M/S. ARAMEX INDIA P. LTD.,MUMBAI vs. DCIT RG. 9(1)(2), MUMBAI

Rival contentions have been heard and record perused. Facts in brief are that Aramex India Pvt. Ltd., (hereinafter referred to as ÁIPL’or assessee) is a company incorporated under the Indian Companies Act, 1956 and is primarily engaged in the business of transportation of time-sensitive packages, documents and cargo to various destinations in the domestic and international sectors, it operates in the following four segments: (i) international express services: This service entails on time pick-up and delivery of time sensitive documents, samples and small parcels to and from India to various destinations or vice versa. This segment involves transactions with AEs.

The assessee has maintained separate segment accounts for each of the above 4 lines of business (i.e international Express, International freight Forwarding, Domestic distribution and Logistics) which also forms part of audited financial statements of the company .As can be seen from the same, around 92% of the total costs has already been allocated to the segments by the auditor and only 8% were shown as unallocated. These expenses were in nature of genera! and administrative expenses and were allocated by the Assessee to all segments on basis of revenue for TP study purposes.

The margin earned by AIPL in the Internal Express and International Freight Forwarding segments (which involve AE transactions) is as follows:

The assessee has benchmarked the international transactions in the International Express and International Freight Forwarding segments using Transaction Net Margin method (TNMM'). Since the margin earned by AIPL in the above 2 segments was higher than that earned by comparable uncontrolled transactions, the assessee concluded its international transactions to be at arm's length.

However, the TPO rejected the segment accounts maintained by the assessee and considered the entity level margin of AIPL at (-} 1.33%for the purpose of benchmarking the international transactions. 8. Further, the TPO arrived at an arm's length margin of 3.06% by rejecting 1 out of 4 companies selected by AIPL in its TP documentation (based on single year margins) and additionally identified 6 companies as comparables thereby arriving at the final set of the following 9 comparables: Sr. Name of the company Margin Remarks No (OP/OR) 1 Blazeflash Couriers Pvt Ltd 2,67% AlPL's comparable accepted by TPO 2 Overnite Express Ltd -0.11% AlPL's comparable accepted by TPO 3 Pate! Integrated Logistics 1.48% AfPL's comparable accepted Ltd (segment) by TPO M/s. Aramex India Pvt. Ltd., 4 SDV International logistics 2.11% Additionally identified by TPO directly in the TP order 5 Allcargo Logistics Ltd 3.62% Additionally identified by (Muitimodal Segment - TPO directly in the TP order Consolidated financial statements) 6 Om Logistics Limited 7.25% Additionally identified by TPO directly in the TP order 7 Sical Logistics Ltd 8.05% Additionally identified by TPO directly in the TP order 8 Hindustan Cargo Limited 0.92% Additionally identified by TPOdirectly in the TP order 9 Yusen Logistics India Limited 1.59% Additionally identified by TPO directly in the TP order 10 Arithmetic Mean 3.06% 9. The TPO compared the margin earned by AIPL at an entity level with the arm's length margin of 3.06%, and made a transfer pricing adjustment of Rs 9,91,50,256/-.

Against the draft assessment order, assessee has filed various ground of objection before the DRP, which was rejected and the addition so proposed was upheld by the DRP. Assessee is in further appeal before us.

We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that Aramex India Private Limited (hereinafter referred to as 'AIPL' or 'the assessee') is engaged in the following lines of business and has reported separate segmental data for each of these lines of business in the financial statements so submitted before the lower authorities. SrNo Segment Description AE Involvement

The international express and international freight forwarding segments comprise of shipments originating from India for a destination outside India (referred to as outbound shipments) and shipments originating from outside India and having a destination in India (referred to as inbound shipments). The domestic courier segment comprises of shipments having origin and destination within India.

The role of the assessee and its AEs in the international express and freight forwarding segments is as below:  In case of inbound shipments, the AE is responsible for pick-up and delivery of the shipment from the consignor outside India and transport the shipment upto the Indian port. The assessee is responsible for delivery of the shipment to the ultimate destination within India.  In case of outbound express shipments, the assessee is responsible for pick-up of the shipment from the consignor in India and transport to the first international hub. The AE is M/s. Aramex India Pvt. Ltd., responsible for segregation and bagging of the shipment at the international hub and transportation till the ultimate destination outside India. In case of outbound freight shipments, the assessee is responsible for pick-up of the shipment from the consignor in India to the foreign destination port and are not routed through hubs. The AE is responsible for delivery of the shipment from the foreign port to the ultimate destination.

As regards, domestic courier segment, the assessee is responsible for end to end pick-up and delivery of shipments within India and there is no involvement of the AE in any of the functions.

