NOTES:

(1) The Company’s corporate strategy aims at creating multiple drivers of growth anchored on its core competencies. The Company is currently focused on four business groups : FMCG, Hotels, Paperboards, Paper and Packaging and Agri Business. The Company’s organizational structure and governance processes are designed to support effective management of multiple businesses while retaining focus on each one of them.

The Operating Segments have been reported in a manner consistent with the internal reporting provided to the Corporate Management Committee, which is the Chief Operating Decision Maker.

(2) The business groups comprise the following :

FMCG : Cigarettes - Cigarettes, Cigars etc.

: Others - Branded Packaged Foods Businesses (Staples; Snacks and Meals; Dairy and Beverages; Confections); Apparel:

Education and Stationery Products; Personal Care Products; Safety Matches and Agarbattis.

Hotels - Hoteliering.

Paperboards, Paper and Packaging - Paperboards, Paper including Specialty Paper and Packaging including Flexibles.

Agri Business - Agri commodities such as soya, spices, coffee and leaf tobacco.

(3) The geographical information considered - Sales within India. for disclosure are : - Sales outside India.

(4) Segment results of ‘FMCG : Others’ are after considering significant business development, brand building and gestation costs of the Branded Packaged Foods businesses and Personal Care Products business.

(5) As stock options are granted under ITC ESOS to align the interests of employees with those of shareholders and also to attract and retain talent for the enterprise as a whole, the option value of ITC ESOS do not form part of the segment performance reviewed by the Corporate Management Committee.

(6) The Company is not reliant on revenues from transactions with any single external customer and does not receive 10% or more of its revenues from transactions with any single external customer.

1. ENTERPRISES WHERE CONTROL EXISTS:

Subsidiaries:

a) Srinivasa Resorts Limited

b) Fortune Park Hotels Limited

c) Bay Islands Hotels Limited

d) WelcomHotels Lanka (Private) Limited, Sri Lanka

e) Landbase India Limited

f) Russell Credit Limited and its subsidiary

Greenacre Holdings Limited

g) Technico Pty Limited, Australia and its subsidiaries

Technico Technologies Inc., Canada

Technico Asia Holdings Pty Limited, Australia and its subsidiary Technico Horticultural (Kunming) Co. Limited, China

h) Technico Agri Sciences Limited

i) Wimco Limited

j) Pavan Poplar Limited k) Prag Agro Farm Limited l) ITC Infotech India Limited and its subsidiaries ITC Infotech Limited, UK ITC Infotech (USA), Inc. and its subsidiaries

Pyxis Solutions, LLC , USA (merged with ITC Infotech (USA), Inc. w.e.f. 01.04.2016)

Indivate Inc., USA (w.e.f. 18.11.2016) m) Gold Flake Corporation Limited n) ITC Investments & Holdings Limited and its subsidiary MRR Trading & Investment Company Limited

o) Surya Nepal Private Limited

p) King Maker Marketing, Inc., USA (ceased w.e.f. 16.11.2016) q) North East Nutrients Private Limited

The above list does not include ITC Global Holdings Pte. Limited, Singapore (in liquidation)

2. OTHER RELATED PARTIES WITH WHOM THE COMPANY HAD TRANSACTIONS

i) Associates & Joint Ventures:

Associates

a) Gujarat Hotels Limited

b) International Travel House Limited

- being associates of the Company, and

c) Tobacco Manufacturers (India) Limited, UK

- of which the Company is an associate

Associates of the Company’s subsidiaries

a) Russell Investments Limited

b) Divya Management Limited

c) Antrang Finance Limited

- being associates of Russell Credit Limited, and

d) ATC Limited

- being associate of Gold Flake Corporation Limited

Joint Ventures

a) Maharaja Heritage Resorts Limited

b) Espirit Hotels Private Limited

c) Logix Developers Private Limited

Joint Venture of the Company’s subsidiary

a) ITC Essentra Limited

- being joint venture of Gold Flake Corporation Limited

Note: King Maker Marketing, Inc. USA (KMM) ceased to be a subsidiary of the Company with effect from 16.11.2016 consequent to divestment of the Company’s entire shareholding in KMM.

ii) a) Key Management Personnel:

Y. C. Deveshwar¹ Chairman & Non-Executive Director

S. Puri² Chief Executive Officer & Executive Director

N. Anand Executive Director

R. Tandon Executive Director & Chief Financial Officer

Z. Alam Non-Executive Director (w.e.f. 26.10.2016)

A. Baijal* Non-Executive Director (ceased w.e.f. 30.12.2016)

S. Banerjee* Non-Executive Director

A. Duggal* Non-Executive Director

A. V. Girija Kumar Non-Executive Director (upto conclusion of AGM on 22.07.2016) R. E. Lerwill Non-Executive Director (ceased w.e.f. 22.06.2016)

