infrastructure and other services provided in respect of Commonwealth Games during the year 2010-11 of which Rs..430 millions is subject to acceptance and final settlement.

t) The reconciliation of Income from Recharge Coupons, ITC Cards, Prepaid calling cards and stock of recharge coupons and leased circuits is not available for our verification.

u) No service tax is being charged on the revenue sharing with BSNL for inward circuits for which no bills are being raised.

v) The material sent to BSNL on barter basis, the VAT liability on this account has not been ascertained and provided for.

w) Point No 26 of Note No 40 regarding the requisite information & details for the identification of Micro, Small & Medium enterprises as such we are unable to comment upon the compliance of section 15 & 22 of the Micro Small & Medium Enterprises Development Act-2006.

x) The Company has not made following disclosures required under Schedule VI of the Companies Act, 1956 as per references given after each items:

i) Consumption of imported and indigenous stores and spares and Percentage to the total consumption.

ii) The classification of Trade Receivable as unsecured without considering the security deposit that the company has received from subscribers.

iii) Trade Receivable figures outstanding for more than six months and up to six months are ascertained by the management and relied upon by the auditors.

iv) The Land and Buildings transferred from DOT have been classified as Leasehold as there was no breakup is available.

v) The bifurcation of assets and liabilities into Current and Non Current has been made by the company as per their own assessment of their recoverability and likely payments. In absence of any scientific basis, we are unable to comment on the same.

vi) Classification of amount recoverable from BSNL as loan & advances instead of Trade Receivable.

vii) The reclassification of previous year figures to make it comparable with the revised schedule VI requirements have made by the management as per their assessment and relied upon by us.

The overall impact of matters referred to in the preceding paras on the loss for the year is unascertainable.

We report that:

i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) 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 except that the following items are consistently accounted on cash basis, instead of on accrual basis as required under section 209 of the Companies Act, 1956 :

a) Interest Income / Liquidated Damages, when realisability is uncertain.

b) Annual recurring charges of amount up to Rs..0.10 Million each for overlapping period.

c) Revenue on account of service connections is being accounted for when the recovery for the same is established.

iii) The Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement dealt with by this report, are in agreement with the books of account;

iv) In our opinion, the Balance Sheet, Statement of Profit and Loss and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to

in sub-section (3C) of Section 211 of the Companies Act, 1956 except AS - 2 regarding Valuation of Inventories (Refer Significant Accounting Policy No.3); AS-4 regarding Contingencies and Events Occurring after the date of Balance Sheet; AS -5 regarding Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies [Refer Significant Accounting Policy No.1(i)(b) and ii(a)];AS- 6 regarding Depreciation Accounting [Refer Significant Accounting Policy No. 2(v)];- AS - 9 regarding Revenue Recognition [Refer Accounting Policy No 1(ii); AS- 10 regarding Accounting of Fixed Assets (Refer Significant Accounting Policy No. 2);AS -15regarding Accounting for Retirement Benefits in the Financial Statements of Employers (Refer Note No.27);AS 17 regarding Segmental Reporting; AS- 18 regarding related party transactions: AS - 19 regarding Leases: AS -28 regarding Impairment of Assets ; AS-29 on Provisions for Contingent Liabilities and Contingent Assets.- iv) Since the company is a Government company, clause (g) of sub-section (1) of section 274 of the Companies Act, 1956 regarding obtaining written representations from the directors of the company, is not applicable to the Company in terms of Notification No.GSR-829 (E) dated 21.10.2003);

vi) Attention is further invited to the following without making them a subject matter of qualification: -

a) Point No.13 of Note No.40 regarding over dues of Rs.1000 million on account of Cumulative preference Shares of one of the Govt. company which have considered good on the basis of comfort letter issued by the concerned Ministry.

b) Point No.16 (e) to Note No.40 regarding the issue of pension liability on account of absorbed employees is yet to be settled with the DOT which may have substantial impact on the profitability of the company which could not be ascertained by company.

c) Point No.20 of Note No 40, regarding retaining of outstanding liability of Rs.736.20 Millions on account of decommissioned assets pending arbitration case.

d) Point No 17 of Note No. 40 regarding non provision of diminution in the value of investments in joint ventures as these diminutions are considered temporary in nature.

vii) In our opinion, and to the best of our information and according to the explanations given to us, the said accounts read with the significant Accounting Policies and together with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and also give, subject to our observations in paragraph 4 foregoing, a true and fair view in conformity with the accounting principles generally accepted in India.

a) in the case of Balance Sheet, of the State of Affairs of the Company as at 31st March, 2012;

b) in the case of the Statement of Profit & Loss , of the Loss of the Company for the year ended on that date; and

c) In the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

ANNEXURE - I TO THE AUDITORS' REPORT (REFERRED TO IN PARAGRAPH - 3 OF OUR REPORT OF EVEN DATE)

As required by the Companies (Auditor's Report) Order, 2003, issued by the Central Government of India in terms of section 227(4A) of the Companies Act, 1956 and as per the information and explanations given to us, the books and records examined by us in the normal course of audit and to the best of our knowledge and belief, we further report that:

1. (a) Delhi unit has maintained records of fixed assets. In case of Mumbai Unit and MS unit Mumbai, fixed assets registers maintained w.e.f. 01.04.2002 are adequate in so far as these give full particulars of quantitative details. In MS unit- Delhi, records of fixed assets have been maintained except that the identification number is not mentioned in respect of office machinery and equipments.The Corporate Office has maintained fixed assets register showing full particulars including quantitative details. It is noticed that records of the Estates Department in respect of Land and Building do not match with the records as per financial books.

(b) As per the Accounting Policy of the company, Fixed Assets are required to be physically verified by the Management on rotation basis, once in three years. As certified by the management, the Apparatus & Plants, vehicles and land and buildings were physically verified in accordance with programmed of verification by the management in this year and relied on by us. In our opinion, the area of physical verification needs to be further strengthened.

(c) The company has not disposed off any substantial part of its fixed assets during the year and as such there is no effect on the going concern.

2. (a) In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals.

(b) In our opinion, the procedure of physical verification of the inventory followed by the management needs to be further strengthened. According to the information and explanations given to us, the physical verification of all the items of stores was carried out during the year by Delhi and Mumbai units. However, at MS unit, Delhi, physical verification was conducted only for SIM cards but detailed physical verification was not made available for the verification.

(c) The Company is maintaining proper records of inventory. As per the information provide to us, discrepancies noticed on physical verification of inventory were not material and have been properly dealt with in the books of accounts. The system of recording the inventories directly to the Capital Works without routing it through Inventory Management System.

3. As explained to us, the Company has not taken nor granted any loans, secured or unsecured to/from Companies, fi rms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly clauses 4(iii) (a), (b), (c) and

(d) of the Companies (Auditor's Report ) Order, 2003 are not applicable to the Company.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods / services. In our opinion the internal control procedures needs to be further strengthened in regard to procedures with respect to the purchases under tenders floated and evaluated by corporate office. The system regarding reconciliation & confirmation of deposit to various departments, reconciliation between the exchange generated calls & billed calls, reconciliation of the balance in subscriber deposit account with subsidiary record, needs to be strengthened. The overall internal control systems on revenue billing needs to be strengthened, as the amount of service tax is not generated from the system and service tax aging is also not available and service tax balances are subject to reconciliation. System of reconciliation of IUC payable needs to be strengthened, as the amount generated as per the system for payable in certain cases has to be reconciled with some operators. Further in our opinion there should be a system of cross checking of IUC billing to operators. In respect of pending insurance claims of theft, fire and damage cases, more conscious perusal and follow up at apt interval is required.