Since the function asset and risk (FAR) profile is difference for each of these business lines, the assessee has benchmarked the two segments involving AE transactions separately for transfer pricing purposes. A summary of the benchmarking analysis is as follows; Sr. Segment Margin Benchmarking Arm's length Reference No (OP/OR) method margin

While preparing the segmental account expenses on account of bad debts which are directly identifiable to each segment and the M/s. Aramex India Pvt. Ltd., assessee allocated other expenses amongst the segments using an appropriate allocation key such as revenue, volume, or weight depending on the nature of the expense. TPO has referred at page 19 to 28 of his order for details of the segmental accounts prepared by the assessee. • Airline costs and handling charges are allocated to each segment basis 'weight' as the assessee pays the third party vendors for these services basis the weight of each parcel, • Expenses towards packaging material, pick-up and delivery are allocated basis Volume' as these costs are directly proportional to the volume of business in each segment. • Similarly, expenses such as salary costs of sales and marketing team, advertisement and sales promotion, leased line expenses, legal and professional fees are allocated basis 'Revenues' as these expenses are commonly incurred for all businesses. Further, even the corporate head-office expenses (classified as 'unallocated expenses' in the segment accounts) are allocated to all segments basis 'Revenues' as they are incurred commonly for all the businesses. • Further, it may be noted that for the freight forwarding and logistics segments, most of the expenses are directly identifiable as there are dedicated teams working for these segments.

During the course of scrutiny assessment, AO referred the matter to Transfer Pricing Officer, the TPO observed that the M/s. Aramex India Pvt. Ltd., assessee had incurred a loss in the domestic courier and profits in the international express and freight segments. On the basis this observation, the TPO held that it is important to ascertain whether the segmental accounts prepared by the assessee are correct or not? 18. However, the TPO rejected the segment accounts maintained by the assessee giving the following reasons: • Assessee is incurring losses in the domestic courier segment (para 9,2 on page 29 of TP order) • The loss in the domestic segment is because the assessee wrongly used Volume' as the allocation key for all expenses which resulted in 90% of the expenses being pushed to the domestic segment (para 11 on page 34 of TP order). • The assessee should have considered 'weight' as the appropriate allocation key for all expenses. The segment results upon application of 'weight' as the allocation key across all expenses evidence that the loss shown in the domestic segment is due to wrong selection of allocation keys by the assessee (volume instead of weight), (refer para 11.3 on page 42 of TP order) • The domestic courier segment of the assessee is set-up to absorb the infrastructure of the international express business (refer para 12.1 (f) on page 51 of TP order) and is an extension of the international express business (para 15 on page 63 of TP order) since the FAR of M/s. Aramex India Pvt. Ltd., domestic segment is identical to international segment (para 12.1 (a) to (d) on pages 49 and 50 of TP order); 19. After rejecting the segment account, the TPO used an entity level approach to benchmark the assessee's international transactions and made a transfer pricing adjustment of Rs.9,91,50,256 . The TPO compared the assessee's entity wide margin of (-) 1.33% with an arm's length margin of 3.06% determined by him after rejecting one of the assessee's comparables (viz. Indo Arya Central Limited) and additionally introducing 6 companies as comparables. After considering the TPO’s report, The AO passed the draft assessment order dated 1st December 2016 under section 143(3) read with section 144C of the Act in conformity with the order of the TPO making an addition of Rs 9,91,50,256 to the returned income of the assessee. Aggrieved by the draft order, the assessee filed its objections before the Dispute Resolution Panel ('DRP') on 28th December 2016. The DRP, although accepting that the assessee's case is covered by the orders for the earlier years, has passed an order dated 22nd September 2017. Thereafter, AO passed final assessment order u/s. 144C(13) of the Act confirming the addition of Rs 9,91,50,256. Aggrieved by the same, assessee approached to the Tribunal.

Through Grounds of Appeal Nos. 1, 3 and 5 to 10, the assessee has challenged the TPO's action of rejecting the segment accounts maintained by the assessee. The crux of the issue is that M/s. Aramex India Pvt. Ltd., the TPO has rejected the segmental accounts maintained by the assessee and considered the entity wide margin for benchmarking the international transactions undertaken by the assessee in the "International Express" and "International Freight Forwarding" segments. The basic premise of the TPO to doubt the segment results maintained by the assessee is the loss in the domestic segment. It is the TPO's stand that the assessee has used 'volume' as the allocation key to allocate all expenses which resulted in 90.32% of the expenses being allocated to the domestic segment and only 9.68% expenses to the international segments where the assessee has international transactions with AEs and this has resulted in the international segments of the assessee showing profits and the domestic segment showing a loss. As per the TPO, the assessee should have considered 'weight' as the appropriate allocation key for all expenses and the segment results drawn up using 'weight' as the allocation key across all expenses evidences that the loss shown in the domestic segment is due to wrong selection of allocation keys by the assessee (volume instead of weight). Further, the TPO has also alleged that the domestic courier segment of the assessee is set-up to absorb the infrastructure of the international express business and is an extension of the international express business since the FAR profile of the domestic segment is identical to the international segment. Hence, the segment accounts of the assessee cannot be accepted and entity M/s. Aramex India Pvt. Ltd., wide margin should be used for benchmarking purposes. The DR has supported these arguments of the TPO.