S. B. Mainak Non-Executive Director

S. B. Mathur* Non-Executive Director

P. B. Ramanujam* Non-Executive Director

N. Rao* Non-Executive Director (w.e.f. 08.04.2016)

S. S. H. Rehman* Non-Executive Director

M. Shankar* Non-Executive Director

D.R. Simpson Non-Executive Director (w.e.f. 27.01.2017)

K. Vaidyanath Non-Executive Director (ceased w.e.f. 29.07.2016)

¹ Chairman & Non-Executive Director since 05.02.2017, prior to which Mr. Deveshwar was Executive Chairman

² Appointed also as Chief Executive Officer from 05.02.2017

* Independent Directors

Members - Corporate Management Committee

Y. C. Deveshwar (ceased as Chairman of CMC w.e.f. 05.02.2017)

S. Puri (appointed Chairman of CMC w.e.f. 05.02.2017)

N. Anand R. Tandon

B. B. Chatterjee S. Sivakumar K. S. Suresh

C. Dar

R. Sridhar (w.e.f. 01.04.2016)

B. Sumant (w.e.f. 01.04.2016)

S. K. Singh (w.e.f. 27.01.2017)

b) Relatives of Key Management Personnel:

Mrs. B. Deveshwar (wife of Mr. Y. C. Deveshwar)

Mrs. R. Tandon (wife of Mr. R. Tandon)

iii) Employee Trusts where there is significant influence:

a) IATC Provident Fund

b) ITC Defined Contribution Pension Fund

c) ITC Management Staff Gratuity Fund

d) ITC Employees Gratuity Fund

e) ITC Gratuity Fund ‘C’

f) ITC Pension Fund

g) ILTD Seasonal Employees Pension Fund

h) ITC Platinum Jubilee Pension Fund

i) Tribeni Tissues Limited Gratuity Fund

j) ITC Bhadrachalam Paperboards Limited Management Staff Pension Fund

k) ITC Bhadrachalam Paperboards Limited Gratuity Fund ‘A’

l) ITC Bhadrachalam Paperboards Limited Gratuity Fund ‘C’

m) ITC Hotels Limited Employees Superannuation Scheme

1. Capital Management

The Company's financial strategy aims to support its strategic priorities and provide adequate capital to its businesses for growth and creation of sustainable stakeholder value. The Company funds its operations through internal accruals. The Company aims at maintaining a strong capital base largely towards supporting the future growth of its businesses as a going concern.

During the year, the Company issued 7,35,18,980 equity shares of Rs, 1.00 each amounting to Rs, 7.35 Crores (2016 - Rs, 3.17 Crores) towards its equity-settled employee stock options. The securities premium stood at Rs, 6432.24 Crores as at 31st March, 2017 (2016 - Rs, 5685.86 Crores).

C. Financial risk management objectives

The Company has a system-based approach to risk management, anchored to policies and procedures and internal financial controls aimed at ensuring early identification, evaluation and management of key financial risks (such as market risk, credit risk and liquidity risk) that may arise as a consequence of its business operations as well as its investing and financing activities. Accordingly, the Company's risk management framework has the objective of ensuring that such risks are managed within acceptable and approved risk parameters in a disciplined and consistent manner and in compliance with applicable regulation. It also seeks to drive accountability in this regard.

Liquidity Risk

The Company's Current assets aggregate to Rs, 24537.39 Crores (2016 - Rs, 23233.92 Crores; 2015 - Rs, 22775.12 Crores) including Current investments, Cash and cash equivalents and Other bank balances of Rs, 12847.05 Crores (2016 - Rs, 12110.53 Crores; 2015

- Rs, 12364.40 Crores) against an aggregate Current liability of Rs, 6830.07 Crores (2016 - Rs, 6354.27 Crores; 2015 - Rs, 5653.30 Crores); Non-current liabilities due between one year to three years amounting to Rs, 18.31 Crores (2016 - Rs, 29.83 Crores; 2015 - Rs, 27.75 Crores) and Non-current liability due after three years amounting to Rs, 8.89 Crores (2016 - Rs, 11.13 Crores; 2015 - Rs, 17.99 Crores) on the reporting date.

Further, while the CompanyRs,s total equity stands at Rs, 45340.96 Crores (2016 - Rs, 41656.43 Crores; 2015 - Rs, 37287.83 Crores), it has borrowings of Rs, 18.00 Crores (2016 - Rs, 29.43 Crores; 2015 - Rs, 38.71 Crores). In such circumstances, liquidity risk or the risk that the Company may not be able to settle or meet its obligations as they become due does not exist.