5. The Company has not made purchase of material from companies, firms or other parties listed in the register required to be maintained under section 301 of Companies Act 1956, aggregating during the year to Rs.5,00,000/- or more in value in respect of each party. Based on the audit procedures applied by us and the information and explanations provided by the management, we are of the opinion that there was no transaction during the year ended 31.03.2011 that need to be entered in the register maintained under Section 301 of the Companies Act 1956.

6. As informed to us, the Company has not accepted any deposits from the public during the year within the meaning of section 58 A of the Companies Act, 1956 and the rules framed there under. Therefore, the directives issued by the Reserve Bank of India are not applicable.

7. In our opinion, the Internal Audit System of the company is not commensurate with the size of the Company and the nature of its business. Moreover, the authority and independence, extent of coverage of the areas of operations, frequency / quality of reporting / timeliness of the reporting and the follow up of internal audit observations need to be strengthened.

8. The Central Government has prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of Companies Act, 1956 .The company has maintained the required Cost Records for the year 2010-2011 and the same records for the year under audit would be prepared after the audit of the final account. We have not carried out any detailed verification of these cost records.

9. (a) There were no undisputed amounts payable in respect of Statutory Dues including Contributory Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Excise Duty, Cess and any Other Statutory Dues outstanding as at 31.03.2012, for a period of more than six months from the date they become payable except service tax payable on amount lying in unlinked credits accounts in units and on amount of debtors collected by Delhi wireless services after July 1,2011 ,i.e.,after introduction of Point of Taxation Rules (amount not ascertainable) and Service tax on the revenue sharing with BSNL for inward circuits for which no bills are being raised. As informed to us, the provisions of Employees State Insurance Act are not applicable to the company. There has generally been no delay in depositing CPF contribution to the trust. GPF contribution, in respect of employees on deemed deputation, is generally remitted regularly to DOT cell. GPF contribution, in respect of absorbed DOT employees, has been deposited with the GPF Trust after registration of the trust with Income Tax Department.

(b) According to the information and explanation given to us, there are no dues in respect of Custom Duty, Excise Duty and Cess that have not been deposited with the appropriate authorities on account of any dispute. However, the Company has not deposited Sales Tax /VAT Dues, Service Tax and Income Tax Dues on account of disputes as under:

Local Sales Tax and Central Sales Tax / VAT:

(i) Sales Tax

Name of Amount (Rs.) Amount (Rs.) Period Authority where the Statute L.S.T C.S.T pending

Delhi Sales Tax Act 268131 92302769 1988-89 Addl. Comm. Sales Tax

Delhi Sales Tax Act 162120 20517000 1989-90 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1006001 15337192 1990-91 Addl. Comm. Sales Tax

Delhi Sales Tax Act 11660806 63932673 1991-92 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1437418 1443921343434 1992-93 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1699669 176491 1993-94 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1032760 201103762 1994-95 Addl. Comm. Sales Tax

Delhi Sales Tax Act 827253 88446906 1995-96 Addl. Comm. Sales Tax

Delhi Sales Tax Act 71319 0 1996-97 Addl. Comm. Sales Tax

Delhi Sales Tax Act 0 102613 1998-99 High court

Delhi Sales Tax Act 1461 545178 1999-00 High court

Delhi Sales Tax Act 88527 5000 2000-01 High court

Delhi Sales Tax Act 2036407 15200 2001-02 Addl. Comm. Sales Tax

Delhi Sales Tax Act 371932 0 2002-03 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1255424 0 2003-04 Addl. Comm. Sales Tax

Delhi Sales Tax Act 0 180544146 1987-88 to Addl. Comm. Sales Tax 1993-94

Delhi Sales Tax Act 72041344 4234 2004-05 Addl. Comm. Sales Tax

Delhi Sales Tax Act 4459877 0 2005-06 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1914095 0 2006-07 Addl. Comm. Sales Tax

Delhi Sales Tax Act 265248583 0 2007-08 Addl. Comm. Sales Tax

Delhi Sales Tax Act 779575204 0 2008-09 & Addl. Comm. Sales Tax 2009-10

TOTAL 1145158331 807425298

The unit has already deposited Rs.54733054/- out of the total disputed liability stated above..

(ii) Service Tax

Name of the Amount (Rs.) Period Authority where Statute Service Tax pending

Service Tax Act 110300000 2007-08 CEGAT

Mumbai Unit

Name of Nature of Dues Amount under Year to Forum where the Statute dispute which the dispute deposited amount is pending relates

BST ACT Assessed Amount 672968 1993-94 MSTT

BST Act Assessed Amount 52693370 1996-97 DC

BST Act Assessed Amount 59424662 1998-99 MSTT

BST Act Assessed Amount 1013116938 1999-2000 Jt. Commr. of Sales Tax Appeals 35201675 MSTT

BST Act Assessed Amount 54029094 2000-01 MSTT

BST Act Assessed Amount 101128984 2001-02 Jt. Commr. of Sales Tax Appeals BST ACT Assessed Amount 2161090302 2003-04 Jt. Commr. of Sales Tax Appeals

BST ACT Assessed Amount 1015717015 2004-05 Assessment order received on 19.4.2011. appeal to be filed.

Finance Act Service Tax: 4100000 2003-04 CESTAT 1994 S.Clause Notice

Finance Act Demand received 3416176 Oct.2009 to LTU 1994 from LTU March 2010

Finance Act Demand against 10719911 October 2003 CESAT 1994 adjustment of to Feb.2004 excess service tax

Finance Act Demand against 5598941 March 2004 CESAT 1994 adjustment of excess service tax

Finance Act Demand against 10050296 April 2004 to 1994 adjustment of September excess service tax 2004

Total Rs. 4526960332

Statutory dues which have not been deposited in respect of Mumbai MS unit as on 31st March, 2012.

S. No Nature of dues Amount Under Forum where the dispute not dispute is pending deposited (Rs.)

1 Installation of BTS Site 2909233 CESTAT

2 Installation of BTS Site 3210353 CESTAT

3 Installation of BTS Site 2617816 CESTAT

4 Service tax demand 2003-04 2080000 Jt. Comm. ( Appeals)

Total 10817402

c ) There were no dues on account of cess payable under section 441A of the Companies Act, 1956, since the date from which the aforesaid section comes into force has not yet been notified by the Central Government.

10. The accumulated losses of the Company exceed fifty percent of its net worth at the end of the financial year. It has incurred cash losses in the financial year and in the immediately preceding financial year.

11. As per the records of the company and according to the explanation provided by the management, we report that there is no default in repayment of dues from the loan taken from banks during the year under audit.

12. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, clause 4 (xii) of the order is not applicable.

13. The Company is not a Chit Fund or a Nidhi Mutual Benefit Fund / Society. Accordingly, clause 4(xiii) of the order is not applicable.

14. The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, clause 4(xiv) of the Order is not applicable.

15. According to the information and explanation given to us, the Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the Order is not applicable.

16. In our opinion, the term loans have been applied for the purpose for which they were raised.

17. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

18. The Company has not issued any debentures. Accordingly, clause 4(xix) of the Order is not applicable.

19. The Company has not raised any money by public issues during the year. Accordingly, clause 4(xx) of the Order is not applicable.

