DSL is a listed Indian technology company that develops, sells, repairs, and supports computers and related products and services. DSL is owned by…

DSL is a listed Indian technology company that develops, sells, repairs, and supports computers and related products and services. DSL is owned by its parent company, DSL Technologies. DSL designs, develops, manufactures, markets, sells, and supports information technology infrastructure such as laptops, desktops, mobiles, workstations, storage devices, software, cloud solutions, and notebooks. The company is known for how it manages its supply chain and electronic commerce. This includes DSL selling directly to customers and delivering PCs that the customer wants. DSL was a pure hardware vendor until 2019 when it acquired Power Storage Systems. DSL then entered the market for IT services. The company has expanded storage and networking systems. In 2021, it began expanding from offering computers only to delivering a range of technology for enterprise customers. DSL serves corporate businesses, government, educational institutions, law enforcement agencies, healthcare organizations, and small and medium-sized businesses. Mainly Company is catering to domestic markets only with little exports of FOB Value INR 25 lakhs and 35 lakhs done during the financial years 2023 and 2024 respectively. Management's innovative business strategies transformed the company into a significant player in the Indian economy. The latest invention company did was to introduce cold wallets (hardware) to be used by crypto currency users. For manufacturing these wallets, machinery was imported from Japan by arranging funds through ECB's issued. A hardware wallet is a physical device that aims to store cryptocurrencies offline securely. Users of crypto currency can lose cryptocurrency tokens due to theft, computer failure, loss of access keys, and more. Cold storage (or offline wallets) is one of the safest methods for holding crypto, as these wallets are not accessible via the internet, but hot wallets are still convenient for some users. Same way hot storage wallets has also been developed by company's product development team which has been approved by concerned regulatory authority. While selling the first production batch of cold and hot wallets, DSL charged GST @ 12% as per advice of the inhouse legal department and reported the same in condensed interim financial statements (six months) for the period ended 30.09.2024. The said financial statements were pending for approval and in the meantime, DSL received a notice from GST department that GST rate applicable for such wallets is 18% and not 12%. Though DSL management had made a view to contest the demand but in the meantime, government issued a clarification to tax such wallets @ GST 18%. The said decision was taken by government to bring clarity on wallets, taxability under GST and clear the increasing disputes on those kinds of items. Management however refused to adjust the interim financial statements for creating the provision of difference of GST liability or adding information in notes to accounts on account of government notification. DSL further received notice from GST department for GST audit of the company for two years (2021-22 to 2022-23). A detailed notice was received from the department requiring the company to provide GST returns, invoices, stock register, financial statements and ledgers to verify the compliances relating to correct claim of input tax credit and payment of GST on sales at the applicable rates. Company engaged CA. Avinash for handling the audit. After going through documents submitted by the company and conducting necessary verification, following issues were raised by GST Superintendent at the time of finalization of audit in June 2025: (i) While scrutinizing the creditor's ledgers it was pointed out by the concerned GST officer that company had not made payment to one of the suppliers within 180 days from the date of invoice. Taxable value of invoice dated 25.10.2021 was - 78,00,000 on which GST @ 18% was charged (CGST: 9% and SGST: 9%) and payment was made on 20.08.2022. It was found that company had availed and utilized GST input of 14,04,000 in GST 3B filed on 20.11.2021. GSTR-3B for August 2022 was filed on 18.09.2022. (ii) Company had claimed GST input of 6,72,000 and - 7,50,000 on purchase of food and beverages used in a canteen in the factory premises during 2021-22 and 2022-23 respectively and expenditure on purchase of food and beverages was debited under the head Staff welfare expenses A/c. (iii) Company had debited a sum of 36,00,000 in Staff Welfare Account on account of payment to a travel company to provide home travel facility to its employees when they were on leave. Travel Company charged IGST of 6,48,000 on the bills raised during the year 2022-23 and company availed and utilized the IGST as mentioned above in GSTR 3B. (iv) Company had availed and utilized ITC of 12,96,000 on four buses (each with seating capacity of 30 persons) purchased in 2021-22 for transportation of its employees from their residence to office and back. ITC of 96,000 availed and utilised in 2022-23 on general insurance and repair & maintenance of cars used by employees for official purposes. (v) ITC of 1,26,000 availed and utilized on outdoor catering services for a marketing event organized for its current and prospective customers during 2022-23. Superintendent intimated the company to deposit required interest on delay in payment within 180 days as pointed out at point (i) and reverse the input tax credit claimed being blocked credit as pointed out at point (ii) to (v) and deposit the amount along with interest. Group CFO, CA. G, has recently taken up meeting of production department head (in relation to new products manufacturing) for ensuring that there is no gap between the orders taken and production done. Total Cost estimate given by the production department also includes waste disposal cost of 2.00 Crores. CA. G analysed the list of expenses and came to know that size of floatable solids (generated and disposed, during production process) is 4 mm as against prescribed norms of 3mm. He instructed the production head to bring the same within the norms prescribed under relevant environmental regulations and ask him to submit the report within three months about the same as this can lead to huge environmental penalties. No further investigation was done and the meeting closed. After six months, company received the notice from the government department about the same issue of floatable solids and was having no response to submit. When enquired, management came to know that CFO was aware of this fact but failed to disclose the same to the management. DSL is upgrading one of the chips required to be used as input in new laptops being produced at its factory. The said chip has to be imported from Germany where its sole distributor is located. It was decided to import the required quantity of Chips under Advance Authorization scheme and accordingly DSL applied for advance authorization for importing chips having FOB Value being 95 Lakhs. Company expected to receive the licence by 01.08.2024. To meet the export obligation arising out of advance authorization, DSL plans to supply the laptops (with existing technology chip) to Noida Technology SEZ for being used by them. Production of new laptops started and company wants to make sure that there should be continuous flow of production and with zero waiting time (means the product should not wait on next production step) zero defects, avoiding unnecessary transportation cost, zero inventory etc. During the current financial year, company decided to use a Logo "$Z" which was launched by Mr. B when he was carrying on the same business in proprietorship form. Company has entered into an agreement with Mr. B (currently director of DSL) to use the same on the following terms and conditions: Mr. B grants DSL a non-exclusive, non-transferable license to useDSL agrees to pay Mr. B an annual license fee of 25,00,000The license fee is subject to revision upon mutual agreement after three years Payment for first year was made in advance. The said transaction was not entered in the register maintained for recording contracts or arrangements in which directors are interested. Internal auditor observed the same and discussed it with the concerned persons in charge for dealing with audit queries in DSL. Statutory Auditor was also present there and listened to the entire conversation. He noted down the point and decided to incorporate the same while preparing CARO. ABC & Associates have been appointed as statutory and tax auditors for the F.Y 2024-2025. Till last financial year, DEF & Associates were carrying out both the audits. The new audit firm assigned statutory and tax audit to two different teams. Statutory audit team headed by CA. Shankar attended physical counting of inventory on 30th and 31st March, 2025. During the course of statutory audit, certain deficiencies in the internal control system relating to inventory were noticed by CA. Shankar as regards the inventory value as on 1st April, 2024. Audit team is in dilemma as regards the weak internal control system in place in the inventory physical verification observed by it. Tax Audit team also raised some issues for the year ending 31st March 2025. The following points emerge from the audit: (a) The company received 80 lakhs as an Inter-Corporate Deposit (ICD) on 10th April 2024 from a group company, through account payee cheque. (b) A provision of 18 lakhs was made for product warranties (for which law suit is pending as on 31.03.2025) and the same had been debited to Profit & Loss account. (c) Company claimed deduction of 60,000 in FY 2023-24 towards transport charges (on accrual basis) but paid - 60,000 in cash in FY 2024-25 on a single day. (d) Company owns an industrial plot (held as investment). It entered into a negotiation with XYZ Ltd. for sale of the plot. XYZ Ltd. paid 20 lakhs as advance. The said amount is outstanding in books as an advance since last three years and has become time barred in the current financial year. As ECB was raised successfully, one of the directors, Mr. John, who is also a director of BNC Limited (a company under corporate insolvency resolution process), suggested the ECB route to that company also for meeting the funds requirement.