The first reason given by the TPO to reject the segment accounts of the assessee is that the assessee has allocated all expenses using Volume' as the allocation key and this resulted in 90.32% of the expenses being recorded in the domestic segment. However, on perusal of the segment accounts maintained by the assessee and reproduced in the TP order, it is seen that the assessee has used a combination of revenue, volume or weight as allocation keys depending on the nature of each expense. Also, during the hearing before us, the AR submitted a table which shows that the expenses allocated by the assessee to the domestic courier segment is only 49% of the total expenses. The table is reproduced below for reference. Particulars Express Freight Logistics Domestic Courier Total Revenue from Services 76,06,72,513 38,59,81,225 15,87,18,741 94,55,87,696 2,25,09,60,176 Less: Cost of Services 49,28,59,492 34,20,03,912 6,34,54,807 84,81,61,434 1,74,64,79,645 Less: Allocated Overheads 7,94,15,796 2,13,86,088 8,30,58,333 20,28,30,590 38,66,90,808 Less: Unallocated Overheads 5,94,50,353 83,88,366 1,24,04,662 7,39,02,397 15,42,35,630 Total Cost 63,17,25,641 37,17,78,366 15,89,17,802 1,12,48,94,421 2,28,74,06,083 51% 49%

This factual finding has also not been disputed by the Department Representative (DR). Hence, the TPO's fundamental

It was argued by learned AR that rejection of the segmental by the TPO is incorrect, in so far as the issue is covered by the ITAT's decision dated 28th November 2014 in assessee's own case for AY 2009-10 fin ITA No. 798/Mum/2014).

It was further submitted by learned AR that in AY 2009-10, the TPO had rejected the segment accounts of the assessee on the basis that AIPL is incurring losses in the domestic even in the year under consideration, the foundation of the TPO to reject the assessee's segmental accounts is the same as that for AY 2009-10 i.e. loss incurred by the assessee in the domestic segment. 25. As per learned AR, reasons given by the Hon'ble ITAT equally apply even for the year under consideration (ie AY 2013-14} and hence this issue can be considered to be squarely covered in the assessee’s favour by the ITAT order for AY 2009-10: 26. Further, the TPO in his order has stated that the assessee should have considered 'weight' as the appropriate allocation key for all expenses. However, the AR demonstrated before us and also drew reference to the relevant page of the TP order to show that M/s. Aramex India Pvt. Ltd., where 'weight' is used as the allocation key, the margin earned by the assessee in the international express courier segment increases from 16.95% to 24.77% and the domestic courier segment still continues to show a loss. Hence, in our view, the TPO's contention that the loss in the domestic segment is due to wrong selection of allocation keys by the assessee (volume instead of weight) is misplaced and cannot be accepted. : 27. Further, even on merits of the issue, the contention of the TPO that 'weight' should be used as the allocation key to allocate all expenses of the assessee cannot be accepted since there are expenses such as pick-up and delivery, packaging material, etc which are directly proportional to the volume of shipments handled. Further, there are expenses such as sales and marketing costs, audit fees, legal and professional fees which have nothing to do with the weight of the shipments handled. The assessee during the course of the hearing, had submitted detailed rationale for the allocation key used for each expense head and the reason as to why weight cannot be considered as an appropriate allocation key. Upon perusal of the same, it can be seen that the assessee has used a mix of volume, weight and revenue as the allocation key depending on the nature of expenses which have also been validated by the auditors. We have gone through the rationale provided by the assessee for each allocation key and find them to be appropriatebased on the nature of M/s. Aramex India Pvt. Ltd., the expense. Hence the TPO's contention that weight should be used as an allocation key is not accepted.

So far as the TPO's observation for rejecting the segmental results on the basis that the assessee had been incurring huge losses in the domestic segment, the assessee had given satisfactory reasons for the loss incurred in the domestic segment which interalia include stiff competition in the domestic market along with the service quality maintained by the assessee. It is relevant to note that the ITAT in the assessee 's own case in AY 2009-10 had accepted the reasons for loss incurred by it in the domestic segment and held that the same cannot be a reason for rejection of the segment accounts. Accordingly, following the ITAT order in the assessee 's own case in AY 2009-10, the reason provided by the TPO for rejection of segment accounts on the basis of loss incurred by the assessee in the domestic segment cannot be accepted. The AR also submitted before us that the assessee company has made significant investments in the domestic business over the years and in support of this contention, the AR furnished before us details of the equity infusion made by the shareholders into the assessee Company in the last 10 years The details are as follows- Increase Particulars Amount 2,00,00,000 Equity share capital as on 31 March 2007 - 7,00,00,000 45,00,00,000 Equity share capital as on 31 March 2013 78,50.00,000 31,50,00,000 Equity share capital as on 31 March 2017

These details support the AR's contention that the losses in the domestic segment are purely due to market forces and the assessee Group is prepared to make the necessary investment into the assessee company to support the domestic business. It is a settled principle that the Tax Department cannot question the taxpayer's commercial rationale to continue in a particular line of business. Neither the AO nor the TPO have brought anything on record to show that the losses incurred by the assessee were incorrect or superficial. Hence, in our view, genuine losses incurred by the M/s. Aramex India Pvt. Ltd., assessee in a particular segment cannot be a basis to doubt the correctness of the segmental accounts prepared by the assessee.

Lastly, the TPO has also justified his approach of considering the assessee's entity wide margin by stating that the domestic business is an extension of the international business and also the FAR profile of the international express and freight segments is similar to the FAR profile of the domestic courier segment.

