Auditor's Report Year End : Mar '08

We have audited the attached balance sheet of Larsen & Toubro Limited,

as at March 31, 2008 and also the profit and loss account and the cash

flow statement for the year ended on that date annexed thereto. These

financial statements are the responsibility of the Companys

management. Our responsibility is to express an opinion on these

financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally

accepted in India. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts and

disclosures in financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statements

presentation. We believe that our audit provides a reasonable basis for

our opinion.

In accordance with the provisions of section 227 of the Companies Act,

1956, we report that:

(1) As required by the Companies (Auditors Report) Order, 2003, issued

by the Central Government of India under sub-section (4A) of section

227 of the Companies Act, 1956, and on the basis of such checks of the
books and records of the Company as we considered appropriate and

according to the information and explanations given 10 us, we enclose

in the Annexure a statement on the matters specified in paragraphs 4

and 5 of the said Order.

(2) Further to our comments in the Annexure referred to above, we

report that:

(a) we have obtained all the information and explanations which to the

best of our knowledge and belief were necessary for the purposes of our

audit;

(b) in our opinion, proper books of account as required by law have

been kept by the Company so far as appears from our examination of

those books;

(c) the balance sheet, profit and loss account and cash flow statement

dealt with by this report are in agreement with the books of account;

(d) in our opinion, the balance sheet, profit and loss account and cash

flow statement dealt with by this report comply with the accounting

standards referred to in sub-section (3C) of section 211 of the

Companies Act, 1956; and

(e) on the basis of the written representations received from directors

as on March 31, 2008 and taken on record by the board of directors, we

report that none of the directors is disqualified as on March 31, 2008

from being appointed as a director in terms of clause (g) of sub-

section (1) of section 274 of the Companies Act, 1956.

In our opinion and to the best of our information and according to the

explanations given to us, the said accounts, read together with the

significant accounting policies in schedule Q and notes appearing

thereon, give the information required by the Companies Act, 1956 in

the manner so required and give a true and fair view in conformity with

the accounting principles generally accepted in India:

1) in the case of the balance sheet, of the state of affairs of the

Company as at March 31, 2008;

2) in the case of the profit and loss account, of the profit for the

year ended on that date; and

3) in the case of the cash flow statement, of the cash flows for the

year ended on that date.

Annexure to the Auditors Report

(Referred to paragraph (1) of our report of even date)

1 (a) The Company is maintaining proper records to show full

particulars including quantitative details and situation of all fixed

assets.

(b) We are informed that the Company has formulated a programme of

physical verification of all the fixed assets over a period of three

years which, in our opinion, is reasonable having regard to the size of

the Company and nature of its assets. Accordingly, the physical

verification of the fixed assets has been carried out by management

during the year and no material discrepancies were noticed on such

verification.

(c) The Company has not disposed of any substantial part of its fixed

assets so as to affect its going concern status.

2 (a) As explained to us, inventories have been physically verified by

management at reasonable intervals during the year. In our opinion, the

frequency of such verification is reasonable.

(b) As per the information given to us, the procedures of physical

verification of inventory followed by management are, in our opinion,

reasonable and adequate in relation to the size of the Company and the

nature of its business.

(c) The Company is maintaining proper records of inventory. The

discrepancies noticed on verification between the physical stocks and

the book records were not material.

3 (a) According to the information and explanations given to us, the

Company has not granted any loans, secured or unsecured, to companies,

firms and other parties covered in the register maintained under

section 301 of the Companies Act, 1956. Accordingly, paragraphs

4(iii)(b), (c) and (d) of the Order are not applicable.

(b) According to the information and explanations given to us, the

Company has not taken any loans, secured or unsecured, from companies,

firms and other parties covered in the register maintained under

section 301 of the Companies Act, 1956. Accordingly, paragraphs

4(iii)(f) and (g) of the Order are not applicable.