Market Risks

The Company is not an active investor in equity markets; it continues to hold certain investments in equity for long term value accretion which are accordingly measured at fair value through Other Comprehensive Income. The value of investments in such equity instruments as at 31st March, 2017 is Rs, 1115.45 Crores (2016 - Rs, 985.52 Crores; 2015 - Rs, 1015.34 Crores). Accordingly, fair value fluctuations arising from market volatility is recognized in Other Comprehensive Income.

As the Company is virtually debt-free and its deferred payment liabilities do not carry interest, the exposure to interest rate risk from the perspective of Financial Liabilities is negligible. Further, treasury activities, focused on managing investments in debt instruments, are centralized and administered under a set of approved policies and procedures guided by the tenets of liquidity, safety and returns. This ensures that investments are only made within acceptable risk parameters after due evaluation.

The Company's investments are predominantly held in bonds/debentures, fixed deposits and debt mutual funds. Mark to market movements in respect of the Company's investments in bonds/debentures that are held at amortized cost are temporary and get recouped through fixed coupon accruals. Other investments in bonds/debentures are fair valued through the Statement of Profit and Loss to recognize market volatility, which is not considered to be significant. Fixed deposits are held with highly rated banks and companies and have a short tenure and are not subject to interest rate volatility.

The Company also invests in mutual fund schemes of leading fund houses. Such investments are susceptible to market price risk that arise mainly from changes in interest rate which may impact the return and value of such investments. However, given the relatively short tenure of underlying portfolio of the mutual fund schemes in which the Company has invested, such price risk is not significant.

For select agricultural commodities primarily held for trading, futures contracts are used to hedge price risks till positions in the physical market are matched. Such activities are managed by the business team within an approved policy framework. The carrying value of inventories is adjusted to the extent of fair value movement of the risk being hedged. Such hedges are generally for short time horizons and recognized in profit or loss within the crop cycle and are managed by the business within the approved policy framework. Accordingly, the Company's net exposure to commodity price risk is considered to be insignificant.

Foreign currency risk

The Company undertakes transactions denominated in foreign currency (mainly US Dollar, Pound Sterling, Euro and Japanese Yen) which are subject to the risk of exchange rate fluctuations. Financial assets and liabilities denominated in foreign currency, including the Company's net investments in foreign operations (with a functional currency other than Indian Rupee), are also subject to reinstatement risks.

Hedges of foreign currency risk and derivative financial instruments

The Company has established risk management policies to hedge the volatility arising from exchange rate fluctuations in respect of firm commitments and highly probable forecast transactions, through foreign exchange forward and options contracts. The proportion of forecast transactions that are to be hedged is decided based on the size of the forecast transaction and market conditions. As the counterparty for such transactions are highly rated banks, the risk of their non-performance is considered to be insignificant.

The Company uses derivatives to hedge its exposure to changes in movement in foreign currency. Where such derivatives are not designated under hedge accounting, changes in the fair value of such hedges are recognized in the Statement of Profit and Loss.

The Company may also designate certain hedges, usually for large transactions, as a cash flow hedge under hedge accounting, with the objective of shielding the exposure from variability in cash flows. The currency, amount and tenure of such hedges are generally matched to the underlying transaction(s). Changes in the fair value of the effective portion of cash flow hedges are recognized as cash flow hedging reserve in Other Comprehensive Income. While the probability of such hedges becoming ineffective is very low, the ineffective portion, if any, is immediately recognized in the Statement of Profit and Loss.

Foreign Currency Sensitivity

For every percentage point change in the underlying exchange rate of the outstanding foreign currency denominated assets and liabilities, including derivative contracts, holding all other variables constant, the profit before tax for the year ended 31st March, 2017 would change by ' (0.24) Crore (2016 - Rs, 4.55 Crores) and pre-tax total equity as at 31st March, 2017 would change by Rs, 1.11 Crores [2016 - Rs, (0.72) Crore; 2015 - Rs, (4.80) Crores].

Credit Risk

Company's deployment in debt instruments are primarily in fixed deposits with highly rated banks and companies; bonds issued by government institutions, public sector undertakings and certificate of deposits issued by highly rated banks. Of this, investments that are held at amortised cost stood at Rs, 8705.47 Crores (2016 - Rs, 11009.16 Crores; 2015 - Rs, 7552.33 Crores). With respect to the Company's investing activities, counter parties are shortlisted and exposure limits determined on the basis of their credit rating (by independent agencies), financial statements and other relevant information. As these counter parties are Government institutions, public sector undertakings with investment grade credit ratings and taking into account the experience of the Company over time, the counter party risk attached to such assets is considered to be insignificant.