We have considered rival contentions and carefully gone through the orders of the Tribunal in assessee’s own case wherein Tribunal held that loss incurred by the assessee in the domestic segment cannot be a reason for rejection of segment. Precise observation of the Tribunal as contained at para 7.3. reads as under:- "7.3 So far as the TPO's observation for rejecting the segmental results that the assessee had been incurring huge losses in the domestic transactions, which has led to him to doubt the entire allocation of cost and also making the adjustment at entity level, we noticed that the TPO's entire premise is based on the fact that the assessee has allocated more costs in the domestic segment as compared to international segment, mostly with the AE. It is important to note here that neither the Assessing Officer has disallowed the loss of the domestic transaction while completing the assessment nor he has disturbed the cost / expense debited in the domestic transaction. Even the losses incurred in domestic segment for earlier years has been set off and allowed to be carried forward. The assessee has given very detailed reasons for the losses in the domestic segment, which was mainly for the reasons that it had stiff competition in the domestic market and looking to its standard of services, it was unable to get the proper cost of services. Other several factors have also been elaborated before the TPO as well as before the DRP, however, the same have been rejected mainly on the ground that, how the assessee has been incurring losses year after year in this segment only. This cannot be the sole reason for rejecting the segmental results, if the overall cost debited / expenses incurred have not been disturbed. The results of the domestic transaction have been accepted by the M/s. Aramex India Pvt. Ltd., Assessing Officer. The TPO has mainly discussed the losses as a premise for applying the Arms Length at the entity level. Thus, in our opinion, this cannot be a ground for rejecting the segmental results, unless the losses itself has been found to be superficial on the basis of material or evidence on record. Even the books of account for the domestic results, or as a matter of fact, for the entire entity level have not been rejected. Loss in a particular segment sans any material to doubt cannot be the basis for rejecting the segmental results, especially when they are duly audited and certified."

During the year under consideration, we found that the AO has accepted the loss incurred by the assessee and no disallowance has been made in this regard. The only adjustment made is in relation to the transfer pricing adjustment. Further, the overall costs debited/ expenses incurred by the assessee have not been disturbed. The reasons for loss incurred by the assessee in the domestic segment which, interalia, include stiff competition in the domestic market along with the service quality maintained by the assessee. The domestic courier segment has more than 2,000 players and hence there is stiff competition in terms of pricing which forces the assessee to charge lower prices so as to be able to penetrate the market. Further, even on the cost side, since the assessee is part of a global player, it has to maintain certain quality standards while providing its services -for eg - the assessee's delivery staff would have standard uniforms, tracking systems, insurance coverage for all shipments, etc. The above reason for loss incurred by the assessee has also been acknowledged by the TPO at para 12.1(i) and 12.5(c) of TPO order. From the order of the TPO also we observe that the TPO has not M/s. Aramex India Pvt. Ltd., brought anything on record to show that the loss incurred by the assessee in the domestic segment is superficial. The TPO has rejected the segment accounts on the erroneous premise that the assessee has used Volume' as the allocation key to allocate all expenses which resulted in 90% of the expenses being allocated to the domestic segment. Hence, the very foundation of the TPO to question and reject the segmental accounts maintained by the assessee does not hold well in light of the ITAT's order in assessee's own case for AY 2009-10. Further, reliance is also placed on following decisions wherein it is held that the segments prepared by the assessee for the purpose of benchmarking the transaction with the AE cannot be rejected and the TPO must consider the segments prepared by the assessee for the purpose of making any adjustment. For this purpose reliance may be placed on the following judicial pronouncements:-

In view of the above, we are of the considered view that the segment accounts maintained by the assessee should be accepted and the transfer pricing adjustment made by the TPO should be deleted. The learned Department Representative ('DR') during the course of the hearing has not disputed the above position therefore, M/s. Aramex India Pvt. Ltd., the segments prepared by the assessee deserves to be accepted and the adjustment made by the TPO ought to be deleted.

We further observe that the finding given by the TPO that assessee has allocated all the costs on the basis of volume which resulted in 90.32% of costs being allocated to domestic courier segment is incorrect. In the TPO report, the TPO has concluded that segment accounts of the assessee should be rejected since the assessee has allocated all expenses using 'volume' as the allocation key and this resulted in 90% of the expenses being recorded in the domestic segment 36. The above observation of the TPO is factually incorrect. From the record we found that assessee has used combination of revenue, volume or weight as allocation keys depending on the 'nature of each expense. Of the total of 52 expense heads, the assessee allocated only 8 expenses on the basis of volume. Further, the TPO's observation that the assessee has allocated 90.32% of the total expenses to the domestic courier segment is also factually incorrect. The expenses allocated by the assessee to the domestic courier segment is only 49% of the total expenses. However, the TPO has observed that ‘weight’ is an appropriate allocation key for all the expenses which is not logical and devoid of any merits. As observed earlier, the assessee has used a mix of revenue, volume or weight as allocation keys depending on the nature of expenses. The TPO's finding that 'weight' should be used as the allocation key for all M/s. Aramex India Pvt. Ltd., expenses irrespective of their nature is absurd and devoid of any merits. This becomes evident from the following: • Expenses such as corporate office expenses, salaries of sales and marketing staff, communication expenses, legal and professional charges, advertisement and sales promotion expenses, etc cannot be said to have any correlation with the 'weight' of the consignment. The Appellant had allocated these expenses basis the revenues earned in each of the segments. • Expenses towards pick-up and delivery, packaging material are directly proportional to the volume of shipments handled. For example - delivery of 5 shipments would entail trips to 5 different destinations irrespective of their weight. Also even if there is only 1 shipment to be delivered on a particular route, one person would still need to go and deliver it. The packaging material is in the nature of envelopes, pouches, etc used to cover the shipment and not to carry the shipment and its consumption would vary based on the number of shipments to be packed. Hence, by no stretch of imagination can these expenses be said to have any correlation with the weight of the shipment.