4 In our opinion and according to the information and explanations

given to us, there are adequate internal control systems commensurate

with the size of the Company and the nature of its business for

purchase of inventory, fixed assets and for sale of goods and services.

Further, on the basis of our examination of the books and records of

the Company, and according to the information and explanations given to

us, we have neither come across nor have been informed of any

continuing failure to correct major weaknesses in the aforesaid

internal control systems.

5 (a) According to the information and explanations given to us, we are

of the opinion that the particulars of contracts or arrangements that

need to be entered in the register maintained under section 301 of the

Companies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanations

given to us, the transactions made in pursuance of such contracts or

arrangements entered in the register maintained under section 301 of

the Companies Act, 1956 and exceeding the value of rupees five lakhs in

respect of any party during the year, have been made at prices which

are reasonable having regard to the prevailing market prices at the

relevant time.

6 The Company has accepted deposits from the public and in our opinion

and according to the information and explanations given to us, the

directives issued by the Reserve Bank of India and the provisions of

sections 58A, 58AA and other relevant provisions of the Companies Act,

1956 and the rules framed thereunder, where applicable, have been

complied with. We are informed that no order has been passed by the

Company Law Board or National Company Law Tribunal or Reserve Bank of

India or any court or any other tribunal.

7 In our opinion, the Company has an internal audit system commensurate

with its size and nature of its business.

8 We have broadly reviewed the books of account and records maintained

by the Company pursuant to the rules prescribed by the central

government for the maintenance of cost records under section 209(1 )(d)

of the Companies Act, 1956 in respect of electronic products, viz.

industrial electronics including all control instrumentation and

automation equipment and are of the opinion that prima facie the

prescribed accounts and records have been made and maintained. The

contents of these accounts and records have not been examined by us.

9 (a) According to the information and explanations given to us and the

records of the Company examined by us, in our opinion, the Company is

generally regular in depositing undisputed statutory dues including

provident fund, investor education and protection fund, employees state

insurance, income tax, sales tax, wealth tax, service tax, custom duty,

excise duty, cess and other material statutory dues as applicable with

the appropriate authorities. According to the information and

explanations given to us, there were no undisputed amounts payable in

respect of provident fund, investor education and protection fund,

employees state insurance, income tax, sales tax, wealth tax, service

tax, custom duty, excise duty, cess and other statutory dues

outstanding as at March 31, 2008 for a period of more than six months

from the date they became payable.

(b) According to the information and explanations given to us and the

records of the Company examined by us, the particulars of sales tax,

excise duty, service tax and income tax as at March 31, 2008 which have

not been deposited on account of a dispute pending, are as under:

Name of the Statute Nature of the disputed dues Amount

Rs.crore
Central Sales Tax Act, Non-submission of forms, 0.52

Local Sales Tax Acts and stock transfer claims, dispute

Works Contract Tax Act regarding sales in transit and

other matters

Non-submission of forms, 24.74

classification dispute,

disallowance of deemed

inter-state sales and

other matters

Non-submission of forms, 12.61

additional demand for

pending forms, rate of

tax dispute,

disallowance of branch

transfer, transit sale,

export claim disallowance

and other matters

Non-submission of forms, 5.50

disallowance of exemption,

transit sales, and other matters

Non-submission of forms, 2.11

additional demand for pending

forms, disallowance of inter-state

sales and other matters

Non-submission of forms, deemed 2.02

inter-state sales disallowed,

 disallowance of import tax credit

and other matters

Non-submission of forms, 42.36

inter-state sales, sub-contractor

turnover, rate dispute,

disallowance under composition

scheme and other matters

Inter-state sales, classification 202.87

dispute, and disallowance of

deemed sales in course of

imports and taxability of

subcontractors turnover

Period to which the Forum where disputes

amount relates are pending

1997-1998 to 2003-2004 and Commercial Tax Officer

2005-2006

1993-1994 to 2004-2005 Assistant Commissioner

(Appeals)

1989-1990, 1991-1992, Deputy Commissioner

1993-1994 to 2005-2006 (Appeals)