20. According to the information and explanations given to us, no major fraud on or by the company has been noticed or reported during the year. The details with regard to status of frauds till 31.03.2012 have not been provided to us as such provision in this regard, if any, could not be ascertained.

For Bansal Sinha & Co. For Arun K Aggarwal & Associates

Chartered Accountants Chartered Accountants

FRN- 06184N FRN – 003917N

sd/- sd/-

(Ravinder Khullar) (Rajesh Surolia)

(Partner) (Partner)

(Mem. No. 082928) (Mem. No. 088008)

Place: New Delhi Date : June 30, 2012

---

Mar 31, 2011

1. We have audited the attached Balance Sheet of Mahanagar Telephone Nigam Limited as at March 31, 2011, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto, in which, the accounts of 3 units namely Delhi unit, Mumbai unit and Mobile Service Unit (Delhi & Mumbai both) are incorporated. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the Auditing Standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor's Report) Order 2003, as amended by the Companies (Auditor's Report) Order, 2004 (together the 'Order'), issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, and on the basis of such checks as we considered appropriate and according to the information and explanation given to us, we give in the Annexure-I, a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable to the company.

4. Further to our comments in the Annexure-I referred to in paragraph 3 above and subject to:

a) Note No.4 (a & b) regarding maintenance of a provision for income tax amounting to Rs. 4003.31 million for the years 1997-98 to 1999-2000 oh account of disputed claim of deduction under section 80IA whereas the similar claims for subsequent years involving a tax liability of Rs. 4138.30 Million have been shown as Contingent Liabilities. In view of the pending disputes with the Income Tax Departments at the High Court level, we are unable to comment on the adequacy or otherwise of the provision held in this regard.

b) Note No. 4 (c) regarding accounting of Income tax and interest thereon of Rs. 105.16 million pending appeal effects and Rs. 4873.93 million pending rectifications are subject to adjustment as per the final orders to be passed by the Income Tax Department. The balances appearing in Advance Tax, Provisions for Income Tax and Interest on income Tax Refund are subject to reconciliation with the figures of the Income Tax Department.

c) Note No. 34 (II) regarding the provision for employees benefits which have been made on the basis of actuarial valuation. The issue being technical, we are unable to comment on the adequacy or otherwise of these provisions.

d) (i) Note No/26 regarding booking of income for Rs. 2850.00 million towards wet lease for infrastructure and other services provided in respect of Commonwealth Games out of which Rs. 430.00 million is subject to acceptance and final settlement and non booking of additional claim of Rs. 410.00 million which is also subject to acceptance and final settlement.

(ii) Non availability of relevant records pertaining to contracts with M/s. HCL Infosys Ltd on account of Commonwealth Games Project as the same are informed to be taken by the investigating agencies. In view of the above, we are unable to comment on the lapses, if any, of internal control in awarding the contract.

e) Note no. 17(c) (i) & (ii) regarding reconciliation of Cenvat Credit Receivable as per books with the balance outstanding as per CENVAT records maintained by the company for service tax purposes and accounting of service tax for transactions with BSNL. The resultant impact, if any, on the financial statements for the year can not be ascertained.

f) License Fee to the DOT is being worked out on accrual basis as against the terms of License Agreements according to which the expenditures/ deductions from the Gross revenue are allowed on actual payment basis in respect of the Public Switching Telecom Network (PSTN) related call charges and roaming charges payable to BSNL and other service provider.

g) Note No.15(a)&(b) regarding the amounts recoverable from DOT/ BSNL are subject to reconciliation and confirmation and in view of various pending disputes regarding each other's claims we are unable to comment on the impact of the same on the profitability of the company and Note No. 16 regarding non provision of certain claims of the BSNL on account of signaling charges, Transit tariff, MP Bills, IUC Claims and IUC claims of MTNL rebutted by BSNL, Service Connection billing, Duct charges, TAX usage charges, infrastructure and other charges recoverable and payable, pending identification, reconciliation and settlement of these and other similar claims of the company the impact of the same is not ascertainable. Beside, Note no. 23 regarding non provision for interest payable/ receivable on balances during the year due to abc nee of agreement between the company and DOT/BSNL for interest recoverable/ payable on current account, except charging of interest on GPF claims receivable from DOT.

h) The company has allocated the establishment overheads as per Annexure P and Administrative overheads as per Annexure Q. The company's policy in this regard needs to be made more realistic & scientific and the same should avoid capitalizing the loss due to idle time of labour and machines.

i) Note No.40 regarding non provision of impairment of assets in terms with Accounting Standard 28.

j) Non provision of LTC/ encashment of LTC not availed by the employees^ bonus for last two years(amount unascertained) and Non provision of actuarial liability on account of medical expenses for retired employees in view of the Insurance policy being taken by the company and yearly premium is charged every year.

k) Note No.7 regarding non provision of stamp duty for the properties where the conveyance/lease deed-is yet to be executed, and the amount is unasceirtainable.

I) Accounting Policy No. 2 (iv) regarding valuation of scrapped/decommissioned assets which are not being revalued every year.

m) Accounting Policy No. 1 (ii)(b) regarding exclusion of dues from operators for making provision for Doubtful debts.

n) Note No. 24 regarding non valuation of vacant land and Guest Houses/Inspection quarters at fair market value as at the yearend for the purpose of wealth tax provisions.

o) Note No.20 regarding non confirmation and reconciliation of amounts receivable and payable from various parties.

p) Note No 14(b), regarding balance in subscribers' deposits account of Rs.7206.33 Million and interest accrued thereon of Rs.22.25 Million, unlinked receipts from subscribers Rs.417.41 Million are subject to reconciliation (Refer Note No. 3). Balance of sundry debtors as per Ageing Summary is short by Rs. 89.51 Million with comparison to balance is general ledger though the same has been fully provided for (Refer Note No. 13 and 14(c)). The reconciliation of metered and billed calls in various units is in process. The reconciliation of leased, operational and billed circuits is in progress. The final impact of above on the accounts is presently not ascertainable and the same may have an impact on the Profitability of the company.

q) During the year no reconciliation of roaming receivables has been carried out. The impact of non-reconciliation of roaming debtors on profitability ,if any, is unascertainable

r) The system of issuance of completion certificates by engineering department needs to be strengthened. The impact due to the delay in issuance of completion certificate on Fixed Assets and Depreciation is not ascertainable.

s) Note No.12 regarding the Bank Reconciliation Statements as at 31st March, 2011 include the unmatched/ unlinked credits and debits aggregating Rs.78.03 million and Rs.71.36 million respectively, which have not been properly accounted, in the absence of adequate particulars. The impact of such entries on the Accounts cannot be ascertained.

t) Note No. 25 regarding non provision for ADCC recoverable from Project Development Company and non accounting of interest thereon in absence of explicit agreement to that effect.

u) Note No.4 (d) regarding non deduction of tax at source on services received from BSNL and treatment of the expenditure on account of Pension liability on the basis of actuarial valuation as an allowable expense based on experts opinion.

v) Note No. 27 regarding a technical fraud involving a loss of Rs.258.94 million which was observed during the previous year and another case observed during the year for excess franchise commission paid for which amount is not ascertainable at this stage; however, no provision for the same has been made in the accounts as the cases are still under investigation.

w) The loss on account of unusable subscriber's instruments has not been ascertained and provided for,

x) Note no. 2 regarding non ascertainment of Contingent liabilities and the estimated amount of the contracts of capital nature yet to be executed in respect of some of the units.

y) Note No. 32 regarding no availability of the requisite information & details for the identification of Micro, Small & Medium enterprises, as such we are unable to comment upon the compliance of section 15 & 22 of the Micro Small & Medium [Enterprises Development Act-2006.

z) Non availability of information about the transactions required to be entered in the registers maintained under section 301 of the Companies Act, 1956.

aa) The Cdmpany has not made following disclosures required under Schedule VI of the Companies Act, 1956 as per references given after each items:

i) Consumption of stores and spares (Para no.3 (x) (a) of part II)

ii) Consumption of imported and indigenous stores and spares and Percentage to the total consumption (Para no.4 D (C) of Part II)

iii) The classification of sundry debtors as unsecured without considering the security deposit that the company has received from subscribers. '

iv) Debtor's figures outstanding for more than six months and up to six months are ascertained by the management and relied upon by the auditors.

v) Gross Block of scrapped/ decommissioned fixed assets, Accumulated Depreciation and Net Block separately.

