Watson Global Logistics Pvt. Ltd. Vs ITO (ITAT Jaipur)
Cash Payments and Lack of Written Agreements Do Not Justify Ad Hoc Expense Disallowance: Jaipur ITAT
The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹17.53 lakh disallowance of container cleaning and washing expenses, holding that the tax authorities had not identified meaningful defects in the assessee’s detailed records.
In Watson Global Logistics Pvt. Ltd. v. ITO, Ward 4(2), Jaipur, ITA No. 1315/JPR/2025, pronounced on 4 November 2026, the Tribunal directed allowance of the entire expenditure of ₹35.06 lakh for Assessment Year 2022-23.
The Tribunal found no basis for restricting the deduction to 50% merely because payments were made in cash and written agreements with the workers were unavailable.
Background: Container Cleaning Expenses Disallowed
The assessee provided transport and logistics services at different locations. Its activities required containers to be cleaned and washed regularly.
During the relevant year, it claimed total logistics expenses of ₹38,45,629, including ₹35,06,000 towards container cleaning and washing.
The Assessing Officer questioned the expenditure and ultimately disallowed the entire cleaning and washing claim.
One concern arose from a payment entry concerning Lalit Purohit, which reflected cleaning of approximately 46 containers on a single day. The officer questioned whether one individual could have performed that work and sought supporting contractual documentation.
The officer also raised concerns about the identity of the persons involved, genuineness of payments and whether tax had been deducted at source.
Assessee Explained Use of Local Labour
The assessee explained that cleaning was performed through local workers, with persons associated with the company arranging payments on its behalf.
It maintained that the work involved petty payments made as required, rather than formal engagements supported by written contracts.
The company submitted that it maintained regular, audited books and that the expenditure was incidental to its logistics business.
It also disputed the suggestion that it had refused to furnish agreements. Its explanation was that no written agreements existed for these arrangements.
According to the assessee, the absence of formal contracts did not establish that the cleaning work had not occurred.
CIT(A) Restricted Disallowance to 50%
The CIT(A) accepted that the nature and volume of the assessee’s business made complete disallowance inappropriate.
However, it remained unconvinced about the full amount claimed. It noted that cleaning appeared to be handled by a limited number of persons and that the supporting material did not sufficiently clarify the payment arrangements.
The appellate authority therefore restricted the disallowance to 50% of ₹35.06 lakh, sustaining an addition of ₹17,53,000.
The assessee challenged that partial disallowance before the Tribunal, arguing that the percentage adopted had no evidentiary basis.
Detailed Records Identified Each Container and Payment
The Tribunal examined the written submissions, audited profit and loss account, monthly expense statements and daily payment details.
The records showed that expenditure of approximately ₹2.5 lakh to ₹3 lakh per month was incurred consistently.
More importantly, the daily statements identified the location, container number, container size, person associated with the cleaning work and amount paid.
Individual cleaning charges generally ranged between ₹1,000 and ₹1,500.
The Tribunal acknowledged that a few persons handled the work at particular locations. However, it found that this feature did not, by itself, undermine the detailed expense record or establish inflation of the claim.
Cash Payments Were Not Sufficient Grounds for Rejection
The Tribunal found that the principal objections remaining were payment in cash and absence of written agreements.
On the facts presented, the Revenue had not identified a legal prohibition against the cash payments in question.
The assessee had also explained that unskilled labourers performed the cleaning whenever required, without formal agreements. The Tribunal noted that the Revenue had not demonstrated any infirmity in that explanation.
Accordingly, neither circumstance justified rejecting a substantial portion of expenditure where specific transaction details were available and no material discrepancy had been established.
No Basis for Choosing a 50% Disallowance
The Tribunal emphasised that the CIT(A) had accepted, in principle, that cleaning and washing expenses must have been incurred.
Despite that acceptance, the appellate order did not explain why precisely half the expenditure should be disallowed.
