In its comments under Section 619 (4) of the Companies Act, 1956, CAG said the profit after tax of Rs 41.71 crore reported by IBP in its account was overstated by Rs 1.81 crore due to under-provision of tax liability in respect of previous years.

The CAG report also said the company has not accounted for accrued income towards updating of margins in respect of the year 1999-2000.

"The accounting of accrued income arising out of updating of margins is neither consistent over the three-year period from 1997-98 to 1999-2000 nor in conformity with the accounting policy," it said.

The Calcutta-headquartered company, in reply to the comments of CAG regarding overstating of profit, said tax liabilities for previous years were provided based on its estimates.

"Adjustments will automatically be reflected in the accounts of future years depending on annual returns of income, outcome of pending assessments and disposal of pending appeals in respect of the previous years," Explanations of the board of directors of the company under Section 217(3) of the Companies Act, 1956 said.

Regarding not accounting for accrued income, IBP board said, "As per consistent practice, updation of margin is accounted for on a concept of three-year block. Accordingly, incremental margin for 1996-1999 cost period has been accounted for in last three years - 1997-1998, 1998-1999 and 1999-2000."

Since 1999-2000 falls in the next block of three years - 1999-2002, accrual of incremental margin has not been considered, the company said.

IBP had reported net sales of Rs 6,331.97 crore in 1999-2000 against Rs 4,632.04 crore in 1998-1999 and its profit before tax and prior period adjustment inched up to Rs 41.49 crore from Rs 41.28 crore.

After making adjustment of Rs 6.22 crore in 1999-2000 (Rs 0.06 crore in previous year) for prior period and providing Rs 6 crore (Rs 6.11 crore) for taxation, the company's profit after tax (PAT) stood at Rs 41.71 crore (Rs 35.30 crore in 1998-1999).