The overall impact of matters referred to in the preceding paras on the loss for the year is unascertainable.

We report that:

i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) 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 except that the following items referred to in paragraph (i) of Significant Accounting Policies are consistently accounted on cash basis, instead of on accrual basis as required under section 209 of the Companies Act, 1956 :

a) Interest Income / Liquidated Damages, when readability is uncertain.

b) Annual recurring charges of amount up to Rs.0.10 Million each for overlapping period.

c) Revenue on account of service connections is being accounted for when the recovery for the same is established.

iii) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report, are in agreement with the books of account;

iv) In our opinion, the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 except AS - 2 regarding Valuation of Inventories (Refer Significant Accounting Policy No.3); AS-4 regarding Contingencies and Events Occurring after the date of Balance Sheet; AS -5 regarding Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies [Refer Significant Accounting Policy No.1(i) and ii(a)]; AS- 6 regarding Depreciation Accounting [Refer Significant Accounting Policy No. 2(v)];- AS - 9 regarding Revenue Recognition [Refer Accounting Policy No 1 (ii); AS-10 regarding Accounting of Fixed Assets (Refer Significant Accounting Policy No. 2);AS -15 regarding Accounting for Retirement Benefits in the Financial Statements of Employers (Refer Note No.34 ); AS 17 regarding Segmental Reporting: AS- 18 regarding disclosure of related party transactions; AS -19 regarding Leases: AS -28 regarding Impairment of Assets (Refer Note No. 40); AS-29 on Provisions for Contingent Liabilities and Contingent Assets.

v) Since the company is a Government company, clause (g) of sub-section (1) of section 274 of the Companies Act, 1956 regarding obtaining written representations from the directors of the company, is not applicable to the Company in terms of Notification No.GSR-829 (E) dated 21.10.2003);

vi) Attention is further invited to the following without making them a subject matter of qualification: -

a) Note No. 4 (c) regarding non creation of Deferred Tax Assets amounting to Rs. 15932.20 million due to absence of virtual certainty of taxable profits in future against which the said asset could be realized.

b) Note No. 18(e) regarding the issue of pension liability on account of absorbed employees is yet to be settled with the DOT which will have substantial impact on the profitability of the company.

c) Note No. 11 regarding over dues of Rs. 1000 million on account of Cumulative preference Shares of one of the Govt, company which have considered good on the basis of comfort letter issued by the concerned Ministry.

d) Note No. 22 regarding retaining of outstanding liability of Rs.925.98 Million on account of decommissioned assets pending arbitration case.

e) Note No. 17 (b) regarding accounting of Liquidated Damages subject to acceptance by the parties.

f) Note No. 19 regarding non provision of diminution in the value of investments in subsidiaries and joint ventures.

g) The amount of service tax included in debtors and adjusted from deposit is not generated from the system and is done on manual basis. Service Tax ageing is also not available.

h) Revenue from pre paid services has been recognized on the basis of SIM activated and its usage output generated through system and certified by the management being a technical matter.

i) Expenditure on replacement of assets, equipments, instruments and rehabilitation work is capitalized if it results in enhancement of revenue earning capacity as stated in Significant Accounting Policy 2(iii). This being a technical matter, we have placed reliance on the opinion of the management.

j) Non provision for CDMA instruments which are faulty and un returnable for less than three years having WDV of Rs. 126.30 million should also be provided for as provision for loss of assets.

k) TDSAT judgment on the issue of components of "Other Income" for the purpose of calculation of license fee has not been adopted pending the decision of the Hon'ble Supreme Court of India on the appeal of the DOT on this judgment of the TDSAT. In view of the uncertainty involved, we are unable to comment on the amount of license fee being calculated in this regard.

vii) In our opinion, and to the best of our information and according to the explanations given to us, the said accounts read with the significant Accounting Policies and together with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and also give, subject to our observations in paragraph 4 foregoing, a true and fair view in conformity with the accounting principles generally accepted in India.

(a) in the case of Balance Sheet, of the State of Affairs of the Company as at 31 st March, 2011;

(b) in the case of the Profit & Loss Account, of the Loss of the Company for the year ended on that date; and

(c) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

ANNEXURE -1 TO THE AUDITORS' REPORT (REFERREDTO IN PARAGRAPH - 3 OF OUR REPORT OF EVEN DATE)

As required by the Companies (Auditor's Report) Order, 2003, issued by the Central Government of India in terms of section 227(4A) of the Companies Act, 1956 and as per the information and explanations given to us, the books and records examined by us in the normal course of audit and to the best of our knowledge and belief, we further report that:

1. (a) Delhi unit has maintained records of fixed assets'. In case of Mumbai Unit and MS unit Mumbai, fixed assets registers maintained w.e.f. 01.04.2002 are adequate in so far as these give full particulars of quantitative details. In MS unit - Delhi, records of fixed assets have been maintained except that the identification number is not mentioned in respect of office machinery and equipments. The Corporate Office has maintained fixed assets register showing full particulars including quantitative details.

(b) As per the Accounting Policy of the company, Fixed Assets are required to be physically verified by the Management on rotation basis, once in three years. As certified by the management, lines and wires, furniture & fixtures and electrical appliances were physically verified in accordance with programmed of verification by the management in this year and relied on by us. In our opinion, the area of physical verification needs to be further strengthened.

(c) The company has not disposed off any substantial part of its fixed assets during the year and as such there is no effect on the going concern.

2. (a) In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals.

(b) In our opinion, the procedure of physical verification of the inventory followed by the management needs to be further strengthened. According to the information and explanations given to us, the physical verification of all the items of stores was carried out during the year by Delhi and Mumbai units. However, detailed physical verification report was not made available for the verification.

(c) The Company is maintaining proper records of inventory. As per the information provided to us, discrepancies noticed on physical verification of inventory were not material and have been properly dealt with in the books of accounts.

3. Due to Non availability kintormation about the transactions required to be entered in the registers maintained under section 301 of the Companies Act, 1956 we are unable to comment on the same.