From the record we also observe that where 'weight' is used as the allocation key, the margin earned by the assessee in the international express courier segment increases from 16.95% to 24.77% and the domestic courier segment still continues to show a loss. Hence, the TPO's contention that the loss in the domestic segment is due to wrong selection of allocation keys by the assessee (volume instead of weight) is clearly misplaced and not supported by actual results. During the hearing before us, the AR pointed out to the relevant extract of the TP order which showed that during the year, the total shipments handled by the assessee in the international express segment was INR11,77,091 whereas the total shipments handled in the domestic segment was INR 1,10,46,714. From this M/s. Aramex India Pvt. Ltd., data, it can be seen that the domestic business is around 10 times the size of the international express business and operates as an independent business of the assessee. Hence, in our view, the TPO's contention that the domestic segment is an extension of the international express segment is not supported by the on ground facts.

As regards the TPO's contention regarding similarity of FAR profile, during the course of the hearing, the AR submitted a tabular summary showing the differences in the FAR profile of the Appellant in the international segments vs the domestic segments.

Based on the above, the FAR profile of the domestic business cannot be compared with the FAR profile of the international express or the international freight segments of the assessee. These are completely difference businesses and are also considered separate for segmental reporting purposes in the audited financial statements of the assessee which are governed by Accounting Standard 17 on segment reporting. Accordingly rejection of the segment on the ground that ‘weight’ is an appropriate allocation key deserves to be rejected and adjustment so made by the TPO is to be deleted.

Furthermore, the domestic courier segment is an independent business carried on by the assessee and cannot be said to be an extension of the international express business. From the record, we found that the international express segment handled only 11,77,091 shipments during the year whereas the domestic courier segment handled 1,10,46,714 shipments during the year which is amounted to 9.32 times the volume of the express segment. Hence, by no stretch of imagination can it be said that the international express courier business is an extension of the domestic courier business. Further it is also relevant to note that should the intention of the assessee be to carry out only the international express business, it would not have M/s. Aramex India Pvt. Ltd., set up a network for delivery of shipments within India since the same could then be undertaken through third party service providers given that the volume in the international express segment is only 11,77,091.

As per the TPO report we observe that the TPO also claimed that the domestic segment of the assessee is set-up only to absorb the infrastructure costs of the international courier and freight segments. In this regard, it is relevant to note that even where all fixed costs such as corporate office expenses, salary of sales and marketing staff, communication expenses, travelling and conveyance, advisement and sales promotion, etc are allocated entirely to the international express and freight segments, the assessee’s international transactions are still at arm's length, which is evident as per pages 17 to 18 of the compendium submitted during the course of hearing before us.

From the record we also found that the domestic courier business is a regular business carried on by the Aramex Group across the world. The annual turnover of the Aramex Group from domestic courier business for the calendar year 2012 was AED 598,275 {i.e. approximately Rs 1,076 crores) whereas the assessee's revenues from domestic courier services was Rs 94.55 crores which shows that the domestic courier business is a substantial business for the Aramex group even outside India. It is clear from annual report of the Aramex Group on page 16 of the compendium

In view of the above, we can safely conclude that TPO has proceeded on an entirely wrong footing by holding that assessee’s FAR profile in the international express and freight segments is similar to the FAR profile of the domestic segment, hence the entity wide margins can be considered for benchmarking purposes.

From the record we found that the average revenue per shipment earned by the assessee in the international express segment was Rs 413 whereas the average revenue in the domestic segment was on Rs 86. Similarly, the average revenue per kg charged by the assessee for international express shipments was Rs 238 whereas the average revenue per kg charged in the domestic segment was Rs 60 only. The workings of the CUP analysis was submitted during the course of the hearing. Hence, even based on such CUP analysis, the assessee's international transactions are at arm's length since the rate 'per shipment' as well as 'per kg' for the international express shipments is higher than that of the domestic shipments."

We also observed that process in the domestic segment are purely due to market dynamics. One of the reasons given by the TPO for rejecting the segmental accounts of the assessee was also that the assessee is incurring losses in the domestic business and no M/s. Aramex India Pvt. Ltd., businessman would continue to operate under losses. In this regard, we observe that the loss suffered by the assessee is on '"account of stiff competition in the domestic market along with the service quality maintained by the assessee. The domestic courier segment has more than 2,000 players and hence there is stiff competition in terms of pricing which forces the assessee to charge lower prices so as to be able to penetrate the market. As compared to this, the international express segment has very few players such as DHL, Blue Dart etc, and hence the assessee is able to charge a premium fee for its services in that segment. Even on the cost side, since the assessee is part of a global player, it has to maintain certain quality standards while providing its services - for eg - the assessee's delivery staff would have standard uniforms, tracking systems, insurance coverage for all shipments, etc. These facets would not necessarily be available in case of local courier companies operating within India. This reason for loss in the domestic segment has also been accepted by the Hon'ble ITAT in AY 2009-10 and hence the TPO cannot rely on this same reason for rejecting the segmental accounts in the year under consideration.