The Tribunal found no identified defect supporting that percentage. The assessee had furnished specific details, while the Revenue had failed to point out a meaningful infirmity in them.
It therefore held that the assessee had sufficiently discharged the burden of proving its expense claim.
Entire ₹35.06 Lakh Expenditure Allowed
The ITAT set aside the sustained disallowance of ₹17.53 lakh and directed the Assessing Officer to allow the full ₹35.06 lakh claimed for container cleaning and washing.
The appeal was allowed.
The ruling highlights the importance of connecting an expense disallowance with identified defects and supporting reasons. Here, detailed daily records and an unrebutted explanation of labour arrangements supported the deduction. The decision does not dispense with applicable cash-payment or TDS requirements; its operative conclusion concerned the unsupported disallowance of the expenditure on the record before the Tribunal.
FULL TEXT OF THE JUDGMENT/ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR
The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”), dated 01.09.2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”), dated 01.09.2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The grounds raised by the assessee read as under:-
1. That on the facts and in law, the ld. CIT(A) erred in sustaining the disallowance @ 50% of total expenditure incurred by the appellant on cleaning and washing charges of containers used for logistic purposes totaling to Rs. 35,06,000 and thereby erred in sustaining the addition of Rs. 17,53,000, being 50% of total cleaning and washing charges of containers of Rs. 35,06,000, made by the AO, which sustaining of disallowance @ 50% out of total expenditure of Rs. 35,06,000 incurred by the assessee on cleaning and washing charges of containers and thereby sustaining addition of Rs. 17,53,000 made by the AO in the assessment order is most arbitrary, unjust, untenable and in the alternative disallowance sustained at 50% is highly excessive.
2. That the learned CIT(A) failed to appreciate that the charges on cleaning and washing incurred by the assessee at Rs. 35,06,000/- are incidental and related to the business of the assessee and wholly and exclusively incurred for cleaning and washing of containers used by the assessee in providing logistic services and as such the same should have been fully allowed by the CIT(A).
3. The appellant craves leave to add, alter, amend, substitute one OR more grounds of appeal as and when necessary.
3. The solitary issue in the present appeal is the disallowance of 50% of cleaning and washing charges incurred by the assessee, amounting to Rs.17,53,000/-.
4. Orders of the authorities below reveal that the AO had disallowed 100% of the said expenses for want of substantiation, which the Ld. CIT(A) restricted to 50%. The entire discussion on the issue is contained at para 7 to 7.6 of the order of the Ld. CIT(A) as under;-
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7. Decision:
7.1 The only issue involved in this appeal is making addition of Rs.35,06,000/- to the returned income by disallowing cleaning and washing expenses claimed by the appellant
7.2 During the assessment proceedings, the AO noticed that the appellant claimed expenses of Rs.38,45,629/- under the head logistics expenses. In reply to SCN, the appellant submitted bifurcation of logistics expenses of Rs. 38,45,629/- From it, the AO noticed that the appellant claimed considerable amount of Rs.35,06,000/-towards cleaning and washing persons on its rolls to cater the services provided by appellant in logistic services. Further, the appellant submitted that it hires different persons and they incurred expenses according to their work on behalf of the company. On perusal of the submissions, the AO find the following discrepancies.
(i) As per the sheet provided by the appellant, the appellant paid to “Lalit Purohit” for cleaning and washing of approximately 46 containers in a single day on 07.05.2021 It is not made clear that Shri Lalit Purohit alone did the work of cleaning 46 containers in a single day after awarding him a contract for that task
(ii) The appellant could not provide the copy of any contract/agreements with these persons, who are hired by the appellant for giving service on its behalf, so as to ascertain the rate fixed between the appellant and these persons, for clearing a container
(iii) Since the appellant’s submission states that these individuals are employed by the company and are not unskilled daily wage workers, there should be some sort of hiring agreement, contract, or other documentation with the appellant to demonstrate that the appellant hires this specific individual with their identity on an annual basis in order to claim these kinds of expenses. But the appellant refuses to produce such documentation to support its claim on the disputed amounts, giving AO a “Reason to Believe” that these expenses are not incurred by the appellant wholly or partly.
