The Hindu Business Line : B-school betrayal by the numbers

WHEN problems fester, it is inevitable that some dirty linen gets washed in public, and stains and holes in sheets are no longer a secret. Likewise, the recent opinion of a CA firm on the IIMs, prepared a few weeks ago at the behest of Education Consultants India Ltd (EdCIL), a government enterprise, exposes some of the big gaps in the accounting statements of the management institute.

From the opinion, one can learn that the New Delhi-based CA firm given this assignment (a day prior to the date of the opinion) was provided with audited financials of the IIMs and not the auditors' reports on the same. Also, there is a cautious paragraph: "Any other information or access to books of account, i.e. ledgers, cash and bank-books, rules and regulation of the institute, letters of grant from government have not been made available to us."

What did their review cover? "Our scope of work is limited only to the extent of framing view about the financials of the institute and to find out the taxability of the institute assuming that it is not substantially funded by the government according to Sec 10(23C)(iiiab) of the Income Tax Act, 1961," notes the opinion, before listing the lacunae.

Some of the glaring ones are: not routing retirement benefit of Rs 19 crore in income & expenditure account; a chasm of Rs 11 crore between endowment fund and corresponding investment; not charging depreciation on any of the assets and thus overstating surplus; not taking profit on sale of investments to income & expenditure account; Rs 66 lakh fund received from Ministry of Agriculture for research project lying as unutilised being transferred to income instead of returning to the Ministry; not booking income from CAT exams; valuation of inventory at cost, rather at lower of cost and net realisable value; and so on.

On the tax subject, the firm observes: "To frame an opinion about the taxability of the institute, we have not been provided with the books of account, due to which we are unable to comment upon allowability or non-availability of any particular expenditure."

Here are a few alarming excerpts from a page in the opinion titled, `violation of income tax provisions': Investments of funds not made as per the pattern of investment prescribed by Sec 11 (5) of the IT Act; and it does not appear that the conditions imposed by Sec 10 (23C) (iiiab) — that is, existing solely for educational purposes, not for profit, wholly or substantially financed by the government — are satisfied. "It does not appear that the institute continues to enjoy income tax exemption in respect of its income," states the firm, and goes on to compute tax liability for the years 1998-99 to 2002-03 for one of the IIMs, at Rs 34 crore, appending a note that maximum penalty of 3 times of tax can be levied by the Department.

Since the ICAI is the other body protesting infringements on its autonomy, let's hope that the Department of Company Affairs does not give the audited accounts of the ICAI to some MBAs for review.

AccountSpeak@thehindu.co.in

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