In addition to the above, we also observed that the Aramex Group regularly infuses significant capital into the assessee company to support the domestic business. Over the period 2007 to 2017, the Aramex Group has infused Rs.76.50 crores as equity share capital into the assessee company. This evidences that the assessee M/s. Aramex India Pvt. Ltd., company considers the domestic segment to be an important business division and is not carrying on this business only to support the international business.

We also observed that the domestic courier business has a long gestation period which is evident from the annual reports of other domestic courier companies {to the extent available in the public domain) that show that such companies are also incurring losses over the years-  Skypack (March 2010 to 2014) (incorporated on 31st March 1982)  First Flight (incorporated on 2* May 1988) (March 2008 to 2011)

As per our considered opinion, the Tax Department cannot step in the shoes of the taxpayer to decide the taxpayer should continue its business. In support of the above, reliance can be placed on the following decisions:-  CIT vs WatehandandCo. [1967] 65 ITR 381 (SC)  CIT vs Dafcrma Cement Pvt Ltd [2002] 254 ITR 377 (Delhi)  CIT vs EKL Appfcances Ltd [2012] 345 ITR 241(Delhi)

In view of the above, the segmental accounts maintained by the assessee should be accepted. Consequently, benchmarking analysis undertaken by the assessee should not be rejected by the AO / TPO.

Even if the segmental accounts of the assessee are rejected and entity wide margins are considered, the adjustment should be restricted to the value of the international transactions. This position M/s. Aramex India Pvt. Ltd., is also supported by the Hon'ble ITAT order in the assessee's own case for AY 2009-10. The TPO has rejected this argument on the basis that there is an SLP pending before the Hon'ble Supreme Court on the same issue in the case of Ms Firestone International Private Limited. Since the High Court rulings on this issue are in favour of the assessee, a pending SLP cannot be a basis for denying the benefit to the assessee.

Vide Ground No.12 to 20, assessee has requested for working capital adjustment and has provided arguments in respect of comparables selected by the TPO. In this regard, it was argued by learned AR that where working capital adjustment is granted and one comparable (viz. Sical Logistics Limited) is excluded from the final comparable set / then the revised arm's length margin will be 1.49% which will be within the +/-3% range from the entity level margin of - 1.33% earned by the assessee. Hence, the international transactions of the assessee would be at arm's length. The comparable companies selected by the TPO to benchmark the assessee 's international transactions, the assessee has argued for the inclusion of 1 company (Indo Arya Central Limited and exclusion of 4 companies (i.e. All Cargo Logistics Limited, Social Logistics Limited, SDV International Logistics Limited and Om Logistics Limited) from the final comparable set.

Learned AR also invited our attention to the detailed arguments and supporting case laws in respect of each disputed M/s. Aramex India Pvt. Ltd., comparable is provided in Scenario 2 of Annexure 1. The revised arm's length margin of the final comparable set where Indo Arya is included and 4 companies additionally identified by the TPO as comparables (i.e. All Cargo Logistics Limited, Sical Logistics Limited, SDV International Logistics Limited and Om Logistics Limited) are excluded the revised arm's length 1% which will be within the +/-3% range from the entity level margin of -1.33% earned by the assessee.

On the other hand, learned DR contended that in the segmental accounts reported in the financial statements, the auditor has stated that certain costs are unallocated. Hence, in the absence of a reasonable basis to allocate such expenses, entity level margin of the assessee should be considered for benchmarking purposes. As per learned DR, the FAR profile of the international segments and domestic segment of the assessee are the same (as mentioned in para 12.5 on page 61 of the TP order). Also, the royalty paid for tracking systems is used by the assessee for both the international as well as domestic businesses which is reducing the profitability in the domestic segment. In view of the above, as per learned DR the TPO was correct in adopting an entity level approach so as to aggregate the international and domestic business for benchmarking purposes. However, subsequently while rebutting the assessee’s submission on use of the CUP method, the DR himself contradicted his above position to fairly agree that the FAR profiles of the 2 segments are not similar and hence CUP cannot be applied in the M/s. Aramex India Pvt. Ltd., instant case. Learned DR has relied on the Delhi High Court decision in the case of ESPN Software India Ltd ([2017] 87 taxmann.com 323 (Delhi)) wherein it was held that closely linked transactions can be aggregated for benchmarking purposes.

With regard to the argument of learned D.R. that the auditor in the segment accounts has classified certain expenses as 'unallocated' expenses and hence segmental accounts cannot be prepared, we observe that such expenses are corporate office expenses and have been allocated by the assessee to all the segments on the basis of 'revenue'. Moreover, this basis of allocation has been accepted by the TPO.

As regards, the reliance placed by the DR on the case of CEVA Freight India vs. DCIT (supra), we observe that in that case details about the nature of the unallocated expenses were not known and hence the Tribunal held that in absence of such information, it may not be appropriate to allocate all such expenses on the basis revenue. However, in the assessee's case, it is on record that the 'unallocated expenses' are in the nature of corporate office expenses and hence their allocation on the basis revenues are the most appropriate method.

