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

ITA 6749/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7387 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 27-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts; Royalty expenses
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH , JM ITA NO. 6749 / MUM/20 17 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. ARA MEX INDIA PVT. LTD., 821, SOLITAIRE CORPORATE PARK, ANDHERI - GHATKOPAR LINK ROAD, CHAKALA - ANDHERI (E) , MUMBAI 400 093 VS. DCIT RG. 9(1)(2) MUMBAI PAN/GIR NO. AACCA6756A APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI NISHANT THAKKAR / SHRI HITEN CHANDE REVENUE BY SHRI JAYANT KUMAR DATE OF HEARING 04 / 04 /20 1 8 DATE OF PRONOUNCEME NT 18 / 05 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF PASSED U/S.143(3) R.W.S. 144C(13) OF THE IT ACT DATED 16 TH OCTOBER 2017, IN PURSUANCE OF DIRECTION I SSUED BY DRP DATED 22/09/2017 FOR THE A.Y.2013 - 14. 2. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDE R PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX - 9(1)(2) (LEARNED AO), U/S.143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (ACT)(ASSESSMENT ORDER), IN PURSUANCE OF THE DIRECTIONS ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 2 ISSUED BY DISPUTE RESOLUTION PANEL 1(HONBLE DRP), MUMBAI, ON THE FOLLOWING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/TPO, BASED ON THE DIRECTIONS OF THE HONBLE DRP HAS: GENERAL 1. ERRED IN ASSESSING THE TOTAL TAXABLE INCOME OF THE APPELLANT AT RS. 9,91,50,256 AS AGAINST RETURNED INCOME OF RS NIL REPORTED BY THE APPELLANT IN ITS RETURN OF INCOME FOR AY 2013 - 14; TRANSFER PRICING GROUNDS REFERENCE TO TPO 2. ERRED IN MAKING A REFERENCE OF THE APPELLANT'S CASE TO THE LEARNED TRANSFER PRICING OFFICER ('TPO') AND THEN MA KING A TRANSFER PRICING ADJUSTMENT OF RS. 9,91,50,256 TO THE TOTAL INCOME OF THE APPELLANT; REJECTION OF BENCHMARKING ANALYSIS UNDERTAKEN BY T HE APPELLANT 3. ERRED IN REJECTING THE SEPARATE BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT FOR THE EXPRESS AND FREIGHT SEGMENTS AND INSTEAD BENCHMARKING THE TRANSACTIONS BY COMPARING THE ENTITY WIDE MARGIN OF THE APPELLANT (WHICH INCLUDES MARGINS OF DOMESTIC THIRD PARTY BUSINESS) WITH COMPANIES ENGAGED IN PROVIDING A WIDE RANGE OF SERVICES; 4. E RRED IN REJECTING THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT USING THREE YEAR WEIGHTED AVERAGE DATA OF COM PARABLES; AND DETERMINING THE ARM'S LENGTH MARGIN USING THE OPERATING MARGINS EARNED BY THE COMPARABLE COMPANIES FOR ONLY FINANCIAL YEAR ( 'FY') 2012 - 13, WHICH WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS; 5. ERRED IN REJECTING THE ALLOCATION KEYS USED AND SEGMENTAL ACCOUNTS MAINTAINED BY THE APPELLANT DISREGARDI NG THE FACT THAT THE SEGMENTAL ACCOUNTS WERE VALIDATED BY THE AUDITORS AND ALSO FORMED PART OF THE AUDITED FINANCIAL STATEMENTS OF THE APPELLANT 6. ERRED IN NOT GIVING COGNIZANCE TO THE ORDER OF THE HON'BLE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR AY 2009 - 10 WHEREIN IT WAS HELD THAT THE SEGMENTAL ACCOUNTS OF THE APPELLANT CANNOT BE REJECTED; 7. ERRED IN NOT ADJUDICATING ON THE MERITS OF THE ISSUE AND SIMPLY HOLDING THAT SINCE THE TAX DEPARTMENT IS NOT ALLOWED TO APPEAL AGAINST THE DRP ORDE R FOR THE CURRENT YEAR, THE ISSUE IS BEING DECIDED AGAINST THE APPELLANT; ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 3 8. ERRED IN HOLDING THAT APPELLANT HAS USED ONLY 'VOLUME' AS AN ALLOCATION KEY WHEREAS IN REALITY, APPELLANT HAS USED A COMBINATION OF WEIGHT, VOLUME AND REVENUE AS THE ALLOC ATION KEYS DEPENDING ON THE NATURE OF EXPENSES; 9. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT APPRECIATING THAT EVEN IF' WEIGHT' DONE IS USED AS THE ALLOCATION KEY (AS PROPOSED BY THE TPO), THE APPELLANT'S INTERNATIONAL TRANSACTIONS ARE AT ARM'S LENG TH AND NO ADJUST MENT IS WARRANTED; 10. ERRED IN NOT GIVING COGNIZANCE TO THE CORROBORATIVE ANALYSIS SUBMITTED BY THE APPELLANT WHICH SHOW THAT EVEN THE INDEPENDENT PLAYERS IN THE DOMESTIC COURIER INDUSTRY ARE INCURRING LOSSES/ MINIMAL PROFITS; TRANSFER PRICING ADJUSTMENT JO BE MADE IN RESPECT OF ONLY AE TRANSACTIONS 11. WITHOUT PREJUDICE TO THE CONTENTION THAT THE OPERATING MARGINS EARNED BY THE APPELLANT IN THE EXPRESS AND FREIGHT SEGMENTS ARE AT ARM'S LENGTH AND NO TRANSFER PRICING ADJU STMENT IS WARRANTED, EVEN IF SUCH AN ADJUSTMENT IS TO BE MADE, IT SHOULD BE RESTRICTED ONLY TO THE VALUE OF THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT; COMPARABILITY ANALYSIS 1 2. ERRED IN NOT CONSIDERING WORKING CAPITAL ADJUSTMENT FOR THE COMPANIES A DDITIONALLY IDENTIFIED BY THE LEARNED TPO; 13. ERRED IN SUO MOTO REJECTING SOME OF THE APPELLANT'S COMPARABLES AND INTRODUCING ADDITIONAL COMPARABLE WITHOUT PROVIDING THE APPELLANT ANY OPPORTUNITY OF PUTTING FORTH ITS SUBMISSIONS IN RESPECT OF SUCH C OMPARABLES; 14. ERRED IN REJECTING INDO ARYA CENTRAL TRANSPORT LIMITED AS A COMPARABLE ON THE BASIS THAT THE COMPANY HAS EXTRAORDINARY EVENT OF ESTABLISHING A SUBSIDIARY COMPANY WITHOUT APPRECIATING THAT ESTABLISHING A SUBSIDIARY DOES NOT IMPACT THE STANDALONE FINANCIAL STATEMENTS OF THE COMPANY AND THE SUBSIDIARY WAS ESTABLISHED IN 2011 AND NOT IN THE YEAR UNDER CONSIDERATION; 15. ERRED IN CONSIDERING SDV INTERNATIONAL LOGISTICS AS A COMPARABLE WITHOUT APPRECIATING THAT THE COMPANY FOLLOWS A DIFFERE NT FINANCIAL YEAR AND IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT: 16. ERRED IN CONSIDERING AL LCAR GO LOGISTICS LTD. AS A COMPARABLE BASED ON ITS CONSOLIDATED FINANCIAL STATEMENTS WITHOUT APPRECIATING THAT CONSOLIDATED FIN ANCIALS CANNOT BE USED FOR COMPARA BILITY PURPOSES; THE COMPANY OPERATES AS A ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 4 CARRIER/ SHIPPER OWNING SIGNIFICANT ASSETS AND HENCE IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT; 17. ERRED IN CONSIDERING OM LOGISTICS LTD. AS A COMPARABLE WITHOUT APPRECIATING THAT THE COMPANY IS ENGAGED IN PROVIDING LOGISTICS SUPPORT SERVICES WHICH, INTERALIA, INCLUDE FACTORY RELOCATION AND HOME SHIFTING/ OFFICE RELOCATION SERVICES AND HENCE THE COMPANY IS FUNCTIONALLY DIFFERENT FROM T HE APPELLANT: 18. ERRED IN CONSIDERING SICAL LOGISTICS AS A COM PARABLE WITHOUT APPRECIATING THAT THE COMPANY IS ENGAGED IN PORT OPERATIONS, CONTAINER TERMINALS, CFS/ ICD, TRUCKING AND WAREHOUSING, BULK TERMINALS AND CONTAINER TRAINERS AND HENCE THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT; 19. ERRED IN CONSIDERING YUSEN LOGISTICS INDIA LIMITED AS A COMPARABLE WITHOUT APPRECIATING THAT THE COMPANY IS ENGAGED IN PROVIDING SUPPLY CHAIN SOLUTIONS AND' CONSULTING SERVICES AND HENCE IS FUNCTIONALLY DIFFERENT FROM THE ASSESSE E 20. ERRED IN IN COMPUTIN G THE OPERATING MARGIN OF SOME OF THE COMPARABLES RESULTING IN AN UPWARD ADJUSTMENT TO THE ARM'S LENGTH PRICE; PENALTY PROCEEDINGS 21. ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE ACT 3. RIVAL CONTENTIONS HAVE BEEN HEAR D AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ARAMEX INDIA PVT. LTD., (HEREINAFTER REFERRED TO AS IPLOR 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. ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 5 (II) FREIGHT FORWARDING SERVICES: THIS SERVICE ENTAILS AIR, LAND AND OCEAN FREIGHT FORWARDING, AND BREAK - BULK SERVICES FROM INDI A TO VARIOUS OVERSEAS DESTINATIONS OR VICE VERSA.THIS SEGMENT INVOLVES TRANSACTIONS WITH AES. (III) DOMESTIC DISTRIBUTION SERVICES: THIS SERVICE ENTAILS PICK - UP AND DELIVERY OF SHIPMENTS FROM CITY TO CITY WITHIN INDIA. THIS IS ENTIRELY A 3 RD PARTY SEGMENT AND DOES NOT INVOLVE ANY INTER - COMPANY TRANSACTIONS. (IV) LOGISTICS: THIS SERVICE, INTER - ALIA INCLUDE WAREHOUSING, PACKING AND OTHER VALUE ADDED SERVICES SUCH AS E - TRADING, STOCK MANAGEMENT, WAREHOUSING OPERATIONS, ETC. THIS IS ENTIRELY A 3 FD PARTY SEGMEN T AND DOES NOT INVOLVE ANY INTER - COMPANY TRANSACTIONS. 4. 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) WH ICH 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 O F GENERA! AND ADMINISTRATIVE EXPENSES AND WERE ALLOCATED BY THE ASSESSEE TO ALL SEGMENTS ON BASIS OF REVENUE FOR TP STUDY PURPOSES. 5. THE MARGIN EARNED BY AIPL IN THE INTERNAL EXPRESS AND INTERNATIONAL FREIGHT FORWARDING SEGMENTS (WHICH INVOLVE AE TR ANSACTIONS) IS AS FOLLOWS: PARTICULAR S INTERNATIONAL EXPRESS INTERNATIONAL FREIGHT DOMESTIC LOGISTICS OPERATING REVENUE 76,06,72,51 3 38,59,81,22 5 94,55,87,696 15,87,18,74 1 LESS: 63,17,25,64 37,17,78,36 1,12,48,94,42 15,89,17,80 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 6 OPERATING COSTS 1 6 1 2 OPE RATING NET PROFIT 12,89,46,87 2 1,42,02,859 (17,93,06,725 ) (1,99,060) OPERATING MARGIN 16.95% 3.68% 6. THE ASSESSEE HAS BENCHMARKED THE INTERNATIONAL TRANSACTIONS IN THE INTERNATIONAL EXPR ESS AND INTERNATIONAL FREIGHT FORWARDING SEGMENTS USING TR ANSACTION NET MARGIN METHOD (TNMM'). S IN CE 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. 7. 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. NO NAME OF THE COMPANY MARGIN (OP/OR) REMARKS 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 LTD (SEGMENT) 1.48% AFPL'S COMPARABLE ACCEPTED BY TPO ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 7 4 SDV INTERNATIONAL LOGISTICS 2.11% ADDITIONALLY IDENTIFIED BY TPO DIRECTLY IN THE TP ORDER 5 ALLCARGO LOGISTICS LTD (MUITIMODAL SEGMENT - CONSOLIDATED FINANCIAL STATEMENTS) 3.62% ADDITIONALLY IDENTIFIED BY TPO DIRECTLY IN THE T P ORDE R 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 MAR GIN OF 3.06 %, AND MADE A TRANSFER PRICING ADJUSTMENT OF RS 9,91,50,256 / - . 10. 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. 11. 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 ENGAG ED 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 8 1. INTERNATIONAL EXPRESS COURIER SMALL PARCELS TO AND FROM INDIA, LESS THAN 50 KGS YES 2. INTERNATIONAL FREIGHT FORWARDING LARGE PARCELS TO AND FROM INDIA MORE THAN 50 KGS YES 3. DOMESTIC COURIER SMALL PARCELS WITHIN INDIA, LESS THAN 50 KGS NO 4, LOGISTICS SERVICES WAREHOUSING SERVICES WITHIN INDIA NO 12. THE INTERNATIONAL EXPR ESS AND INTERNATIONAL FREIGHT FO RWARDING SEGMENTS COMPRISE OF SHIPMENTS ORIGINATING FROM INDIA FOR A DESTINATION OUTSIDE INDIA (REFERRED TO AS OUTBOUND SHIPMENTS) AND SHIPMENTS ORIGINATIN G 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. 13. 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 DE LIVERY 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 9 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. 14. AS REGARDS, DOMESTIC COURIER SEGMENT, THE ASSESSEE IS RESPONSIBLE FOR END TO END PIC K - UP AND DELIVERY OF SHIPMENTS WITHIN INDIA AND THERE IS NO INVOLVEMENT OF THE AE IN ANY OF THE FUNCTIONS. 