4. In our opinion and according to the information and explanations given, to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods / services. In our opinion the internal control procedures needs to be further strengthened in regard to procedures with respect to the purchases under tenders floated and evaluated, appointment and reviewal/ renewal of service contracts of consultants and lawyers. The system regarding reconciliation & confirmation of deposit to various departments, reconciliation between the exchanges generated calls & billed calls, reconciliation of the balance in subscriber deposit account with subsidiary record, needs to be strengthened. The overall internal control systems on revenue billing needs to be strengthened, as the amount of service tax is not generated from the system and service tax ageing is also not available. System of reconciliation of IUC payable needs to be strengthened, as the amount generated as per the system for payable in certain cases has to be reconciled with some operators. Further in our opinion there should be a system of cross checking of IUC billing to operators. In respect of pending insurance claims of theft, fire and damage cases, related parties transactions, Compliance of TDS provisions of the Income Tax Act 1961, more conscious perusal and follow up at apt interval is required.

5. The Company has not made purchase of material from companies, firms or other parties listed in the register required to be maintained under section 301 of Companies Act 1956, aggregating during the year to Rs. 5,00,000/- or more in value in respect of each party. The company has, however, obtained and provided the services from / to the companies, firms or other parties listed in the register required to be maintained under section 301 of the Companies Act, 1956. The above transactions, though required to be entered in the register required to be maintained under section 301 of the Companies Act, 1956, have not been entered.

6. As informed to us, the Company has not accepted any deposits from the public during the year within the meaning of section 58 A of the Companies Act, 1956 and the rules framed there under. Therefore, the directives issued by the Reserve Bank of India are not applicable.

7. In our opinion, the Internal Audit System of the company is not commensurate with the size of the Company and the nature of its business. Moreover, the authority and independence, extent of coverage of the areas of operations, frequency / quality of reporting / timeliness of the reporting and the follow up of internal audit observations need to be strengthened.

8. The Central Government has prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of Companies Act, 1956 i.e. 01.04.2003. The company has maintained the required Cost Records for the year 2009-2010 and the same records for the year under audit would be prepared after the audit of the final account. We have not carried out any detailed verification of these cost records.

9. (a) There were no undisputed amounts payable in respect of Statutory Dues including Contributory Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Excise Duty, Cess and any Other Statutory Dues outstanding as at 31.03.2011, for a period of more than six months from the date they become payable except service tax payable on amount lying in unlinked credits accounts in units (amount not ascertainable). As informed to us, the provisions of Employees State Insurance Act are not applicable to the company. There has generally been no delay in depositing CPF contribution to the trust. GPF contribution, in respect of employees on deemed deputation, is generally remitted regularly to DOT cell. GPF contribution, in respect of absorbed DOT employees, has been deposited with the GPF Trust after registration of the trust with Income Tax Department. However, as at the year end there has been some delay in remitting funds to the Trust.

(b) According to the information and explanation given to us, there are no dues in respect of Custom Duty, Excise Duty and Cess that have not been deposited with the appropriate authorities on account of any dispute. However, the Company has not deposited Sales Tax /VAT Dues, Service Tax and Income Tax Dues on account of disputes as under:

Local Sales Tax and Central Sales Tax /VAT: (i) Sales Tax Delhi Unit

Name of Amount (Rs) Amount (Rs) Period Authority where pending the Statute L.S.T C.S.T

Delhi Sales Tax Act 268131 92302769 1988-89 Addl.Comm. Sales Tax

Delhi Sales Tax Act 162120 20517000 1989-90 Addl.Comm. Sales Tax

Delhi Sales Tax Act 1006001 15337192 1990-91 Addl. Comm. Sales Tax

Delhi Sales Tax Act 11660806 63932673 1991-92 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1437418 144392134 1992-93 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1699669 176491 1993-94 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1032760 201103762 1994-95 Addl. Comm. Sales Tax

Delhi Sales Tax Act 827253 88446906 1995-96 Addl. Comm. Sales Tax

Delhi Sales Tax Act 71319 0 1996-97 Addl. Comm. Sales Tax

Delhi Sales Tax Act 0 102613 1998-99 High, court

Delhi Sales Tax Act 1461 545178 1999-00 High court

Delhi Sales Tax Act 88527 5000 2000-01 High court

Delhi Sales Tax Act 2036407 15200 2001-02 Addl. Comm. Sales Tax

Delhi Sales Tax Act 371932 0 2002-03 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1255424 0 2003-04 Addl. Comm. Sales Tax

Delhi Sales Tax Act 0 180544146 1987-88 to Addl. Comm. Sales Tax 1993-94

Delhi Sales Tax Act 72041344 4234 2004-05 Addl. Comm. Sales Tax

Delhi Sales Tax Act 4459877 0 2005-06 Addl. Comm. Sales Tax

Delhi Sales Tax Act 1914095 0 2006-07 Addl. Comm. Sales Tax

Delhi Sales Tax Act 26524858 0 2007-08 Addl. Comm. Sales Tax

TOTAL 365583127 807425298

The unit has already deposited Rs. 154733054/- out of the total disputed liability stated above.

Mumbai Unit

Name of Nature of Dues Amount under Year to Forum where the Statute dispute which the dispute deposited amount is pending relates

BST ACT Assessed Amount 672968 1993-94 MSTT

BST Act Assessed Amount 52693370 1996-97 DC

BST Act Assessed Amount 3514698437 1997-98 Jt. Commr. of Sales Tax Appeals

BST Act Assessed Amount 59424662 1998-99 MSTT

BST Act Assessed Amount 1013116938 1999-2000 Jt.Commr.of Sales Tax Appeals 35201675 MSTT

BST Act Assessed Amount 54329094 2000-01 MSTT

BST Act Assessed Amount 101128984 2001-02 Jt.Commr.of Sales Tax Appeals

BST Act Assessed Amount 49102898 2002-03 MSTT

BST ACT Assessed Amount 2161090302 2003-04 Jt.Commr.of Sales Tax Appeals

BST ACT Assessed Amount 1015717015 2004-05 Assessment order received on 19.4.2011. appeal to be filed.

3381368293

(ii) Service Tax

Name of the Statute Amount (Rs) Period Authority where pending

Delhi Unit

Service Tax Act 770447 2007-08 CESTAT

Service Tax Act 59476320 2006-07 & CESTAT 2007-08

Service Tax Act 42472842 2004-05 CESTAT

Service Tax Act 6826503 2005-06 CESTAT

Service Tax Act 633391 2006-07 CESTAT

Service Tax Act 209390 2007-08 CESTAT

Service Tax Act 110670398 Penalty CESTAT

Mumbai Unit

Service Tax Act 4100000 2003-04 CESTAT

Total 225159291

Statutory dues which have not been deposited in respect of Mumbai MS unit as on 31-03-2011.

S. No Nature of dues Amount Under Forum where the dispute not dispute is pending deposited (Rs)

1 Installation of BTS Site 2909233 CESTAT

2 Installation of BTS Site 3210353 CESTAT

3 Installation of BTS Site 2617816 CESTAT

4 Service tax demand 2003-04 2080000 Jt. Comm. (Appeals)

Total 10817402

(c) It may be noted that at present, no Rules relating to the amount of cess for rehabilitation or revival or protection of assets of sick industrial companies, payable by a company under section 441A of the Act have been notified by the Central Government. Thus, we are not able to comment on the regularity or otherwise about on this particular issue.

10. The company has no accumulated losses, however the company has incurred cash losses amounting to Rs. 13917.68 million during the year covered by our Audit and Rs. 8514.78 million in the immediately preceding financial year.

11. As per records of the company and according to the information and explanation provided by the management, we report that there is no default in repayment of dues for the loan taken from financial institution during the period under our audit.

12. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, clause 4 (xii) of the order is not applicable.

