4.16 Provisions and Contingent Liabilities and Contingent Assets
I n accordance with Accounting Standard 29 - Provisions, Contingent Liabilities and Contingent Assets prescribed by Companies (Accounting Standard) Rules 2021, to the extent applicable to the company, provisions are created in respect of obligations as a result of past events and it is probable that an outflow of resources will be required to settle the obligations, in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on management estimate required to settle the obligation at the Balance Sheet date. These will be reviewed at each Balance Sheet date and adjusted to reflect the current management estimates.
Contingent losses arising from claims other than insurance claims, litigation, assessment, fines, penalties, etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
A disclosure for a contingent liability other than those under policies is made when there is a possible obligation or a present obligation that may, but probably will not require an outflow of resources.
Show Cause Notices issued by various Government Authorities are not considered as Obligation. When the demand notices are raised against such show cause notices and are disputed by the Company, these are classified as disputed obligations under contingent liability
Contingent Assets are neither recognised nor disclosed in the Financial Statements.
4.17 Borrowing Cost:
Borrowing costs are charged to Profit and Loss Account in the period in which they are incurred.
4.18 Receipts and Payments Account (Cash flow statement):
(i) Receipts and Payments Account is prepared and reported using the Direct Method, in conformity with Para 2.2 of the Master Circular on Preparation of Financial Statements - General Insurance Business dated October 5, 2012, issued by the IRDAI.
(ii) Cash and cash equivalents comprises cash on hand and demand deposits with Banks. Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
4.19 Transfer of amounts to Senior Citizen Welfare Fund
In accordance with the requirement of the Notification no G.S.R 380(E), issued by the Ministry of Finance, dated April 11,2017 read with IRDAI Circular No. IRDA/F&A/CIR/MISC/173/07/2017 dated July 25, 2017 the Company transfers amounts outstanding for a period of more than 10 years in Unclaimed Amount of Policyholders to the Senior Citizen Welfare Fund (SCWF) on or before March 1st of each financial year.
Note :
a) The Company has disputed the demand raised by Goods and Service Tax Authorities for various years and denial of refund claim amounting to ' 28,44,358 thousands (Previous Year: March 2023 : ' 39,122 thousands). The alleged demand orders majorly pertain to non-payment of GST on industry vide issues such as re-insurance commission, co-insurance premium and other miscellaneous issues like mismatch in GSTR3B vs GSTR2A, GST credit claimed under reverse charge mechanism. The department has issued demand order on suo-moto basis without giving reasonable opportunity to be heard and a fixed mind-set.
b) The Company has disputed the demand raised by Income Tax Authorities of ' 10,615 thousands (Previous Year : ' 2,35,609 thousands).
In the view of the Company, as and advised by the counsel, the decisions are expected to be in favour of the Company, based on the facts of the case and taxation law.
Other Matters:
Income Tax:
A. The Company had challenged, by way of Writ Petitions before the Hon'ble High Court of Madras, the Income Tax Assessment
Orders for Assessment Years 2009-10, 2010-11 and 2011-12 with demands aggregating to ' 6,26,758 thousand (Year Ended Mar 31, 2021: ' 6,26,758 thousands) on account of applying the provisions of Section 115 JB of Income Tax Act, 1961. The Hon'ble High Court of Madras, accepting the pleas of the Company set aside the impugned orders with the directions that the Income tax department could pass appropriate orders after the Hon'ble Supreme Court gives its direction on the Special Leave petition pending with the Hon'ble Supreme court.
The company has received an order from the Joint Commissioner of Income tax (OSD) on 16.08.2021 for the Assessment Year 2009-2010, granting a refund of ' 2,22,411 thousand. As per above mentioned order the company is not liable to pay tax under provision of section 115JB and Income tax demand of ' 2,45,820 thousand is nullified. The company has already received a sum of ' 78,097 thousand out of '2,22,411 thousands refund sanctioned as per order and is taking steps to obtain the balance due. As there are no subsisting demands as on date, no provision is considered necessary in the books.