15. SINCE THE FUNCTION ASSET AND RISK (FAR) PROFILE IS DIFFERENCE FOR EACH OF THESE BUSINESS LINES, THE ASSESSEE HAS BENCHMARKED THE TWO SEGMENTS INV OLVING AE TRANSACTIONS SEPARATELY FOR TRANSFER PRICING PURPOSES. A SUMMARY OF THE BENCHMARKING ANALYSIS IS AS FOLLOWS; SR. NO SEGMENT MARGIN (OP/OR) BENCHMARKING METHOD ARM'S LENGTH MARGIN REFERENCE 1. INTERNATIONAL EXPRESS COURIER 16.95% TNMM US ING EXTERNAL COMPARABLES 0.87% PAGE 4 OF TP ORDER 2. INTERNATIONAL FREIGHT FORWARDING 4.26% INTERNAL TNMM 3.31% PAGE 5 OF TP ORDER 16. WHILE PREPARING THE SEGMENTAL ACCOUNT EXPENSES ON ACCOUNT OF BAD DEBTS WHICH ARE DIRECTL Y IDENTIFIABLE TO EAC H SEGMENT AND THE ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 10 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 SEGME NTAL 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 MATERI AL, 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 LIN E 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. 17. DURING THE COURSE OF SCRUTINY ASSESSMENT, AO REFERRED THE MATTER TO TRANSFER PRICING OFFICER, THE TPO OBSERVED THAT THE ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 11 ASSESSEE HAD INCURRED A LOSS IN THE DOMESTIC COURIER AND PROFITS IN THE INTERNATIONAL EXPRESS AND FREIGHT SEGME NTS. 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 FOLLOWIN G 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 ALLOCATIO N 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 ASSES SEE 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 12 DOMESTIC SEGMENT IS ID ENTICAL TO INTERNATIONAL SEGMENT (PARA 12.1 (A) TO (D) ON PAGES 49 AND 50 OF TP ORDER); 1 9 . AFTER REJECTING THE SEGMENT ACCOUNT, THE TPO USED AN ENTITY LEVEL APPROACH TO BENCHMARK THE ASSESSEE 'S INTERNATIONA L TRANSACTIONS AND MADE A TRANSFER PRICING ADJUS TMENT 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% DET ERMINED 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 TPOS REPORT, THE AO PASSED THE DRAFT ASSESSMENT ORDER DATED 1 ST 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 9,91,5 0,256 TO THE RETURNED INCOME OF THE ASSESSEE. AGGRIEVED BY THE DRAFT ORDER, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL ('DRP') ON 28 TH DECEMBER 2016. THE DRP, ALTHOUGH ACCEPTING THAT THE ASSESSEE 'S CASE IS COVERED BY THE ORDERS F OR THE EARLIER YEARS, HAS PASSED AN ORDER DATED 22 ND 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. 20 . THROU GH 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 13 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 MAINTAINE D 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 SHOU LD 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 ALLO CATION 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 INTERNATIONA L 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 14 WIDE MARGIN SHOULD BE USED FOR BENCHMARKING PURPOSES. THE DR HAS SUPPORTED THESE ARGUMENTS OF THE TPO. 21 . 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 RECORDE D 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 . 2 2 . THIS FACTUAL FINDING HAS ALSO NOT BEEN DISPUTED BY THE DEPARTMENT REPRESENTATIVE (DR). HENCE, THE TPO'S FUNDAMENTAL PARTI CULARS 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 L ESS: 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% ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 15 PREMISE FOR REJECTING THE SEGMENT ACCOUNTS ON THE BASIS THAT THE ASSESSEE HAS USED 'VOLUME' TO ALLOC ATE ALL EXPENSES THEREBY RECORDING 90% OF THE COSTS IN THE DOMESTIC SEGMENT APPEARS TO BE MISPLACED AND THE TPO HAS PROCEEDED WITH HIS ANALYSIS ON AN ENTIRELY WRONG FOOTING. 2 3 . IT WAS ARGUED BY LEARNED AR THAT REJECTION OF THE SEGMENTAL BY THE TPO IS IN CORRECT, IN SO FAR AS THE ISSUE IS COVERED BY THE ITAT 'S DECISION DATED 28 TH NOVEMBER 2014 IN ASSESSEE 'S OWN CASE FOR AY 2009 - 10 FIN ITA NO. 798/MUM/2014) . 2 4 . IT WAS FURTHER SUBMITTED BY LEARNED AR THAT I N AY 2009 - 10, THE TPO HAD REJECTED THE SEGMENT ACC OUNTS 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 ASSESS EE IN THE DOMESTIC SEGMENT. 2 5 . 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 ASSESSEES FAVOUR BY THE ITAT ORDE R 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 16 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 OU R 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 RATION ALE 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 ALLO CATION 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 17 THE EXPENSE. HENCE THE TPO'S CONTENTION THAT WEIGHT SHOULD BE USED AS AN ALLOCATION KEY IS NOT ACCEPTED. 2 8 . 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 HA D 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 O WN 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 DO MESTIC 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 - PARTICULARS AMOUNT INCREASE EQUITY SHARE CAPITAL AS ON 31 MARCH 2007 2,00,00,000 - EQUITY SHARE CAPITAL AS ON 31 MARCH 2013 7,00,00,000 45,00,00,000 EQUITY SHARE CAPITAL AS ON 31 MARCH 2017 78,50.00,000 31,50,00,000 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 18 29 . FURTHER, THE ASSESSEE ALSO BROUGHT TO OUR ATTENTION THAT THE OTHER REASON FOR LOWER PROFITS / LOSSES IN THE DOMESTIC SEGMENT AS COMPARED TO THE INTERNATIONAL SEGMENT IS THAT THE AVERAGE REVENUE PER SHIPMENT IS SIGNIFICANT HIGHER IN THE INTERNATIONAL SEGMENT. THE DETAILS SUBMITTED BY THE ASSESSEE WERE AS FOL LOWS: PARTICULARS INTERNATIONAL EXPRESS(AE) DOMESTIC - COURIER (THIRD PARTY) REVENUE FROM SERVICES A 76,06,72,513 94,55,87,696 PAYMENT TO AE B 27,43,07,313 - RETENTION BYAIPL C=A - B 48,63,65,200 94,55,87,696 VOLUME 11,77,091 1,10,46 ,714 AMOUNT RETAINED PER SHIPMENT 413 86 WEIGHT (IN KGS) 20,43,250 1,58,27,426 AMOUNT RETAINED PER KG 238 60 30 . 