13. The Company is not a Chit Fund or a Nidhi Mutual Benefit Fund / Society. Accordingly, clause 4(xiii) of the order is not applicable.

14. The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, clause 4(xiv) of the Order is not applicable.

15. According to the information and explanation given to us, the Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the Order is not applicable.

16. According to the information and explanation provided by the management, we report that during the year Company has taken term loans from financial institution and utilized the same for the purpose for which it was taken.

17. According to the information and explanations given to us and on an overall examination of Balance sheet of the company, we report that no funds raised on short term basis have been used for long term investment by the company.

18. The Company has not made any preferential allotment of-shares to parties and companies covered in the register maintained under section 301 of the Act.

19. The Company has not issued any debentures. Accordingly, clause 4(xix) of the Order is not applicable.

20. The Company has not raised any money by public issues during the year. Accordingly, clause 4(xx) of the Order is not applicable.

21. According to the information and explanations given to us, no major fraud on or by the company has been noticed or reported during the year except as reported in Note No. 27 (b) of Schedule T. The details with regard to status of frauds till 31.03.2011 have not been provided to us as such provision in this regard, if any, could not be ascertained.

For Bansal Sinha & Co. For Goel Garg & Co.

Chartered Accountants Chartered Accountants

FRN-06184N FRN-00397N

sd/- sd/-

(Ravinder Khullar) (Ajay Rastogi)

(Partner) (Partner)

(Mem. No. 82928) (Mem. No. 84897)

Place: New Delhi

Date: June 30,2011

---

Mar 31, 2010

1. We have audited the attached Balance Sheet of Mahanagar Telephone Nigam Limited as at March 31, 2010, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto, in which, the accounts of 3 units namely Delhi unit, Mumbai unit and Mobile Service Unit (Delhi & Mumbai both) are incorporated, which have been audited by us. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the Auditing Standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order 2003, as amended by the Companies (Auditors Report) Order, 2004 (together the Order), issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, and on the basis of such checks as we considered appropriate and according to the information and explanation given to us, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable to the company.

4. Further to our comments in the Annexure referred to in paragraph 3 above and subject to:

a) Note No.5 (a,b &c) regarding claim of the company for deduction under section 80IA of the Income Tax Act, 1961 pending at various appellate authorities. We are unable to comment on the impact as the outcome of these cases is not ascertainable at this stage.

b) Note No. 6 (b) regarding accounting of Interest Income of Rs.7708.40 millions on Income Tax Refund pending appeal effects which is is subject to adjustment as per the final orders to be passed by the Income Tax Department.

c) Note No.20(e) regarding the issue of pension liability on account of absorbed employees is yet to be settled with the DOT which may have substantial impact on the profitability of the company.

d) Note No.16(a) & (b) regarding the amounts recoverable from DOT/ BSNL are subject to reconciliation and confirmation and in view of various pending disputes regarding each others claims we are unable to comment on the impact of the same on the profitability of the company and Note No. 17 regarding non provision of certain claims of the BSNL on account of signaling charges,Transit tariff, MP Bills,IUC Claims and IUC claims of MTNL rebutted by BSNL,Service Connection billing& TAX charges recoverable and payable, pending identification, reconciliation and settlement of these and other similar claims of the company the impact of the same is not ascertainable.Besides,Note no.25 regarding non provision for interest payable/ receivable on balances during the year due to absence of agreement between the company and DOT/BSNL for interest recoverable/ payable on current account, except charging of interest on GPF claims receivable from DOT.

e) The company has allocated the establishment overheads as per Annexure P and Administrative overheads as per Annexure Q. The companys policy in this regard needs to be made more scientific.

f) Note No.44 regarding non provision of impairment of assets in terms with Accounting Standard 28.

g) Note No. 30 regarding accounting of IUC income and expenditure on estimated basis.

h) Note No. 38 (II) regarding the provision for employees benefits which have been made on the basis of actuarial valuation. There has been some changes in the assumptions taken for the purpose of this valuation, the issue being technical, we are unable to comment on the adequacy or otherwise of these provisions.

i) Note No. 38 (VII) regarding non provision of Bonus to employees in view of heavy losses.

j) Note No. 4 (iii)(b) regarding Non disclosure of the impact of the change in Accounting Policy regarding provision for Spill Over dues of closed leased circuit connections outstanding for less than three years.

k) Note No. 19 (b) regarding non provision of spectrum charges @1% of the revenues from 3G Spectrum pending the receipt of method of calculation from DOT.

l) Note No.8 regarding non provision of stamp duty for the properties where the conveyance/ lease deed is yet to be executed, and the amount is unascertainable.

m) Accounting Policy No. 2 (iv) regarding valuation of scrapped/decommissioned assets which are not being revalued every year.

n) Accounting Policy No. 1(ii)(b) regarding exclusion of dues from operators for making provision for Doubtful debts.

o) Note No. 26 regarding non valuation of vacant land and Guest Houses/Inspection quarters at fair market value as at the year end for the purpose of wealth tax provisions.

p) Non provision of LTC/ encashment of LTC not availed by the employees, amount unascertained.

q) Note No. 21 regarding non provision of diminution in the value of investments in subsidiaries and joint ventures.

r) Note No.22 regarding non confirmation and reconciliation of amounts receivable and payable from various parties.

s) Note No 15(b),3, regarding balance in subscribers deposits account of Rs.7386.71 Million and interest accrued thereon of Rs.25.51 Million, unlinked receipts from subscribers Rs.385.21 Million are subject to reconciliation. Balance of sundry debtors as per Ageing Summary is short by Rs.62.09 Million with comparison to balance is general ledger though the same has been fully provided for ( Refer Note No. 14 and 15(c)). The reconciliation of metered and billed calls in various units is in process. The reconciliation of leased, operational and billed circuits is in progress.The final impact of above on the accounts is presently not ascertainable and the same may have an impact on the Profitability of the company.

t) During the year no reconciliation of roaming receivables has been carried out. The impact of non-reconciliation of roaming debtors on profitability ,if any, is unascertainable

u) The system of issuance of completion certificates by engineering department needs to be strengthened. The impact due to the delay in issuance of completion certificate on Fixed Assets and Depreciation is not ascertainable.

v) The balance of amount payable to GPF Trust is subject to confirmation, reconciliation and subsequent adjustments.

w) Note No.13 regarding the Bank Reconciliation Statements as at 31st March, 2010 include the unmatched/ unlinked credits and debits aggregating Rs.56.09 millions and Rs.69.16 millions respectively, which have not been properly accounted, in the absence of adequate particulars. The impact of such entries on the Accounts cannot be ascertained.

x) Note No. 28 regarding provision for ADCC recoverable from Project Development Company and non accounting of interest thereon in absence of explicit agreement to that effect.

y) Note No.10 (d) regarding Claims receivables include Rs.22.5 Million towards ADC charges receivable from certain operators accounted for on adhoc basis in the financial year 2007-08 and which may have an impact on the results on settlement/acceptance.

z) Note No.5 (e) regarding non deduction of tax at source on services received from BSNL and treatment of the expenditure on account of Pension liability on the basis of actuarial valuation as an allowable expense based on experts opinion.

aa) Note No. 31 regarding a technical fraud involving a loss of Rs.243.55 millions which was observed during the year; however, no provision for the same has been made in the accounts as the matter is still under investigation.

bb) The loss on account of unusable subscribers instruments has not been ascertained and provided for.

cc) Note No.36 regarding the requisite information & details for the identification of Micro, Small & Medium enterprises as such we are unable to comment upon the compliance of section 15 & 22 of the Micro Small & Medium Enterprises Development Act-2006.

dd) The Company has not made following disclosures required under Schedule VI of the Companies Act, 1956 as per references given after each items:

i) Consumption of stores and spares (Para no.3 (x) (a) of part II)

ii) Consumption of imported and indigenous stores and spares and Percentage to the total consumption (Para no.4 D (C) of Part II)

iii) The classification of sundry debtors as unsecured without considering the security deposit that the Company has received from subscribers.

iv) Debtors figures outstanding for more than six months and up to six months are ascertained by the management and relied upon by the auditors. The overall impact of matters referred to in the preceding paras on the loss for the year is unascertainable.