With respect to DR’s contention that the FAR profile of the international express and freight segments and the domestic

In the ESPN Software (supra) the advertisement and subscription segments of the taxpayer were aggregated for benchmarking purposes since the revenues earned in each of those segments were inter-dependant - higher the subscriber base, the greater were the chances of the aired advertisements. Further, the agreement with the AE was a consolidated deal wherein if the taxpayer gives up the advertisement rights, he would need to give up even the subscription rights.

From the record we observe that in assessee’s case the international and domestic businesses are undertaken independently and the revenues earned from the two businesses are not dependant on each other. Even if one of the businesses shuts down, the assessee can very much continue the other business. Hence, the decision in the case of ESPN has no relevance to the facts of the assessee’s case. Moreover, the decision of CVA Freight India as relied upon by the learned D.R. cannot be applied to the facts of the M/s. Aramex India Pvt. Ltd., assessee’s case. In this connection, reference was drawn to para 6 of the decision wherein it is clarified that the assessee itself was not interested in going into segmental accounts and did not dispute determination of ALP on the basis consolidated income. In fact, the assessee had not pressed the ground dealing with preparation of segment accounts. Therefore, the decision in case of CEVA Freight India (Supra) is of no assistance to the Revenue.

From the order of the ITAT in assessee’s own case for A.Y. 2009-10 we observe that the Tribunal has ruled in favour of the assessee and directed the TPO to exclude segment account prepared by the assessee. Therefore, the decision in the case of CEVA Freight India (supra) has no relevance to assessee’s case.

With regard to assessee’s contention for grant of working capital adjustment we observe that the assessee has asked for adjustment for difference in working capital employed by the assessee and the comparable companies. In this case without determining the arms length price margin, the TPO has considered working capital adjustment margins with respect to comparables selected by the assessee in the TP study. However, in the case of companies additionally identified by TPO, the TPO has considered unadjusted margins, thus TPO has not taken a consistent position while determining arm’s length margin. For this purpose reliance may be placed on the following judicial pronouncements which supports

With regard to rejection of Sical Logistic Ltd. we found that this company is functionally different. As per page 2 of the annual report the company is engaged in port operations, container terminals, CFS/ICD, trucking and warehousing, bulk terminals and container trains services and no segmental information is available for each of these lines of business. Further, it can be seen from page 12 of the annual report, the company's activities also include port handling, customs house agency, ship agency, road logistics and goodwill travel. The goodwill travel division carries out rail and airline ticketing for domestic as well as international and booking of worldwide hotels and tour packages, car rentals, visa, insurance and money changing services. Further, the financial statements of the company do not provide sufficient segmental information to determine profitability from each activity on a standalone basis. Reliance in this regard is placed on the decision of Cadence Design Systems (India) Pvt. Ltd. Vs. DCIT [2018] 89 taxmann.com 443 (Delhi-Trib) which upholds that in absence of M/s. Aramex India Pvt. Ltd., segmental information of various streams, a company cannot be considered as a comparable.

It is pertinent to mention here that the assessee company does not provide any of these services, accordingly this company cannot be considered as comparable. We also observe that a majority of the fixed assets (approx. 64%) of the company consists of port handling equipment, which clearly evidences that the company is in a completely different line of business.

Now we discuss the comparables rejected by the TPO and DRP. Indo Arya Central Transport Ltd. was rejected by the TPO on the plea that the company has set up subsidiary in the previous year due to which it is incurring losses. Relevant observation of TPO are at para 21 on page 72 of TOP’s order. The DRP has commented on the same in para 8.2.2 of the DRP order.

In this regard we observe that the assessee has considered the standalone financial statements of the company for comparability analysis which does not include any subsidiary results. Set-up of subsidiary is recorded as an 'investment' in the Balance Sheet of the company and has no effect on the Profit & Loss account / profitability of the company. Hence, rejection of the company on the basis that it established a subsidiary would not be appropriate. Reliance is placed on Mumbai Tribunal decision in the case of Goldstar Jewellery Design Pvt. Ltd. vs. ITO [2013] 36 taxmann.com 292 (Mumbai-Trib) wherein it is held that balance sheet transactions have no effect on profitability.

With regard to four additional comparables introduced by the TPO and upheld by the DRP, we observe that in the case of All Cargo Logistics Ltd. the TPO relied on the consolidated financial statement which should not be permitted. We observe that this company is engaged in multiple line of business and multimode transport is only one of such lines. Furthermore, the company has not provided segmental data for any of the business in the stand alone financials and the TPO has considered the segmental data provided in the consolidated financial of the company. Furthermore the segmental details provided in the consolidated financial statements include financial results of not only the Indian operations but also of the multimodal transport business carried on by the company's subsidiaries in other countries. This is evident from the discussion in MD&A which shows that the multimodal transport business is also carried on in Vietnam, Australia and Indonesia. Also, the notes to the consolidated financial statements evidences that such overseas entities are part of the consolidated financial statements.