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 O F 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 19 ASSESSEE IN A PARTICULAR SEGMENT CANNOT BE A BASIS TO DOUBT THE CORRECTNESS OF THE SEGMENTAL ACCOUNTS PREPARED BY THE ASSESSEE . 3 1 . 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 BUSINE SS AND ALSO THE FAR PROFILE OF THE INTERNATIONAL EXPRESS AND FREIGHT SEGMENTS IS SIMILAR TO THE FAR PROFILE OF THE DOMESTIC COURIER SEGMENT. 3 2 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN C ASE 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 REJECT ING 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 TRANSACT ION 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 REJECTIN G 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 20 ASSESSING OFFICER. THE TPO HAS MAINLY DISCUSSED THE LOSSES AS A PREMISE FOR APPLYING THE ARM S 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 DOM ESTIC 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. ' 33 . 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 OVER ALL COSTS DEBITED/ EXPENSES INCURRED BY THE ASSESSEE HAVE NOT BEEN DISTURBED . T HE 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, S INCE 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 A BOVE 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 21 B R OUGHT ANYTHING ON RECORD TO SHOW THAT THE LOSS INCURRED BY THE AS SESSEE 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 FO LLOWING 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 ADJ USTMENT . FOR THIS PURPOSE RELIANCE MAY BE PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: - M/S SYNVERSE MOBILE SOLUTIONS VS DCIT (ITA NO. 1416/HYD/2014) M/S TECHNIMOUNT ICB PVT. LTD VS ACIT (ITA NO. 7098/MUM/2010) 34 . IN VIEW OF THE ABOVE, WE ARE OF T HE 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. T HE LEARNED DEPARTMENT REPRESENTATIVE ('DR') DURING THE COURSE OF THE HEARING HAS NOT DISPUTED THE ABOVE POSITION THEREFORE, ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 22 THE SEGMENTS PREPARED BY THE ASSESSEE DESERVES TO BE ACCEPTED AND THE ADJUSTMENT MADE BY THE TPO OUGHT TO BE DELETED . 35 . WE FURTHER OBSERVE THAT THE FINDING GIVEN BY THE TPO THAT ASSESSEE HAS ALLOCATED ALL THE COSTS ON THE B ASIS 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 S HOULD BE REJECTED SINCE THE ASSESSEE HAS ALLOCATED ALL EXPENSES USIN G 'VOLUME' AS THE ALLOCATION KEY AND THIS RESULTED IN 90% OF THE EXPENSES BEING RECORDED IN THE DOMESTIC SEGMENT 3 6 . THE ABOVE OBSERVATION OF THE TPO IS FACTUALLY INCORRE CT. 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 EXPE NSES 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, T HE 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 ALLOCAT ION KEY FOR ALL ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 23 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 PRO FESSIONAL 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 TOW ARDS 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 SHIP MENT 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 O N 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 . 37 . FROM THE RECORD WE ALSO OBSERVE THAT WHERE 'WEIGHT' IS USED AS THE ALLOCATION KEY, THE MARG IN 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 SELECT ION 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 TOTA L 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 24 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. 3 8 . 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 SEGM ENTS. KEY DIFFERENCES IN FUNCTIONAL AND RISK PROFIT BETWEEN INTERNATIONAL INBOUND SHIPMENTS AND DOMESTIC SHIPMENTS PARTICULARS INTERNATION AL INBOUND DOMEST IC EXPLANATION FUNCTIONS NEGOTIATION AND CONTRACT WITH CUSTOMER NO YES THE AE IS R ESPONSIBLE FOR NEGOTIATING AND EXECUTING CONTRACTS WITH THE CLIENT FOR DELIVERY OF SHIPMENTS IN INDIA. ARAMEX INDIA DOES NOT ENTER INTO ANY CONTRACTS WITH THE CLIENTS FOR INBOUND SHIPMENTS. HOWEVER, IN THE CASE OF DOMESTIC SHIPMENTS, ARAMEX INDIA NEGOTIATE S AND ENTERS INTO CONTRACTS WITH CLIENTS FOR DELIVERY OF SHIPMENTS IN INDIA. PRICING WITH CUSTOMER NO YES THE TERMS OF THE CONTRACT ARE NEGOTIATED BY THE AE WITH THE CLIENT. ARAMEX INDIA DOES NOT PLAY ANY ROLE IN NEGOTIATING THE PRICE WITH THE CLIENT FOR INBOUND SHIPMENTS. AS REGARDS DOMESTIC SHIPMENTS, ARAMEX INDIA IS RESPONSIBLE FOR DECIDING THE PRICE TO BE CHARGED TO THE CUSTOMER. MAINTAINING CLIENT RELATIONSHIPS NO YES THE CLIENT CONTRACTS AND RELATIONSHIPS ARE MAINTAINED BY THE AE. AS REGARDS DOMESTIC SHIPMENTS, ARAMEX INDIA IS RESPONSIBLE FOR MAINTAINING CLIENT RELATIONSHIPS. RESPONSIBILITY FOR PICK - UP AND DELIVERY OF SHIPMENTS HALF FULL THE AE IS RESPONSIBLE FOR PICK UP OF THE SHIPMENT FROM THE OVERSEAS CUSTOMER AND DELIVERING THE SAME UPTO THE INDIA PORT (INCLUDING NEGOTIATING WITH AIRLINES, CLEARANCE AT INTERNATIONAL HUBS, ETC.). ARAMEX INDIA PERFORMS ONLY ONE LEG OF DELIVERY OF THE SHIPMENT FROM THE INDIA PORT TO THE CONSIGNEE IN INDIA. AS REGARDS DOMESTIC SHIPMENTS, ARAMEX INDIA IS RESPONSIBLE FOR END TO END PICK - UP AND DELIVERY OF THE SHIPMENT. ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 25 RISKS FOREIGN EXCHANGE YES NO SINCE, THE TRANSACTIONS WITH AE IS IN FOREIGN CURRENCY THERE IS AN INHERENT FOREIGN EXCHANGE RISK BORNE ARAMEX INDIA. AS REGARDS THE DOMESTIC SEGMEN T, ARAMEX INDIA IS NOT EXPOSED TO THIS RISK AS THE BUSINESS IS CARRIED OUT ENTIRELY WITHIN INDIA. CREDIT RISK NO YES ARAMEX INDIA INVOICES ITS AE AND HENCE BEARS MINIMAL/ NO CREDIT RISK. AS REGARDS DOMESTIC SEGMENT, AIPL BEARS THE CREDIT RISK IN RELAT ION TO NON - RECOVERY FROM THE CUSTOMER. MARKET RISK (COMPETITION RISK WHICH IMPACTS REVENUES AND CONSEQUENTLY PROFITS) LOW VERY HIGH THERE ARE FEW PLAYERS INVOLVED IN DELIVERY OF INTERNATIONAL SHIPMENTS. HENCE, THE MARKET RISK IS VERY LOW. AS AGAINST T HIS, ARAMEX INDIA BEARS VERY HIGH MARKET RISK IN THE DOMESTIC SEGMENT SINCE THERE ARE MULTIPLE LOCAL PLAYERS IN THE DOMESTIC MARKET AND THE FOCUS POINT FOR CUSTOMERS IS GENERALLY ONLY PRICE WHICH PUTS A DOWNWARD PRESSURE ON PRICING. KEY DIFFERENCES IN F UNCTIONAL AND RISK PROFIT BETWEEN INTERNATIONAL OUTBOUND SHIPMENTS AND DOMESTIC SHIPMENTS PARTICULARS INTERNATIONAL OUTBOUND DOMESTIC EXPLANATION FUNCTIONS NEGOTIATION WITH AIR LINES FOR DELIVERY OF SHIPMENT FROM THE INDIA PORT TO THE FIRST INTERNAT IONAL HUB YES NO ARAMEX INDIA NEGOTIATES WITH THE AIRLINES FOR DELIVERY OF THE SHIPMENT TO THE FIRST INTERNATIONAL HUB. AS REGARDS THE DOMESTIC SEGMENT, ARAMEX INDIA SINCE THE DELIVERY OF SHIPMENTS ARE WITHIN INDIA, NO SUCH NEGOTIATIONS ARE UNDERTAKEN. : DEPENDENCY YES NO ARAMEX INDIA IS DEPENDANT ON ITS AE FOR DELIVERING THE SHIPMENT TO THE OVERSEAS CONSIGNEE. ARAMEX INDIA PERFORMS ONLY LEG (VIZ. PICK UP OF THE SHIPMENT FROM THE CUSTOMER AND DELIVERY TO THE FIRST INTERNATIONAL HUB) WITH THE OTHER L EG BEING PERFORMED BY THE AE ON WHICH IT IS DEPENDANT (VIZ. DELIVERY OF THE SHIPMENT FROM THE INTERNATIONAL HUB TO THE OVERSEAS CONSIGNEE). HOWEVER, AS REGARDS THE DOMESTIC SEGMENT, AIPL IS NOT DEPENDANT ON ITS AE FOR PICK - UP OR DELIVERY AND UNDERTAKES THE END TO END FUNCTION. RISKS FOREIGN EXCHANGE YES NO SINCE, THE TRANSACTIONS WITH AE IS IN FOREIGN CURRENCY THERE IS AN INHERENT FOREIGN EXCHANGE RISK BORNE ARAMEX INDIA. AS REGARDS THE DOMESTIC SEGMENT, ARAMEX INDIA IS NOT EXPOSED TO THIS RISK AS TH E BUSINESS IS CARRIED OUT ENTIRELY WITHIN INDIA. ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 26 MARKET RISK (COMPETITION RISK WHICH IMPACTS REVENUES AND CONSEQUENTLY PROFITS) LOW VERY HIGH ARAMEX INDIA IS ABLE TO CHARGE A HIGHER FEE TO CUSTOMERS IN THE INTERNATIONAL EXPRESS MARKET AS THERE ARE FEW ER PLAYERS IN THIS MARKET AND ALSO GIVEN THAT CUSTOMERS ARE LESS PRICE SENSITIVE WHILE DEALING WITH INTERNATIONAL SHIPMENTS. AS COMPARED TO THIS, THERE ARE MULTIPLE LOCAL PLAYERS IN THE DOMESTIC MARKET AND THE FOCUS POINT FOR CUSTOMERS IS GENERALLY ONLY PR ICE WHICH PUTS A DOWNWARD PRESSURE ON PRICING. 3 9 . 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 COMPLET ELY 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. A CCORDINGLY REJECTION OF THE SEGMENT ON THE G ROUND THAT WEIGHT IS AN APPROPRIATE ALLOCATION KEY DESERVES TO BE REJECTED AND ADJUSTMENT SO MADE BY THE TPO IS TO BE DELETED. 40 . 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 T HE INTENTION OF THE ASSESSEE BE TO CARRY OUT ONLY THE INTERNATIONAL EXPRESS BUSINESS, IT WOULD NOT HAVE ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 27 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 VOL UME IN THE INTERNATIONAL EXPRESS SEGMENT IS ONLY 11,77,091. 4 1. 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 FREIG HT 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 ASSESSEES 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. 4 2. 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 R S 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 ARAME X GROUP ON PAGE 16 OF THE COMPENDIUM ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 28 SUBMITTED DURING THE COURSE OF THE HEARING. HOWEVER, DURING THE COURSE OF HEARING BEFORE US, LEARNED DR HAS NOT DISPUTED THE SAME, ACCORDINGLY REJECTION OF THE SEGMENTS ON THE GROUND THAT THE DOMESTIC SEGMENT IS AN EXTE NSION OF THE INTERNATIONAL SEGMENT DESERVES TO BE REJECTED. WE ALSO OBSERVE THAT THE FAR PROFILE OF THE INTERNATIONAL EXPRESS AND FREIGHT SEGMENTS IS ENTIRELY DIFFERENT FROM THE DOMESTIC SEGMENT . HOWEVER, THE TPO HAS ALSO JUSTIFIED HIS APPROACH OF CONSIDER ING THE ASSESSEE 'S ENTITY WIDE MARGIN BY STATING THAT THE FAR PROFILE OF THE INTERNATIONAL EXPRESS AND FREIGHT SEGMENTS IS SIMILAR TO THE FAR PROFILE OF THE DOMESTIC COURIER SEGMENT . THE TPO IN HIS REPORT HAS MENTIONED THAT THE ASSESSEE IS RESPONSIBLE FOR MAINTAINING CLIENT RELATIONSHIPS IN BOTH THE INTERNATIONAL EXPRESS AND DOMESTIC COURIER SEGMENTS. HOWEVER, THIS IS NOT CORRECT SINCE FOR INBOUND EXPRESS SHIPMENTS, THE ASSESSEE IS NOT INVOLVED IN MAINTAINING CLIENT RELATIONSHIPS. SIMILARLY, THE TPO'S OBSER VATION THAT THE ASSESSEE IS RESPONSIBLE FOR SEGREGATION, BAGGING, TRANSPORTATION, RE - SEGREGATION IN BOTH THE INTERNATIONAL EXPRESS AND DOMESTIC COURIER SEGMENTS IS INCORRECT SINCE THESE FUNCTIONS ARE NOT CARRIED OUT BY THE ASSESSEE BUT ARE CARRIED ON BY TH E AES AT THE INTERNATIONAL HUBS OUTSIDE INDIA 4 3. ASSESSEE HAS PLACED AT PAGE 5 TO 6 OF THE COMPENDIUM , T HE KEY DIFFERENCES IN THE FUNCTION AND RISK PROFILE OF THE ASSESSEE IN THE INTERNATIONAL INBOUND SEGMENT VIS - A - VIS THE D OMESTIC COURIER SEGMENT AS WELL AS IN THE INTERNATIONAL OUTBOUND SEGMENT V I S - A - VIS ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 29 THE DOMESTIC COURIER SEGMENT . FOR EXAMPLE, IN THE INBOUND SEGMENT, THE AE IS RE SPONSIBLE FOR THE KEY FUNCTIONS RELATING TO NEGOTIATION AND CONTRACT WITH CUSTOMER, PRICING, MAINTAINING CLIENT RELATIONSHIP AND PICK - UP AND DELIVERY OF THE SHIPMENTS UNLIKE THE DOMESTIC SEGMENT WHERE THE ASSESSEE UNDERTAKES THESE FUNCTIONS. FURTHER, EVEN FROM A RISK PERSPECTIVE, THE ASSESSEE IN THE INBOUND SEGMENT IS EXPOSED TO FOREIGN EXCHANGE RISK, LOW LEVEL OF MARKET RISK AN D NO CREDIT RISK. HOWEVER, IN THE DOMESTIC SEGMENT, THE ASSESSEE FACES HIGH MARKET AND COMPETITION RISK AND ALSO CREDIT RISK. SIMILARLY, IN THE OUTBOUND SEGMENT, THE ASSESSEE IS RESPONSIBLE FOR NEGOTIATING WITH AIR LINES FOR DELIVERY OF SHIPMENT FROM THE I NDIA PORT TO THE FIRST INTERNATIONAL HUB AND IS DEPENDENT ON THE AE FOR DELIVERING THE SHIPMENT TO THE OVERSEAS CONSIGNEE. HOWEVER, IN THE DOMESTIC SEGMENT SINCE THE DELIVERY OF THE SHIPMENTS IS WITHIN INDIA, NO NEGOTIATION WITH AIRLINES FOR DELIVERY OF SH IPMENTS TO THE FIRST INTERNATIONAL HUB IS UNDERTAKEN BY THE ASSESSEE AND THE ASSESSEE IS NOT DEPENDANT ON ITS AE FOR DELIVERY. FURTHER, EVEN FROM A RISK PERSPECTIVE, THE ASSESSEE FACES FOREIGN EXCHANGE RISK AND LOW MARKET RISK AS AGAINST HIGH MARKET AND CO MPETITION RISK FACED IN THE DOMESTIC SEGMENT. 4 4. IN VIEW OF THE ABOVE, WE CAN SAFELY CONCLUDE THAT TPO HAS PROCEEDED ON AN ENTIRELY WRONG FOOTING BY HOLDING THAT ASSESSEES FAR PROFILE IN THE INTERNATIONAL EXPRESS AND FREIGHT SEGMENTS IS S IMILAR TO THE FA R PROFILE OF THE DOMES TIC SEGMENT, HENCE THE ENTITY WIDE MARGINS CAN BE CONSIDERED FOR BENCHMARKING PURPOSES. ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 30 4 5 . EVEN IF THE FAR PROFILE OF THE ASSESSEE IN THE INTERNATIONAL EXPRESS AND FREIGHT SEGMENTS IS CONSIDERED SIMILAR TO THE DOMESTIC COURIER SEGMEN T, THEN CUP COULD BE CONSIDERED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL SEGMENTS. IN THIS REGARD, RELIANCE MAY BE PLACED ON THE FOLLOWING DECISION WHEREIN IT WAS HELD THAT CUP IS A SUPERIOR METHOD OVER TNMM: TECHNIMONT ICB VS ACIT [2012] 24.TAXMANN.COM 28 (MUM) KAILASH JEWELS VS ITO [2016] 156 ITD 685 (DELHI) 4 6 . 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 TH E 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 I S HIGHER THAN THAT OF THE DOMESTIC SHIPMENTS.' 4 7 . 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 31 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 QUA LITY 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 THI S, 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 M AINTAIN 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 LO CAL 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 CON SIDERATION. 4 8 . 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 32 COMPANY CONSIDERS THE DOMESTIC SEGMENT TO BE AN IMPORTANT BUSINESS DIVISION AND IS NOT CARRYING ON THIS BUSINESS ONLY TO SUPPORT THE INTERNATIONAL BUSINESS. 4 9 . WE ALSO OBSER VED 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 31 ST MARCH 1982 ) FIRST FLIGHT (INCORPORATED ON 2* MAY 1988) (MARCH 2008 TO 2011 ) 5 0 . AS PER OUR CONSIDERED OPINION, THE TAX DEPARTMENT CANNOT STEP IN THE SHOES OF THE TAXPAYER TO DECIDE THE TAXPAYER SHO ULD 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(DELH I) 5 1 . 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. 5 2 . EVEN IF THE SEGMENTAL ACCOUNTS OF THE ASSESSEE AR E REJECTED AND ENTITY WIDE MARGINS ARE CONSIDERED, THE ADJUSTMENT SHOULD BE RESTRICTED TO THE VALUE OF THE INTERNATIONAL TRANSACTIONS. THIS POSITION ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 33 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 C ANNOT BE A BASIS FOR DENYING THE BENEFIT TO THE ASSESSEE. 5 3 . 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 I NCLUSION 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. 5 4 . LEARNED AR ALSO INV ITED OUR ATTENTION TO T HE DETAILED ARGUMENTS AND SUPPORTING CASE LAWS IN RESPECT OF EACH DISPUTED ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 34 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 AD DITIONALLY 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. 5 5 . 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 RE ASONABLE 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 PE R 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 ASSESSEES SUBMISSION ON USE OF THE CUP METHOD, THE DR HIM SELF 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 35 INSTANT CASE. LEARNED DR HAS RELIED ON THE DELHI HIGH COURT DECISION IN THE CASE OF ESPN SOFTWARE INDIA LTD ([201 7] 87 TAXMANN.COM 323 (DELHI)) WHEREIN IT WAS HELD THAT CLOSELY LINKED TRANSACTIONS CAN BE AGGREGATED FOR BENCHMARKING PURPOSES. 5 6 . 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 SEGMEN TAL ACCOUNTS CANNOT BE PREPARED, W E OBSERVE THAT SUCH EXPENSE S ARE CORPORATE OFFICE EXPENSES AND HAVE BEEN ALLOCATED BY THE ASSESSEE TO ALL THE SEGMENTS ON THE BASIS OF 'REVENUE'. MORE OVER, T HIS BASIS OF ALLOCATIO N HAS BEEN ACCEPTED BY THE TPO . 57 . 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 THE IR ALLOCATION ON THE BASIS REVENUES ARE THE MOST APPROPRIATE METHOD. 