(iv) The identity and the genuineness of the transactions that the expenses claimed were paid to these persons only remained unverified.
(v) The appellant has not provided any justification on whether TDS is deducted and deposited on the payments made for these expenses. In view of the above observations, the AO held that these expenses are not genuine as no records along with supportive documents for these expenses are maintained by the appellant and TDS has not been deducted and deposited on the same by the appellant. Accordingly, the AO disallowed entire expenses of Rs.35,06,000/- claimed towards cleaning and washing claimed by the appellant.
7.3 During the appellate proceedings, the appellant has submitted that the appellant is a service provider involved in transport and logistics services at different locations where the ports are located. For discharging such duties, it hires services of different persons on its roll to cater to these services. Further, it is submitted that the containers are required to cleaned and washed regularly. The work of cleaning and washing of containers will be done through local workers and appellant’s company persons makes the payment daily on behalf of the company to such workers. Further, the appellant has submitted that regular books of accounts are maintained and got audited and the AO did not point out any inherent defects inflated.
7.4 The appellant further submitted that the contention of the AO that the appellant refused to produce hiring contracts and agreement is not correct because the total payments towards logistics expenses including cleaning and washing expenses are made to different persons and the same are mostly petty payments and as such instead of any written agreement, the payment was made through vouchers. Therefore, the appellant has submitted that these expenses are incidental and incurred in relation to business.
7.5 The contention of the appellant and the assessment order are considered carefully. The appellant engaged in transport and logistics services. The appellant claimed expenses of Rs.38,45,629/- towards logistics charges, which includes Rs.35,06,000/- towards container cleaning and washing charges. The AO disallowed the entire expenditure claimed by the appellant on the reasons that the appellant did not produce any contract/agreements made with the persons who are hired by the appellant and also their identity and genuineness are remained unverified and also the appellant has not provided any justification on whether TDS has been deducted and deposited the same. Now, the appellant has submitted that the work of cleaning and washing has been get it done with local persons by the appellant’s company persons and the payments were made to different persons by the appellant’s company persons and the same were mostly petty payments on day to day basis. Further, it is submitted that instead of any written agreement, the payment was made through vouchers. Therefore, the contention of the appellant is the expenses are incurred in the regular course of business as a businessman incurred and the same are allowed as deduction.
7.6 The appellant has furnished the details of payments in month wise. On perusal of the same, it is seen that the cleaning and washing of containers are handled by few persons only. The appellant stated that instead of any written agreement, the payments were made through vouchers but the appellant did not produce any supporting documents in support of its claim. Further, the appellant has not made clear how the payments are made. On perusal of monthly payment sheet, it is presumed that mostly payments are made in cash only. Therefore, it cannot be said that the expenditure has been incurred wholly and exclusively for the purpose of business. However, considering the nature of business and volume of receipts received by the appellant during the year, disallowance of entire expenditure is not correct. Therefore, the AO is directed to restrict the disallowance to the extent of 50% of Rs.35,06,000/- instead of disallowing entire expenditure. Accordingly, the grounds raised by the appellant in this regard are partly allowed.