We report that:

i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) 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 except that the following items referred to in paragraph (i) of Significant Accounting Policies are consistently accounted on cash basis, instead of on accrual basis as required under section 209 of the Companies Act, 1956 :

a) Interest Income / Liquidated Damages, when realisability is uncertain.

b) Annual recurring charges of amount up to Rs.0.10 Million each for overlapping period.

c) Revenue on account of service connections is being accounted for when the recovery for the same is established.

iii) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report, are in agreement with the books of account;

iv) In our opinion, the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 except AS - 2 regarding Valuation of Inventories (Refer Significant Accounting Policy No.3); AS-4 regarding Contingencies and Events occurring after the date of Balance Sheet; AS -5 regarding Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies [Refer Significant Accounting Policy No.1(i) and ii(a)];AS- 6 regarding Depreciation Accounting [Refer Significant Accounting Policy No. 2(v)];- AS - 9 regarding Revenue Recognition [Refer Accounting Policy No 1(ii); AS- 10 regarding Accounting of Fixed Assets (Refer Significant Accounting Policy No. 2);AS -15 regarding Accounting for Retirement Benefits in the Financial Statements of Employers (Refer Note No.38 );AS 17 regarding Segmental Reporting: AS -19 regarding Leases: AS- 21 regarding related party transactions: AS -28 regarding Impair ment of Assets (Refer Note No. 44 );AS-29 on Provisions for Contingent Liabilities and Contingent Assets.- v) Since the company is a Government company, clause (g) of sub-section (1) of section 274 of the Companies Act, 1956 regarding obtaining written representations from the directors of the company, is not applicable to the Company in terms of Notification No.GSR-829 (E) dated 21.10.2003);

vi) Attention is further invited to the following without making them a subject matter of qualification: -

a) Note No.12 regarding over dues of Rs.1000 million on account of Cumulative preference Shares of one of the Govt. company which have considered good on the basis of comfort letter issued by the concerned Ministr y.

b) Note No. 19(a) regarding a claim for refund of 3 G and BWA License fee of Rs.110979.70 millions on DOT which has not been accounted for as the same is yet to be acknowledged by DOT.

c) Note No. 27 regarding Provision for wage arrears amounting to Rs. 7369.25 millions which included an amount of Rs. 4566.99 millions pertaining to prior periods. The impact of the wage revision on the Retirement benefits amounting to Rs. 890.83 millions including Rs. 580.21 millions pertaining to Prior periods.

d) Note No24. regarding retaining of outstanding liability of Rs.925.98 Millions on account of decommissioned assets pending arbitration case.

e) Non availability of information about the transactions required to be entered in the registers maintained under section 301 of the Companies Act, 1961.

f) Note No. 18(b) regarding accounting of Liquidated Damages subject to acceptance by the parties.

g) Note No. 21 regarding non provision of diminution in the value of investments in subsidiaries and joint venture considering the diminution as temporary in nature.

h) The amount of service tax included in debtors and adjusted from deposit is not generated from the system and is done on manual basis. Service Tax ageing is also not available.

i) Revenue from pre paid services has been recognized on the basis of SIM activated and its usage output generated through system and certified by the management being a technical matter.

j) Expenditure on replacement of assets, equipments, instruments and rehabilitation work is capitalized if it results in enhancement of revenue earning capacity as stated in Significant Accounting Policy 2(iii). This being a technical matter, we have placed reliance on the opinion of the management.

vii) In our opinion, and to the best of our information and according to the explanations given to us, the said accounts read with the significant Accounting Policies and together with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and also give, subject to our observations in paragraph 4 foregoing, a true and fair view in conformity with the accounting principles generally accepted in India.

(a) in the case of Balance Sheet, of the State of Affairs of the Company as at 31st March, 2010;

(b) in the case of the Profit & Loss Account, of the Loss of the Company for the year ended on that date; and

(c ) In the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

ANNEXURE -I TO THE AUDITORS REPORT (REFERRED TO IN PARAGRAPH - 3 OF OUR REPORT OF EVEN DATE)

As required by the Companies (Auditors Report) Order, 2003, issued by the Central Government of India in terms of section 227(4A) of the Companies Act, 1956 and as per the information and explanations given to us, the books and records examined by us in the normal course of audit and to the best of our knowledge and belief, we further report that:

1. (a) Delhi unit has maintained records of fixed assets. In case of Mumbai Unit and MS unit Mumbai, fixed

assets registers maintained w.e.f. 01.04.2002 are adequate in so far as these give full particulars of quantitative details. In MS unit - Delhi, records of fixed assets have been maintained except that the identification number is not mentioned in respect of office machinery and equipments. The Corporate Office has maintained fixed assets register showing full particulars including quantitative details.

(b) As per the Accounting Policy of the company, Fixed Assets are required to be physically verified by the Management on rotation basis, once in three years. As certified by the management, the Apparatus & Plants, vehicles and land and buildings were physically verified in accordance with programmed of verification by the management in this year and relied on by us. In our opinion, the area of physical verification needs to be further strengthened.

(c) The company has not disposed off any substantial part of its fixed assets during the year and as such there is no effect on the going concern.

2. (a) In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals.

(b) In our opinion, the procedure of physical verification of the inventory followed by the management needs to be further strengthened. According to the information and explanations given to us, the physical verification of all the items of stores was carried out during the year by Delhi and Mumbai units. However, at MS unit, Delhi, physical verification was conducted only for SIM cards but detailed physical verification was not made available for the verification.

(c) The Company is maintaining proper records of inventory. As per the information provide to us, discrepancies noticed on physical verification of inventory were not material and have been properly dealt with in the books of accounts.

3. Due to Non availability of information about the transactions required to be entered in the registers maintained under section 301 of the Companies Act, 1961 we are unable to comment on the same.

4. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods / services. In our opinion the internal control procedures needs to be further strengthened in regard to procedures with respect to the purchases under tenders floated and evaluated by corporate office. The system regarding reconciliation & confirmation of deposit to various departments, reconciliation between the exchanges generated calls & billed calls, reconciliation of the balance in subscriber deposit account with subsidiary record, needs to be strengthened. The overall internal control systems on revenue billing needs to be strengthened, as the amount of service tax is not generated from the system and service tax aging is also not available. System of reconciliation of IUC payable needs to be strengthened, as the amount generated as per the system for payable in cer tain cases has to be reconciled with some operators. Further in our opinion there should be a system of cross checking of IUC billing to operators. In respect of pending insurance claims of theft, fire and damage cases, more conscious perusal and follow up at apt interval is required.