58 . WITH RESPECT TO DRS CONTENTION THAT THE FAR PROFILE OF THE INTERNATIONAL EXPRESS AND FREIGHT SEGMENTS AND THE DOMESTIC ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 36 SEGMENT BEING SIMILAR, WE OBSERVE THAT SUCH A CONTENTION CANNOT BE HELD TO BE CORRECT FOR REASONS ALREADY DISCUSSED ABOVE. FURTHER, IT MAY ALSO BE NOTED THAT ROYALTY EXPENSES WERE ALLOCATED BY THE ASSESSEE ONLY TO THE INTERNATIONAL EXPRESS AND FREIGHT SEGMENTS AND NOT TO THE DOMESTIC SEGMENT. THUS, THE LEARNED DR'S AR GUMENT THAT THE ROYALTY CHARGE HAS REDUCED THE PROFITABILITY OF THE DOMESTIC BUSINESS IS FACTUALLY INCORRECT. 59 . IN THE ESPN SOFTWARE (SUPRA) THE ADVERTISEMENT AND SUBSCRIPTION SEGMENTS OF THE TAXPAYER WERE AGGREGATED FOR BENCHMARKING PURPOSES SINCE THE R EVENUES 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 ADVERTISEM ENT RIGHTS, HE WOULD NEED TO GIVE UP EVEN THE SUBSCRIPTION RIGHTS. 60 . FROM THE RECORD WE OBSERVE THAT IN ASSESSEES CASE THE INTERNATIONAL AND DOMESTIC BUSINESSES ARE UNDERTAKEN INDEPENDENTLY AND THE REVENUES EARNED FROM THE TWO BUSINESSES ARE NOT DEPENDA NT 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 ASSESSEES CASE. MOREOVER, THE DECISION OF CVA FREIGHT INDIA AS RELIED UPON BY THE L EARNED D.R. CANNOT BE APPLIED TO THE FACTS OF THE ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 37 ASSESSEES 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 A ND 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 TH E REVENUE. 61 . FROM THE ORDER OF THE ITAT IN ASSESSEES 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 ASSESSEES CASE. 62 . WITH REGARD TO ASSESSEES 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. H OWEVER, IN THE CASE OF COMPANIES ADDITIONALLY IDENTIFIED BY TPO, THE TP O HAS CONSIDERED UNADJUSTED MARGINS, THUS TPO HAS NOT TAKEN A CONSISTENT POSITION WHILE DETERMINING ARMS LENGTH MARGIN. FOR THIS PURPOSE RELIANCE MAY BE PLACED ON THE FOLLOWING JUDICIA L PRONOUNCEMENTS WHICH SUPPORTS ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 38 OUR CONTENTION THAT WORKING CAPITAL ADJUSTMENT SHOULD BE GRANTED TO ACCOUNT FOR DIFFERENCES IN WORKING CAPITAL EMPLOYED BY THE ASSESSEE AND THE COMPARABLE COMPANIES: - (I) CAPGEMINI INDIA (P) LTD VS. ACIT [2014] 147 ITD 330 (II) NEW RIVER SOFTWARE SERVICES (P) LTD VS. ACIT [2015] 56 TAXMANN.COM 440 DEL. TRIB) (III) CASH EDGE INDIA (P) LTD VS. ITO [2014] 41 TAXMANN.COM 14 (DEL - TRIB.) (IV) DEMAG CRANES VS. DCIT (144 TTJ 320) 6 3 . WITH REGARD TO REJECTION OF SICAL LOGISTIC LT D. 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 INF ORMATION 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 T RAVEL 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) WHI CH UPHOLDS THAT IN ABSENCE OF ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 39 SEGMENTAL INFORMATION OF VARIOUS STREAMS, A COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. 64 . 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. 6 5 . 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 PA GE 72 OF TOPS ORDER. THE DRP HAS COMMENTED ON THE SAME IN PARA 8.2.2 OF THE DRP ORDER. 6 6 . 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 SU BSIDIARY 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 PROFIT ABILITY. ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 4 0 6 7 . FURTHER MORE, THE OBSERVATION OF THE TPO TO THE EFFECT THAT THE COMPANY HAS INCURRED LOSSES IS FACTUALLY INCORRECT. THE COMPANY HAS EARNED PROFIT DURING THE YEAR AND IT IS ONLY AFTER UNDERTAKING WORKING CAPITAL ADJUSTMENT THAT THE MARGIN REDUC ED MARGINALLY AND APPEARS TO BE AT LOSS. WE ALSO OBSERVE THAT THE ANNUAL REPORT MENTIONS THAT THE SUBSIDIARY (VIZ. INDO ARYA GLOBAL (MALAYSIA) SDN.BHD) IS RUNNING SUCCESSFULLY IN MALAYSIA. HENCE, THE TPO HAS INCORRECTLY STATED THAT THE COMPANY IS INCURRING LOSSES DUE TO SET UP OF THE SUBSIDIARY. 68 . 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 TH E 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 O PERATIONS BUT ALSO OF THE M ULTIMODAL 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 . ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 41 69 . IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING THE PECULIAR FACTS OF THE CASE, WE HOLD THAT THE SEGMENTAL DETAILS PROVI DED IN THE CONSOLIDATED FINANCIAL STATEMENTS CANNOT BE CONSIDERED FOR COMPARABILITY ANALYSIS AS THEY DO NOT REFLECT THE FINANCIAL RESULTS OF THE INDIAN OPERATIONS ALONE. OUR T HIS VIEW IS ALSO UPHELD BY MUMBAI TRIBUNAL DECISION OF CAPGEMINI INDIA PVT. LTD. VS . ACIT (LTA NO. 7861/MUM/2011) DATED 28 FEBRUARY 2013 . 7 0 . 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 FUNCTION S 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/ V E SSELS, ETC . FOR TRANSPORTI NG 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 . 71 . HOWEVER, THE ASSESSEE DOES NOT OWN ANY SUCH SHIP S/ 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 . H ENCE, EVEN FROM ASSET BASE STANDPOINT, THE COMPANIES CANNO T BE CONSIDERED AS COMPARABLE. 72 . 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 42 AND THE DRP HAS GIVEN ITS COMMENTS IN PARA 8.2.3 ON PAGE 45 OF DRPS ORDER. 73 . IN THIS REGARD WE OBSERVE THAT AS PER PAGE 2 OF THE ANNUAL REPORT , THE COMPANY IS ENGAGED IN PORT OPE RATIONS, CONTAINER T ERMINALS, 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 ALS O 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 O N THE DECISION OF CADENCE DESIGN SYSTEMS (INDIA) PVT. LTD. VS. DCIT[2018] 89 TAXMANN.COM 443 (DELHI - TRIB) WHICH UPHOLDS THAT IN ABSENCE OF SEGMENTAL INFORMATION OF VARIOUS STREAMS, A COMPANY CANNOT BE CONSIDERED AS A COMPARABLE . FURTHER, THE ASSESSEE COMPA NY DOES NOT PROVIDE ANY OF THE SE SERVICES, HENCE THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE. 74 . MOREOVER, THE ASSESSEE COMPANY HAS DIFFERENT ASSET BASE, A MAJORITY OF THE FIXED ASSETS (APPROX. 