The principal commissioner of income tax, Chennai has initiated the revision proceedings under section 263 of the Income tax Act. The department has mentioned that the order passed by Joint commissioner of income tax (OSD) dated 16.08.2021 is erroneous and not in line the high court judgement. The Company has filed writ appeal on 12th April 23.
B. The Company has received an order dated December 27, 2019 for the Assessment year 2014 - 15 from the Office of Assistant Commissioner of Income tax raising a demand of ' 4,24,355 thousand towards Income tax and Interest payable towards amount of unexpired risk reserve not being appropriated in the Profit and Loss account. The Company has challenged the order before Commissioner of income tax (Appeals), while having taken a stay for the demand from Hon'ble High Court of Madras subject to payment of 10% tax amounting to ' 25,110 thousand. In the opinion of the company, both on law and facts, the said demands are not sustainable and hence no provision is considered necessary in the books.
C. The Company filed its return of income on 4th March 2022 for Assessment Year 2021-22 opting for benefit of lower tax rate at 22% under section 115BAA of the Income Tax Act. In the income tax return the option for claiming the lower rate was opted by the company. However as per section 115BAA, there is a requirement to file Form 10-IC for claiming the lower tax benefit, which was inadvertently not filed. The department processed company's return with the normal rate of tax at 34.94% which resulted in a higher tax liability and short refund to the extent of '2,35,609 Thousands. The company had filed with CBDT, the application under section 119(2)(b) of Income Tax Act, for Condonation of delay in filing of Form 10-IC. The company has also filed an appeal with Commissioner of Income tax (Appeals) on 1st October,2022 against the intimation order rejecting the option for lower rate of tax.
The Company is in receipt of rectification order u/s 154 of the Income Tax Act, 1961 dated 22/02/2024 favouring the claim and allowing the actual refund claimed in the original return. Hence, the Company is expected to receive the balance refund of ' 2,40,321 thousand (including interest) in due course.
Goods and Service Tax:
The company had a show cause notice of ' 2,39,944 thousands from the Directorate General of GST Intelligence pertaining to the period July 2017 to March 2022 and the Company paid ' 80,000 thousands under protest. The company has filed a
detailed reply with the Additional Commissioner, Central Taxes, Chennai against the show cause notice and attended the personal hearing. Considering the facts, the Company has been advised by its legal counsel that the liability may not arise.
Payment of Bonus Act:
The Payment of Bonus Act was amended with retrospective effect and resulted in increasing the bonus liabilities. The additional liability on account of retrospective amendment is ' 14,831 thousands (Year Ended Mar 31, 2023: ' 14,831 thousands). The retrospective amendment is being challenged by various parties in the High Court and based on the final outcome on determination of the court cases would be accounted for on that date.
5.1.2 The assets of the Company are free from all encumbrances except for deposits of ' 81,295 thousand (Year Ended Mar 31,2023: ' 44,898 thousands) with the courts against disputed claims. Pending disposal of the case, in the opinion of the Company the said amount is considered good and recoverable.
Claims outstanding data excludes IBNR. The claims were outstanding predominantly due to non-submission of essential documents by the insured/Hospitals. Claims settled and remaining unpaid for more than six months is ' Nil (Year Ended Mar 31,2023 ' Nil).
iii. Claims where the claim payment period exceeds four years:
As per circular F&A/CIR/017/May-04, the claims made in respect of contracts where claims payment period exceeds four years, are required to be recognised on actuarial basis. Accordingly, the Appointed Actuary has certified assuming 'NIL' discount rate.
5.1.5 Premium
All premiums, net of Re-insurance are written and received in India.
No premium income is recognized on varying risk pattern.
