CASE STUDY - 3 Maximo Ltd., Kolkata was promoted by Anand a renowned Industrialist in the year 2008. In the initial years Anand incubated the…

CASE STUDY - 3 Maximo Ltd., Kolkata was promoted by Anand a renowned Industrialist in the year 2008. In the initial years Anand incubated the venture closely and later opted for professional management which was successfully carried out besides listing of the company's shares in Bombay stock exchange. Paid-up share capital of Maximo Limited is 100 Crores, comprising of 100 Lakhs equity shares of 100 each, held by - 1,000 shareholders. The company is a manufacturing company, engaged in manufacture of dairy products and fruit concentrates. The company has activities at various locations based on raw material source and availability of appropriate competent work force and other key factors. The geographical spread was advantageous to the company to swap raw materials, finished goods, employees besides product supply and distribution. Maximo Ltd. imported new machineries from USA by air on CIF basis for USD 1,00,000. The air freight was USD 12,000; insurance USD 8,000. Later, it negotiated the price again with the supplier and the re-negotiated price was fixed as USD 95,000. The exchange rate on the date of bill of entry (25.06.2023) was 1 USD = 84 and on the date of arrival of aircraft (07.07.2023) was 1 USD = 82. Both the exchange rates are as notified by CBIC. BCD rate on 25.06.2023- 8% and on 07.07.2023- 10%. There is no change in Social Welfare Surcharge between date of filing of Bill of Entry and date of arrival of aircraft. Maximo Ltd. was interested in expanding its operations outside India and in pursuit of the same planned to install a manufacturing facility at Australia where the Indian diaspora evinced enormous interest for the products since it was with Indian technique of manufacture of eatables. For the proposed project, it requires a net fund (after fund raising expenses) of 20 million Australian Dollars. In order to fund this project, it proposes to issue GDRs by issuing foreign currency bonds through an approved intermediary in Australia. The entire GDRs issued would be purchased by non-residents in Australia. The expenses and flotation cost of GDRs would be 5% of the gross proceeds. Further, the following additional information is also given: (i) the expected market price of each share at the time of issue of GDR - 300 (face value = 100 each); (ii) 2 shares shall underly each GDR and shall be priced at 10% discount to market price; (iii) Expected exchange rate 1 Australian Dollar= 60; (iv) Dividend expected to be paid is 30% with growth rate 12%. For packing its products in a unique way, Maximo Ltd. incorporated a 100% owned subsidiary company by name Hi-Quality (P) Ltd at Chennai. Hi-Quality (P) Ltd. is meant to manufacture empty containers through automated machine enabled production process, ensuring its production process meets world class performance standard under TPM approach. It works double shift a day of 8 hours each which includes 30 minutes lunch/dinner break and 15 minutes tea break. The following information is per shift for 10th March, 2024 : Unplanned down time 20 minutes Standard cycle time 2 minutes per bottle Quality loss, scrap, rejection 10% Total quantity produced 200 bottles 90 shareholders holding 10 Lakhs equity shares of Maximo Ltd., are concerned with the flouting of norms fixed for extraction and usage of ground water, beyond permissible limits in various plants of Maximo Limited. Despite repeated representations from shareholders, Maximo Ltd. has not taken any corrective action. Therefore, group of these 90 shareholders have made a petition before NCLT in Dec 2023. NCLT, on receipt of the petition, has commenced proceedings in Feb 2024. However, out of these 90 shareholders, 40 shareholders holding 4 Lakhs shares, have withdrawn their consent in March 2024, for filing petition before NCLT. The CFO of Maximo Ltd. resigned in July 2023 due to some personal reasons. There was no replacement to the post. Mittal Associates a firm of CAs acted as statutory auditors of the company. The auditors have stated that the financial statements for the year ended 31st March, 2024 are not IND AS compliant. The financial statements have not yet been approved by the Board. It was pointed out that there were errors in the financial statements of preceding account year i.e. 2022-23 also. The Finance Manager claimed that there was a retrospective change in accounting policy which was made in FY 2022-23 but it was not followed or disclosed properly in the financial statements of accounting years 2022-23 and 2023-24. Maximo Ltd. having its manufacturing and distribution plant in Thane, Maharashtra has in the month of November, 2023 collected GST at a rate lower than what is prescribed in law. Thus, there was error in collection and remittance of GST (after ITC). A show cause notice (SCN) was issued under section 73(1) of CGST Act for payment of tax of 6,00,000 and interest amounting to 1,08,000. Maximo Ltd. is aware of the short collection and short payment of output tax by it. It neither paid the GST tax demand in response to the show cause notice nor offered any explanation for the same, even after passing 30 days from the date of issuing SCN. Shortspan (P) Ltd. was promoted by Mukund, younger brother of Anand, in the year 2010. The activity of Shortspan (P) was manufacture of CD Players, which has become outdated in the recent times. Thus, there was a huge recession in business. The company Shortspan (P) Ltd. applied for insolvency and bankruptcy resolution process. Its application for corporate insolvency process has been admitted by the adjudicating authority in June, 2023 under the Insolvency and Bankruptcy Code, 2016. Shortspan (P) Ltd. has the following amounts brought forward as per the Income-tax Act, 1961 on 1st April, 2023 which are to be considered for set off while computing book profit under section 115JB : Year ended Business Loss ₹ Unabsorbed depreciation ₹ 31.03.2021 11,00,000 16,00,000 31.03.2022 Nil 10,00,000 31.03.2023 4,00,000 3,00,000 Multiple Choice Questions: [Provide the correct option to the following questions]