The Company's customer base is large and diverse limiting the risk arising out of credit concentration. Further, credit is extended in business interest in accordance with guidelines issued centrally and business-specific credit policies that are consistent with such guidelines. Exceptions are managed and approved by appropriate authorities, after due consideration of the counterparty's credentials and financial capacity, trade practices and prevailing business and economic conditions. The Company's exposure to trade receivables on the reporting date, net of expected loss provisions, stood at Rs, 2207.50 Crores (2016 - Rs, 1686.35 Crores, 2015 - Rs, 1722.40 Crores).

The Company's historical experience of collecting receivables and the level of default indicate that credit risk is low and generally uniform across markets; consequently, trade receivables are considered to be a single class of financial assets. All overdue customer balances are evaluated taking into account the age of the dues, specific credit circumstances, the track record of the counterparty etc. Loss allowances and impairment is recognized, where considered appropriate by responsible management.

The movement of the expected loss provision (allowance for bad and doubtful loans and receivables etc.) made by the Company are as under:

D. Fair value measurement Fair value hierarchy

Fair value of the financial instruments is classified in various fair value hierarchies based on the following three levels:

Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities.

Level 2: Inputs other than quoted price included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

The fair value of financial instruments that are not traded in an active market is determined using market approach and valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Derivatives are valued using valuation techniques with market observable inputs such as foreign exchange spot rates and forward rates at the end of the reporting period, yield curves, risk free rate of returns, volatility etc., as applicable.

Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

If one or more of the significant inputs is not based on observable market data, the fair value is determined using generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparty.

The fair value of trade receivables, trade payables and other Current financial assets and liabilities is considered to be equal to the carrying amounts of these items due to their short-term nature. Where such items are Non-current in nature, the same has been classified as Level 3 and fair value determined using discounted cash flow basis. Similarly, unquoted equity instruments where most recent information to measure fair value is insufficient, or if there is a wide range of possible fair value measurements, cost has been considered as the best estimate of fair value.

There has been no change in the valuation methodology for Level 3 inputs during the year. The Company has not classified any material financial instruments under Level 3 of the fair value hierarchy. There were no transfers between Level 1 and Level 2 during the year.

(i) Ind AS 101 (First-time Adoption of Indian Accounting Standards) provides a suitable starting point for accounting in accordance with Ind AS and is required to be mandatorily followed by first-time adopters. The Company has prepared the opening Balance Sheet as per Ind AS as of 1st April, 2015 (the transition date) by:

a. recognizing all assets and liabilities whose recognition is required by Ind AS,

b. not recognizing items of assets or liabilities which are not permitted by Ind AS,

c. reclassifying items from previous Generally Accepted Accounting Principles (GAAP) to Ind AS as required under Ind AS, and

d. applying Ind AS in measurement of recognized assets and liabilities.

iii) Ind AS 101 mandates certain exceptions and allows first-time adopters exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions in the financial statements:

a. Ind AS 103 (Business Combinations) has not been applied retrospectively to business combinations that occurred prior to 1st April, 2015. Use of this exemption means that in the opening Balance Sheet, goodwill and other assets and liabilities acquired in previous business combinations remain at the previous GAAP carrying values.

b. Property, plant and equipment and intangible assets were carried in the Balance Sheet prepared in accordance with previous GAAP on 31st March, 2015. Under Ind AS, the Company has elected to regard such carrying values as deemed cost at the date of transition.

Further, the Company had revalued certain freehold land and buildings based on professional valuation as at 30th June, 1986 and had a balance of Rs, 52.41 Crores in revaluation reserve on the date of transition. On transition, such revaluation reserve has been adjusted in retained earnings.

c. Under previous GAAP, the Company accumulated exchange differences arising on monetary items that, in substance, formed part of Company's net investment in non-integral foreign operations in a foreign currency translation reserve. Such balances are to be recognized in the Statement of Profit and Loss on disposal of the net investment. Ind AS allows an entity an option to reset the cumulative translation differences arising on monetary items that exist as of the transition date to zero. The Company has elected to continue presenting the foreign exchange translation reserve under equity.

d. Under previous GAAP, investment in subsidiaries, joint ventures and associates were stated at cost and provisions made to recognize the decline, other than temporary. Under Ind AS, the Company has considered their previous GAAP carrying amount as their deemed cost.

e. Under previous GAAP, the cost of options granted under the ITC Employee Stock Option Scheme (ITC ESOS) [equity - settled] was recognized using the intrinsic value method. Under this method, no expenses were recognized in the Statement of Profit and Loss as the fair value of the shares on the date of grant equaled the exercise price. Under Ind AS, the cost of options granted under ITC ESOS is recognized based on the fair value of the options as on the grant date. In terms of the exemptions, the fair value of unvested options as at the date of transition have been accounted for as part of reserves.