64%) OF THE COMPANY CONSISTS OF ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 43 PORT HANDLING EQUIPMENT, WHICH CLEARLY EVIDENCES THAT THE COMPANY IS IN A COMPLETELY DIFFERENT LINE OF BUSINESS . 75 . MOREOVER, THE COMPANY DOES NOT HAVE ANY EARNINGS IN FOREIGN EXCHANGE, INDICATING THAT THE COMPANY DOES NOT HAVE INTERNATIO NAL 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 COM PANY THAT DOES NOT HAVE FOREIGN EXCHANGE EARNINGS AND HAS NO INTERNATIONAL OPERATIONS IS NOT COMPARABLE TO A COMPANY THAT IS ENGAGED IN INTERNATIONAL OPERATIONS. 76 . IN VIEW OF THE ABOVE DISCUSSIONS WE DO NOT FIND ANY MERIT FOR INCLUDING OF SICAL LOGISTICS LTD. IN THE LIST OF COMPARABLES. 77 . 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. 78 . 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 TH E PUBLIC DOMAIN ARE FOR THE CALENDAR YEAR I.E. JANUARY TO DECEMBER, ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 44 2012. IT IS A WELL ACC EPTED PRINCIPLE BASED ON VARIOUS COURT RULINGS THAT COMPANIES FOLLOWING A DIFFERENT FINANCIAL YEAR CANNOT BE CONSIDERED FOR COMPARABILITY ANALYSIS UNLESS ADJUSTMENTS CAN BE MADE TO ALIGN THE FINANCIAL PERIOD. MOREOVER, IN CASE OF THIS COMPANY, QUARTERLY AUDITED FINANCIAL DATA IS NOT AVAILABLE IN PUBLIC DOMAIN AND HENCE NO SUCH ADJUSTMENT CAN BE MADE. ACCORDINGLY, THE COMPANY OUGHT TO BE REJECTED. THIS VIEW IS UPHELD BY THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX II, PUNE VS. PTC SOFTWARE (I) PVT. LTD. (VIDE ITA NO. 732 OF 2014) DATED 26 TH SEPTEMBER, 2016 WHICH HAS ALSO BEEN FOLLOWED BY THE TRIBUNAL RULING IN CASE OF AEGIS LTD. VS. DCIT (ITA NO. 1213/ MUM/2014) DATED 8 TH FEBRUARY, 2017. 79 . 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. 80 . IN VIEW OF THE ABOVE DISCUSSION WE DIRECT FOR EXCLUSION OF SDV INTERNATIONAL LOGISTICS FROM THE LIST OF COMPARABLES. ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 45 81 . THE AO HAS ALSO INCLUDED OM LOGISTICS LTD. IN THE LIST OF COMPARABLES BY OBSERVING THAT THE COMPANY IS ENGAGED IN SURFACE, AIR AND TRAIN TRANSPORT AND HENCE IS COMPARABLE. THE TPO HAS DISCUSSED THE ISSUE IN PARA 9 ON PAGE 73 OF TP ORDER AND DRP HAS DISCUSSED THE ISSUE IN PARA 8.2.3 ON PAGE 45 OF DRP ORDER. 82 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE COMPANY IS FUNCTIONALLY DIFFERENT. AS PER THE WEBSITE, THE COMPANY IS ENGAGED IN P ROVIDING 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 S E RVICES PROVIDED BY THE COMP ANY INVOLVE HIGH LEVEL OF TECHNICAL EXPERTISE WHICH IS EVIDENT FRO M 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, REMOVA L 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 REFE R 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. ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 46 83 . MOREOVER, THE COMPANY DOES NOT HAVE ANY EARNINGS IN FOREIGN EXCHANGE, INDICATI NG THAT THE COMPANY DOES NOT HAVE INTERNATI ONAL OPERATIONS . IN THIS REGARD REFERENCE IS DRAWN TO RULE 10B(2)(D) WHICH LISTS GEOGRAPHICAL LOCATION AS A CRITERIA OF COMPARABILITY . FURTHER RELIANCE IS ALSO PLACED ON THE DECISION OF DCIT V DELOITTE CONSULTING INDIA PVT . LTD . (ITA 1082/HYD/2010) DATED 22 ND 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. 84 . IN VIEW OF THE ABOVE WE DO NOT FIND ANY JUSTIFICATION FOR INCLUSION OF OM LOGISTICS LTD. IN THE LIST OF COMPARABLES. 85 . AFTER GIVING CREDIT FOR WORKING CAPITAL ADJUSTMENT, THE POSITION OF VARIOUS COMPARABLES REMAINS AS UNDER: - SR. NO. NAME OF THE COMPANY MARGIN CONSIDERED BY THE TPO WORKING CAPITAL ADJUSTED 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 ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 47 86. T HE REVISED COMPARABLES SET AND CONSEQUENT ARM'S LENGTH MARGIN AFTER GIVING EFFECT TO THE ABOVE IS AS FOLLOWS: SR. NO. NAME OF THE COMPANY ORIGINAL COMPARABLES SET REVISED COMPARABLES SET 1 SDV INTERNATIONAL LOGI STICS LTD 2.11% TO BE REJECTED 2 ALL CARGO LOGISTICS LTD (MULTIMODAL SEGMENT) 3.62% TO BE REJECTED 3 OM - LOGISTICS LTD 7.25% TO BE REJECTED 4 SICAL LOGISTICS LTD 8.05% TO BE REJECTED 5 HINDUSTAN CARGO LTD 0.92% - 0.31% 6 YUSEN LOGIST ICS INDIA LTD 1.59% - 0.36% 7 BLAZEFLASH COURIERS PVT LTD 2.67% 2.67% 8 INDO ARYA CENTRAL (SEG) I - 0.54% 9 OVERNITE EXPRESS LTD - 0.11% - 0.11% 10 PATEL INTEGRATED LOGISTICS LTD (SEG) 1.48% 1.48% AVERAGE 3.06% 0.47% 87 . 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 ADJ USTMENT IS WARRANTED IN THE INTERNATIONAL EXPRESS SEGMENT. 88 . 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 T HE ITA NO.6749/MUM/2017 M/S. ARAMEX INDIA PVT. LTD., 48 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. 89. IN VIEW OF ABOVE OBSERVATIONS TRANSACTIONS SO ENTERED BY ASSE SSEE ARE AT ALP, REQUIRING NO TRANSFER PRICING ADJUSTMENT. 90 . CONSIDERING TOTALITY OF THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE AND RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009 - 10, WE DO NOT FIND ANY JUSTIFIC ATION FOR THE ADDITION MADE BY THE AO. 91 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 05 /201 8 SD/ - ( PAWAN SINGH ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 05 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMB AI 6. GUARD FILE. //TRUE COPY//