C) Employee Stock Option plan (ESOP)
The Company has introduced Employee Stock Option plan (ESOP 2019) in the financial year 2019-20 effective from August 6, 2019 (date of grant). The Company has granted Stock Options to employees in compliance with the Securities and Exchange Board of India ( Share Based Employee Benefits and Sweat Equity) Regulations 2021. The ESOP Plan 2019 was modified pursuant to the resolutions passed by the Board of Directors of the company in the meeting held on May 23, 2021, September 28, 2021 and January 25, 2022 and by the Shareholders of the Company in an extra ordinary general meeting held on July 16, 2021 , October 4, 2021 and March 03, 2022. Under the ESOP 2019, the company has given options to eligible employees to acquire equity share in the Company. The options have been granted under various tranches.
During the year ended as at March 31,2024 the company had granted 5,76,000 No. of options (Year Ended March 31,2023: 21,20,104 Options) which will vest over a period of 5 years in the ratio 20:20:20:20:20 starting at the end of the 1st year from the date of grant.
Out of the ESOP 2019 options issued up-to the Year ended March 31,2024: 6,90,989 No. of Options (Net of Withdrawn Option) (Year Ended March 31, 2023: 7,40,389 Options), were issued for exercise price which is less than the fair value of the option. Therefore, the corresponding compensation cost of '9,509 thousands (Year Ended March 31,2023: '12,710 thousands) is charged to profit and loss accounts.
5.2 Other disclosures:
5.2.1 Pursuant to IRDAI regulation of Asset, Liabilities, and Solvency margin of General Insurance Business Regulations 2016 (IRDAI/ Reg/7/119/2016 dated April 7, 2016); claim reserves are determined as the aggregate amount of Outstanding Claim Reserve and Incurred but Not Reported (IBNR) claim reserve for the lines of business as applicable to the company.
5.2.2 Provision for Free Look period
The provision for Free Look period of ' 4,500 thousands (Year Ended March 31, 2023: ' 3,500 thousands) is duly certified by the Appointed Actuary.
5.2.3 Operating Lease
Lease of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments debited to the revenue account during the year ended March 31,2024 amounts to ' 8,31,995 thousands (Year ended March 31,2023: 6,48,042 thousands).
5.2.18 Investor Education & Protection Fund:
For the year ended March 31,2024, the company has transferred ' NIL (previous year ' NIL) to the Investor Education & Protection Fund.
5.2.18 The Indian Parliament had approved the Code on Social Security, 2020 which could impact the contributions by the Company towards Provident Fund and Gratuity. The Company will complete its evaluation once the Rules are notified and will give appropriate impact in the financial statements in the period in which the Code and related Rules becomes effective.
5.2.20 The Company has formed Steering committee of Department Heads to implement Indian Accounting Standards (Ind AS). The Steering committee meets regularly to discuss and take forward the implementation of Ind AS. The impact assessment was completed in August 2023, to ascertain the approaches as required by the Standard. The exposure draft of Ind AS 117 is available in the public domain for suggestions and comments. The Company has engaged the knowledge partner and technology partner for Ind AS 117 implementations.
5.2.21 As per proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 which is applicable from April 1, 2023, the Company has used accounting software for maintaining its books of account, have a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the respective software. There are no instances of the audit trail feature being tampered with. The preservation of audit trail is as per statutory requirements for record retention effective from the financial year March 31,2024.
For And On Behalf of Board of Directors
Anand Roy Deepak Ramineedi
Managing Director & Chief Executive Officer Director
DIN:08602245 DIN:07631768
Nilesh Kambli Jayashree Sethuraman
Chief Financial Officer Company Secretary
As Per Our Report of Even Date attached
For M/s. Brahmayya & Co., For M/s. V. Sankar Aiyar & Co.,
Chartered Accountants Chartered Accountants
Fi rm Reg No.: 000511S Fi rm Reg No.: 109208W
Jitendra Kumar K V. Balaji
Partner Partner
M.No.: 201825 M.No.: 211765
Place: Chennai Date: April 30, 2024
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