1994-1995 to 1996-1997 and Joint Commissioner

2000-2001 to 2004-2005 (Appeals)

2000-2001 to 2005-2006 Additional

Commissioner
 (Appeals)

1999-2000, Commissioner

2001-2002 to 2003-2004 and (Appeals)

2005-2006

1987-1988, Sales Tax Tribunal

1989-1990 to 1992-1993 and

1994-1995 to 2002-2003 and

2004-2005

1981-1982, High Court

1986-1987 to 2005-2006

Name of the Statute Nature of the disputed dues Amount

Rs.crore

Taxability of subcontractors 2.14

turnover, rate of tax for declared

goods and inter-state rate

The Central Excise Valuation disputes and 0.11

Act, 1944 and disallowance of cenvat against

Service Tax under the service tax on freight outward

Finance Act, 1994

Classification dispute, 8.57

exemptions denied,

valuation disputes and

 other matters

Export rebate claim 0.07

Dispute on site mix 0.27

concrete and PSC grinders

Demand for service tax on 107.64

lumpsum turnkey projects

Service tax on commercial 4.04

construction services

The Income Tax Dispute regarding tax deducted 0.03

Act, 1961 at source at lower rate on

maintenance charges

Difference in rate of

tax deducted 0.86

at source

Period to which the Forum where disputes

amount relates are pending

1991-1992 Supreme Court

1997-1998 and 2007-2008 Commissioner

(Appeals)

2002-2003 to 2005-2006 CESTAT

2003-2004 High Court

1997-1998 Supreme Court

2002-2003 to 2005-2006 CESTAT

2003-2004 and 2005-2006 High Court

2005-2006 Commissioner

(Appeals)

2007-2008 Director of Income Tax

(International Taxation)

Net of pre-deposit paid in getting the stay/appeal admitted

10 The Company has no accumulated losses as at March 31, 2008 and it

has not incurred any cash losses in the financial year ended on that

date or in the immediately preceding financial year.

11 According to the records of the Company examined by us and the

information and explanations given to us, the Company has not defaulted

in repayment of dues to any financial institution or bank or debenture

holders as at the balance sheet date.

12 According to the information and explanations given to us, the

Company has not granted loans and advances on the basis of security by

way of pledge of shares, debentures and other securities.

13 The provisions of any special statute applicable to chit

fund/nidhi/mutual benefit fund/societies are not applicable to the

Company.

14 In our opinion and according to the information and explanations

given to us, the Company is not a dealer or trader in securities. The

Company has invested surplus funds in marketable securities and mutual

funds. According to the information and explanations given to us,

proper records have been maintained of the transactions and contracts

and timely entries have been made therein. The investments in

marketable securities and mutual funds have been held by the Company in

its own name.

15 In our opinion and according to the information and explanations

given to us, the terms and conditions of guarantees given by the

Company for loans taken by others from banks or financial institutions

are not prima facie prejudicial to the interests of the Company.

16 In our opinion and according to the information and explanations

given to us, on an overall basis, the term loans have been applied for

the purposes for which they were obtained.

17 According to the information and explanations given to us and on an

overall examination of the balance sheet of the Company, we report that

no funds raised on short term basis have been used for long term

investments.

18 The Company has not made any preferential allotment of shares to

parties and companies covered in the register maintained under section

301 of the Companies Act, 1956 during the year.

19 The Company has not issued any secured debentures during the year

and accordingly, paragraph 4(xix) of the Order is not applicable.

20 The Company has not raised any money by public issues during the

year.

21 During the course of our examination of the books and records of the

Company, carried out in accordance with the generally accepted auditing

practices in India, and according to the information and explanations

given to us, we have neither come across any instances of material

fraud on or by the Company, noticed or reported during the year, nor

have we been informed of such case by management.

SHARP & TANNAN

Chartered Accountants

by the hand of

F M. KOBLA

Partner

Mumbai, May 29, 2008 Membership No. 15882