The cost of ITC ESOS applicable to employees of group companies, net of reimbursements, have been considered as capital contribution.

Accordingly, cost of share options totaling Rs, 677.87 Crores which were granted before and still vesting at 1st April, 2015, have been recognized as a separate component of equity in share option outstanding reserve against retained earnings at 1st April, 2015.

f. Under previous GAAP, Trademarks were necessarily amortized. Under Ind AS, certain trademarks have been determined to be of indefinite useful life. This has been recognized in the current financial year. Accordingly, the amortization thereof considered in the previous year has been eliminated.

g. The Company has applied Appendix C of Ind AS 17 (Leases) - ‘Determining whether an Arrangement contains a Lease' to determine whether an arrangement existing at the transition date contains a lease on the basis of facts and circumstances existing at that date.

h. Under previous GAAP, interest free sales tax deferment loan was carried at cost. Under Ind AS, such interest free loans have been carried at previous GAAP amount at the date of transition.

(iv) In addition to the above, the principal adjustments made by the Company in restating its previous GAAP financial statements, including the Balance Sheet as at 1st April, 2015 and the financial statements as at and for the year ended 31st March, 2016 are detailed below:

a. Under previous GAAP, leasehold properties were presented as fixed assets and amortized over the period of the lease. Under Ind AS, such properties have been classified as prepayments within non-current assets (current portion presented as other current assets) and have been amortized over the period of the lease, resulting in decrease in property, plant and equipment by ' 224.83 Crores as at 31st March, 2016 and by Rs, 204.16 Crores as at 1st April, 2015 and capital work-in-progress (CWIP) by Rs, 81.66 Crores as at 31st March, 2016 and by Rs, 75.02 Crores as at 1st April, 2015 and corresponding increase in other non-Current assets by Rs, 303.84 Crores as at 31st March, 2016 and by Rs, 276.05 Crores as at 1st April, 2015 and in other current assets by Rs, 2.65 Crores as at 31st March, 2016 and by Rs, 3.13 Crores as at 1st April, 2015.

Such reclassification has resulted in decrease in depreciation and amortization expense by Rs, 2.52 Crores for the year ended 31st March, 2016 and corresponding increase in other expenses, but does not affect profit

b. Under previous GAAP, dividend payable on equity shares (including the tax thereon) was recognized as a liability in the period to which it relates. Under Ind AS, dividends (including the tax thereon) to shareholders are recognized when declared by the members in a general meeting.

c. Under previous GAAP, non-current investments were stated at cost. Where applicable, provision was made to recognise a decline, other than temporary, in valuation of such investments. Under Ind AS, equity instruments [other than investment in subsidiaries, joint ventures and associates] have been classified as Fair Value through Other Comprehensive Income (FVTOCI) through an irrevocable election at the date of transition.

Investment in Mutual Funds classified as non-current under previous GAAP and carried at cost as on 31st March, 2016, have been measured at Fair Value through Profit or Loss (FVTPL).

d. Under previous GAAP, current investments were stated at lower of cost and fair value. Under Ind AS, these financial assets have been classified as Fair Value through Profit or Loss (FVTPL) on the date of transition and fair value changes after the date of transition has been recognized in profit or loss.

e. The Company uses derivative financial instruments, such as currency forwards, options and exchange traded commodity futures, to hedge its foreign currency risks and commodity price risks, respectively. Under previous GAAP, the net mark to market losses on the outstanding portfolios of such instruments, other than those designated as cash flow hedges, were recognized in the profit or loss, and the net gain, if any, were ignored.

Under Ind AS, changes in the fair value of derivatives designated as cash flow hedges are recognized in equity. Amounts deferred in equity are transferred to the Statement of Profit and Loss in line with the hedged transaction. Changes in the fair value of any derivative instruments that are not designated for hedge accounting are recognized in the Statement of Profit and Loss.

f. Under previous GAAP, actuarial gains and losses related to the defined benefit schemes for gratuity and pension plans and liabilities towards employee leave encashment were recognized in profit or loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability/asset which is recognized in OCI. Consequently, the tax effect of the same has also been recognized in OCI instead of profit or loss.

g. Under previous GAAP, movements in cash credit facilities, repayable on demand, were reflected in cash flows from financing activities in cash flow statement. Under Ind AS, such cash credit facilities are included in cash and cash equivalents in the cash flow statement.