Harcharan Ceramics Limited (HCL) enjoys the reputation of being one of the best companies in South India to offer end to end lifestyle solutions to…

Harcharan Ceramics Limited (HCL) enjoys the reputation of being one of the best companies in South India to offer end to end lifestyle solutions to Wall and Floor Tiles, Sanitaryware & Bath Fittings, Engineered Marble and Quartz for different Residential, Commercial and Industrial Spaces. With more than six decades of pioneering innovations and expertise, HCL offers a wide array of products for diversified application and usages. HCL operates from Mysore and has its manufacturing plants throughout Karnataka. It has a couple of wholly owned subsidiaries in its corporate portfolio. Very often, HCL is engaged in strategic acquisitions to expand its business portfolio. As part of its growth strategy, on 1st January 2025, HCL acquired entire share capital of Savreen Ceramics Limited (SCL) for 1,500 lakhs. The book values and the fair values of the identifiable assets and liabilities of SCL on the date of acquisition are set out below, together with their tax bases. Any goodwill arising on the acquisitions is not deductible for tax purposes. The tax rate is 30%. Net Assets Acquired Book Values Tax Base Fair Values Land and Buildings 600 500 700 Property, Plant and Equipment 250 200 270 Inventory 100 100 80 Accounts Receivable 150 150 150 Cash and Cash Equivalents 130 130 130 Total Assets 1,230 1,080 1,330 Accounts Payable (160) (160) (160) Retirement Benefit Obligations (100) (100) Net Assets before Deferred Tax Liability 970 920 1,070 Deferred Tax Liability on differences between Book Values and Tax Bases (₹ 50@ 30%) (15) Net Assets at Acquisition 995 920 1,070 Harnam Singh Ceramic Tiles Limited (HSCTL) is one of the subsidiaries of Harcharan Ceramics Limited (HCL). All the three directors of HCL are also the directors of HSCTL. However, the three directors have been disqualified under the Companies Act, 2013 as HSCTL has defaulted in filing its financial statements for three financial years. Hariharan Singh, the Promoter of HCL wants to have the directors' vacancy filled up so that the Company's operations could go on without hindrance. Another subsidiary of HCL namely Harkaran Innovative Tiles Limited (HITL) wants to pay remuneration to its Managing Director and CEO namely, Mr. Nanak Dev Singh in excess of the limits specified in Schedule V of the Companies Act, 2013 as the Company does not have adequate profits. The Company has defaulted in payment of dues to Banks as well as to Non-Convertible debenture holders. It may be noted that the term of office of Mr. Nanak Dev Singh expires by April 10th, 2026. CA. Amanpreet Singh has been appointed as the Statutory Auditor of HITL for a period of five years at the AGM of the Company held on 29th September 2025. While drafting audit letter communicating the key points of audit to 'Those Charged with Governance' and Audit Committee, CA. Amanpreet Singh is contemplating whether he needs to generate a Unique Document Identification Number (UDIN). Mr. Ronnie Coleman is a European, having vast experience of more than three decades in all gamut of Marble, Granite and Tiles Manufacturing and Sales throughout Europe. Having heard of the reputation and cost effective quality products of HCL in India, he wanted to have business dealings with HCL in India for his latest, innovative, digital 3D Wall and Floor Tiles. In this regard, he is desirous of knowing the conveyance, clearance and warehousing procedures under the Indian Customs Law from the point of import of goods into India. HCL has purchased certain state-of-the art new machines on 23rd November 2024 for US$ 1,00,000 when the exchange rate per US dollar was - 84. As on 31st March 2025, the exchange rate was 86 per US $. HCL made the payment on 5th June 2025 when the exchange rate was - 86.50 per US$. HCL has proposed a new foreign investment which involves creation of a plant with an annual output of 1 million units. The entire production will be exported at a selling price of USD 10 per unit. At the current rate of exchange, dollar cost of local production equals to USD 6 per unit. Dollar is expected to decline by 10% or 15%. The change in local cost of production and probability from the expected current level will be as follows: Decline in value of USD (%) Reduction in local cost of production (UDS/ unit) Probability 0 - 0.40 10 0.30 0.40 15 0.15 Additional Reduction 0.20 The plant at the current rate of exchange will have a depreciation of USD 1 million annually. Assume local tax rate as 30%. HCL has preferred an appeal against certain additions relating to Assessment Year 2023-24 before Commissioner of Income-tax (Appeals) and has not contested a few other additions made to the returned income in the assessment made in regular assessment of the Income-tax Act, 1961. When the appeal was pending disposal, the Commissioner of Income-tax invoked its revisionary powers in respect of other issues which have not been dealt with in the assessment order. The tax counsel has opined that the doctrine of total merger would apply and therefore, the revision proposed is bad in law. For the Assessment Year 2024-25, the Assessing Officer made an addition of 150 lakhs on account of excess depreciation and 120 lakhs by way of disallowance under Section 40A (2) of the Act. HCL filed an appeal before the CIT(A) against the denial of depreciation and on being unsuccessful, filed a further appeal before the Appellate Tribunal. In respect of the disallowance under Section 40A (2) of the Act, it did not file any appeal but filed a revision petition before the Commissioner of Income-tax who dismissed it on the ground that the assessment is a subject matter of appeal before the Appellate Tribunal. The tax counsel opined that the action of the Commissioner is not tenable in law.