5. The Company has not made purchase of material from companies, firms or other parties listed in the register required to be maintained under section 301 of Companies Act 1956, aggregating during the year to Rs. 5,00,000/- or more in value in respect of each party. The company has, however, obtained and provided the services from / to the companies, firms or other parties listed in the register required to be maintained under section 301 of the Companies Act, 1956. The above transactions, though required to be entered in the register required to be maintained under section 301 of the Companies Act, 1956, have not been entered.

6. As informed to us, the Company has not accepted any deposits from the public during the year within the meaning of section 58 A of the Companies Act, 1956 and the rules framed there under. Therefore, the directives issued by the Reserve Bank of India are not applicable.

7. In our opinion, the Internal Audit System of the company is not commensurate with the size of the Company and the nature of its business. Moreover, the authority and independence, extent of coverage of the areas of operations, frequency / quality of reporting / timeliness of the reporting and the follow up of internal audit observations need to be strengthened.

8. The Central Government has prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of Companies Act, 1956 i.e. 01.04.2003. The company has maintained the required Cost Records for the year 2008-2009 and the same records for the year under audit would be prepared after the audit of the final account. We have not carried out any detailed verification of these cost records.

9. (a) There were no undisputed amounts payable in respect of Statutory Dues including Contributory Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Excise Duty, Cess and any Other Statutory Dues outstanding as at 31.03.2010, for a period of more than six months from the date they become payable except service tax payable on amount lying in unlinked credits accounts in units (amount not ascertainable). As informed to us, the provisions of Employees State Insurance Act are not applicable to the company. There has generally been no delay in depositing CPF contribution to the trust. GPF contribution, in respect of employees on deemed deputation, is generally remitted regularly to DOT cell. GPF contribution, in respect of absorbed DOT employees, has been deposited with the GPF Trust after registration of the trust with Income Tax Department.

Name of the Amount (Rs) Amount (Rs) Period Statute L.S.T C.S.T

Delhi Sales Tax Act 268131 92302769 1988-89

Delhi Sales Tax Act 162120 20517000 1989-90

Delhi Sales Tax Act 1006001 15337192 1990-91

Delhi Sales Tax Act 11660806 63932673 1991-92

Delhi Sales Tax Act 1437418 144392134 1992-93

Delhi Sales Tax Act 1699669 176491 1993-94

Delhi Sales Tax Act 1032760 201103762 1994-95

Delhi Sales Tax Act 827253 88446906 1995-96

Delhi Sales Tax Act 71319 0 1996-97

Delhi Sales Tax Act 0 102613 1998-99

Delhi Sales Tax Act 1461 545178 1999-00

Delhi Sales Tax Act 88527 5000 2000-01

Delhi Sales Tax Act 2036407 15200 2001-02

Delhi Sales Tax Act 371932 0 2002-03

Delhi Sales Tax Act 1255424 0 2003-04

Delhi Sales Tax Act 0 180544146 1987-88

to 1993-94

Delhi Sales Tax Act 72041344 4234 2004-05

Delhi Sales Tax Act 4459877 0 2005-06

Delhi Sales Tax Act 1914095 0 2006-07

Delhi Sales Tax Act 265248583 0 2007-08

Total 365583127 807425298

Name of the Authority where pending Statute Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act High court Delhi Sales Tax Act High court Delhi Sales Tax Act High court Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax Delhi Sales Tax Act Addl. Comm. Sales Tax

(b) According to the information and explanation given to us, there are no dues in respect of Custom Duty, Excise Duty and Cess that have not been deposited with the appropriate authorities on account of any dispute. However, the Company has not deposited Sales Tax /VAT Dues, Service Tax and Income Tax Dues on account of disputes as under:

Local Sales Tax and Central Sales Tax / VAT: (i) Sales Tax

The unit has already deposited Rs. 154733054/- out of the total disputed liability stated above.

(ii) Service Tax Name of the Statute Amount (Rs) Service Tax Period Authority where pending

Service Tax Act 110300000 2007-08 CEGAT

Mumbai Unit

Name of the Nature of Dues Amount under Year to which Statute dispute not amount deposited relates

BST ACT Assessed Amount 672968 1993-94

BST Act Assessed Amount 52693370 1996-97

BST Act Assessed Amount 3514698437 1997-98 Appeals

BST Act Assessed Amount 59424662 1998-99

BST Act Assessed Amount 1013116938 1999-2000 35201675

BST Act Assessed Amount 54329094 2000-01

BST Act Assessed Amount 101128984 2001-02

BST Act Assessed Amount 49102898 2002-03

BST ACT Assessed Amount 2161090302 2003-04 Appeals

BST ACT Assessed Amount 1015717015 2004-05

Finance Service Tax: 4100000 2003-04 Act 1994 S.Clause Notice

Total Rs. 8,061,276,343

Name of the Forum where Statute the dispute is pending

BST ACT MSTT

BST Act DC

BST ACT Appeals Jt. Commr. of Sales Tax

BST Act MSTT

BST Act Jt. Commr. of Sales Tax Appeals MSTT

BST Act MSTT

BST Act Jt. Commr. of Sales Tax Appeals

BST Act MSTT

BST Act Jt. Commr. of Sales Tax Appeals BST Act Assessment order received on 19.4.2010. appeal to be filed.

Finance Act CESTAT 1994

Statutory dues which have not been deposited in respect of Mumbai MS unit as on 31st March, 2010.

S.No. Nature of Dues Amount under Forum where dispute not the dispute is deposited pending

1. Installation of BTS Site 3963453 CESTAT

2. Installation of BTS Site 35665083 CESTAT

3. Installation of BTS Site 7489891 CESTAT

4. Installation of BTS Site 2248797 CESTAT

5. Installation of BTS Site 2617816 CC

6. Service Tax demand 03-04 2080000 Jt. Comm.(Appeals)

7. Installation of BTS 3210353 CCF

8. Installation of BTS 15167288 CCF

9. Installation of BTS 12190290 CCF

Total 84632971

10. The company has incurred loss of Rs. 26109.71 Millions in the current year. There was no loss in previous years.

11. The Company has neither taken any loans from a financial institution / bank nor issued any debentures. Accordingly, clause 4 (xi) of the order is not applicable.

12. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, clause 4 (xii) of the order is not applicable.

13. The Company is not a Chit Fund or a Nidhi Mutual Benefit Fund / Society. Accordingly, clause 4(xiii) of the order is not applicable.

14. The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, clause 4(xiv) of the Order is not applicable.

15. According to the information and explanation given to us, the Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the Order is not applicable.

16. The Company has not obtained any Term Loans. Accordingly, clause 4(xvi) of the Order is not applicable. The Company has not raised any Long Term or Short Term Loan. Accordingly, Clause 4(xvii) of the Order is not applicable.

17. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act.

18. The Company has not issued any debentures. Accordingly, clause 4(xix) of the Order is not applicable.

19. The Company has not raised any money by public issues during the year. Accordingly, clause 4(xx) of the Order is not applicable.

20. According to the information and explanations given to us, no major fraud on or by the company has been noticed or reported during the year except as reported in Note No. 31 of Schedule T The details with regard to status of frauds till 31.03.2010 have not been provided to us as such provision in this regard, if any, could not be ascertained.

For Bansal Sinha & Co. For Goel Garg & Co.

Chartered Accountants Chartered Accountants

FRN- 06184N FRN - 00397N

(Ravinder Khullar) (Ajay Rastogi)

(Partner) (Partner)

(Mem No. 82928) (Mem No. 84897)

Place: New Delhi

Date: 12th August,2010