Furthermore, even from a functional standpoint, in the multimodal segment, the company operates as a shipper/ goods carrier for transporting the shipment from one port to the other. The functions and risks of a shipper/ good transport company like Allcargo is completely different from the activities carried on by the assessee under the international express and freight forwarding segments. A shipper/ liner owns ships/ vessels, etc. for transporting the goods and has a heavy asset base. This is evident from the fixed asset schedule of All Cargo as per which more than 62% of the assets consists of vessels, heavy equipment and commercial vehicles.

However, the assessee does not own any such ships/ vessels, etc. and in fact, companies such as the assessee contract with good transporters to deliver the shipments from one location to another. The total asset base of the assessee is Rs.11crores as against All Cargo's asset base of Rs. 1,330 crores. Hence, even from asset base standpoint, the companies cannot be considered as comparable.

The TPO also included Sical Logistics Ltd. in the list of comparables on the belief that this company is engaged in logistics service and hence it is comparable. The TPO has dealt with the issue in para 21 on page 73

Moreover, the assessee company has different asset base, a majority of the fixed assets (approx. 64%) of the company consists of M/s. Aramex India Pvt. Ltd., port handling equipment, which clearly evidences that the company is in a completely different line of business.

Moreover, the company does not have any earnings in foreign exchange, indicating that the company does not have international operations. In this regard, reference is drawn to Rule 10B(2)(d) which lists geographical location as a criteria of comparability. Further reliance is inter-alia placed on the decision of DCIT v Deloitte Consulting India Pvt. Ltd. (ITA 1082/Hyd/2010) dated 22 July 2011 which upholds that a company that does not have foreign exchange earnings and has no international operations is not comparable to a company that is engaged in international operations.

In view of the above discussions we do not find any merit for including of Sical Logistics Ltd. in the list of comparables.

TPO has also included SDV International Logistics by observing that it is engaged in freight forwarding and logistics and hence comparable. The TPO has dealt with the issue in para 9 on page 72 of TP order and the DRP has given its directions in para 8.2.3 on page 45 of DRP order.

We have considered the rival contentions and found that the company follows a different financial year and hence should be rejected. The financial statements of the company available in the public domain are for the calendar year i.e. January to December,

We also observe that the learned DR's reliance on the ruling in case of Pangea & Legal Database Systems Pvt. Ltd. (ITA No. 2128/Mum/2014) is misplaced since in that case quarterly audited financial data was available to undertake necessary adjustments for aligning the financial period (in case of R Systems Ltd.). However, in case of SDV International Logistics Ltd. no such quarterly data is available.

In view of the above discussion we direct for exclusion of SDV International Logistics from the list of comparables.

We have considered the rival contentions and found that the company is functionally different. As per the website, the company is engaged in providing air cargo, train Cargo services factory relocation, home shifting/office relocation services and hence cannot be considered comparable to the international express or freight forwarding segments of the assessee. These services provided by the company involve high level of technical expertise which is evident from the description of the services provided in the website. The factory relocation services provided by the company include shifting of high value equipment which entails installation, removal and relocation of all sizes of complex production test equipment. These services can by no stretch of imagination be compared to the courier business carried on by the assessee. Moreover, we found that the air cargo services provided by Om Logistics refer to trucking services which are provided for cargo delivering services. The assessee does not operate as trucker and hence the company cannot be considered as a comparable.

In view of the above we do not find any justification for inclusion of Om Logistics Ltd. in the list of comparables.

After giving credit for working capital adjustment, the position of various comparables remains as under: - Name of the Company Margin Working Capital Sr. considered adjusted No. by the TPO margins 1 Blazeflash Couriers 2.67% 2.67% 2 Overnight Express -0.11% -0.11% 3 Patel Integrated 1.48% 1.45% 4 Om Logistics Ltd. 7.25% 3.97% 5 Sical Logistics Ltd. 8.05% 5.67% 6 Yusen Logistics India Ltd. 1.59% -0.36% 7 Hindustan Cargo Ltd. 0.92% -0.31% 8 SDV International 2.11% 1.20% 9 Allcargo Logistics 3.62% 3.37% ALP 3.06% 1.95% Exclude Sical Logistics 5.67% Revise ALP 1.49% AIPL Margin at entity level -1.33% Upper Range (+/- 3%) 1.70% Result Transaction is at ALP

The revised comparables set and consequent arm's length margin after giving effect to the above is as follows: Sr. Name of the company Original comparables set Revised comparables set No.

The arm's length margin as per the above set is 0.47%. The assessee has reported a margin of 16.95% in the international express segment which is higher than the arm's length margin determined above. Hence, the transaction is found to be at arm's length and no adjustment is warranted in the international express segment.

For the international freight forwarding segment, the assessee has reported a margin of 4.26% in the AE segment and margin of 3.31% in the third party segment. Since the assessee 's margin in the M/s. Aramex India Pvt. Ltd., AE segment is higher than the margin in the third party segment, the AE transaction is found to be at arm's length and no adjustment is warranted even in the freight forwarding segment.

In view of above observations transactions so entered by assessee are at ALP, requiring no transfer pricing adjustment.

Considering totality of the facts and circumstances as discussed above and respectfully following the order of the Tribunal in assessee’s own case for A.Y. 2009-10, we do not find any justification for the addition made by the AO.

In the result, the appeal of the assessee is allowed in terms indicated hereinabove.