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5. Besides the assessee has filed submissions in writing before us and submitted copy of audited profit and loss account for the impugned year, details of logistics expenses including cleaning and washing charges of containers and day-to-day details of payments for cleaning and washing charges of container in the sheet format, all of which has been certified to have been filed before the lower authorities. Perusal of all the above, including the orders of the authorities below, reveal that the assessee is engaged in the business of providing logistics services at different locations where the ports are located. Some of the locations are at Chennai, Dadri etc. On all these locations, cleaning and washing of containers is done and for such activity, the assessee hires services of different persons at different locations to cater to these services. During the impugned year, the assessee had claimed expenses of cleaning and washing charges to the tune of Rs.35,06,000/-, which was denied completely by the AO, for the reason that, he noted the assessee to have paid to one person Lalit Purohit in a single day on 07.05.2021 cleaning and washing charges for approximately 46 containers and had filed no evidence of any contract or agreement entered into with him, nor did the assessee explain whether he had been employed on contractual basis. The AO found the identity and genuineness of the transactions therefore to have remained unverified. He has also noted that no justification was given by the assessee whether the TDS was deducted on deposits or payments made towards these expenses. Accordingly he disallowed the entire cleaning and washing expenses claimed by the assessee amounting to Rs.35,06,000/-.
6. The Ld. CIT(A) however, considered the nature of the business of the assessee and volume of receipts received by it during the year and held that the entire expenses could not be disallowed. He therefore restricted the disallowance to 50% of the expenses.
7. We have gone through the submissions filed by the assessee and also the documents filed before us, which was stated to have been filed to the Lower Authorities also substantiating its claim of having incurred cleaning and washing expense of Rs.35,06,000/-. Undoubtedly, the Ld. CIT(A) has held that the assessee did incur cleaning expenses, but he has only doubted the fact that expenses were incurred to the tune of Rs.35,06,000/- and restricted the claim to 50% of the expenses. However, we find that he has given no reason for restricting the claim of expenses to 50% of the total claim of the assessee.
8. Having noted so, we find that the assessee had submitted a detail of logistics expenses including cleaning and washing charges incurred by it copy of which was filed before us at paper book page No.12, a perusal of which reveals that the assessee had incurred expenses averaging 2.5 to 3 lakhs per month consistently on this account.
9. Further, the assessee had submitted a day-to-day detail of payments of cleaning and washing charges, copy of which was filed before us at paper book page No.12-65. A perusal of the same reveals that this detail reflected cleaning charges incurred day wise, giving detail of the port at which it was incurred, the container number for which the cleaning and washing charges incurred, the size of the container, the person who did the cleaning and the amount paid to the said person which varied between Rs.1000/- to Rs.1500/- per cleaning work. The claim of the assessee consistently has been that unskilled labourers were employed for doing this work and payments were therefore made in cash to them and no agreement was entered with them. We agree with the ld. CIT(A)’s finding that the cleaning and washing of containers was apparently handled by few persons only, which is revealed from the detail filed ;like in Jaipur it was handed by one Mr. Gajendra Verma, in Jodhpur by one Mr. Lalit Purohit and in Mundra in was handled by Mr. Dharam Parmar.
10. Having said so, we find that no anomaly has been found in the same except the fact that payment was made in cash and no evidence of agreement entered into with the persons who did the cleaning work was filed despite the work being done repeatedly by select persons. These anomalies, we find, are of no relevance since there is no law debarring payment in cash pointed out by the Revenue. Also with regards to the finding that no agreement was entered with the labourers, the assessee, we find, had explained that the work of cleaning was done by unskilled labourers as and when required and no agreement was entered for the same. No infirmity has been pointed out by the Revenue in the explanation of the assessee. Therefore what remains is that the assessee had given all specific details of cleaning and washing expenses incurred and no infirmity worth its while has been pointed out by the Revenue in the same. The assessee therefore, we hold, has sufficiently discharged the burden of proving the claim of expenses incurred.
11. The Ld. CIT(A), we find, has also principally agreed that the cleaning and washing expenses must have been incurred by the assessee. But has restricted the claim of the said expenses to 50% of that incurred without any basis at all.
12. Considering the facts on record and the explanation of the assessee therefore, and noting no reasons being given by the Ld. CIT(A) for restricting the claim of expenses to 50%, we accordingly hold that the entire claim of expenses incurred by the assessee be allowed. The order of the Ld. CIT(A) disallowing 50% of the cleaning and washing charges of Rs.17,53,000/- is accordingly set aside. The AO is directed to allow entire claim of expenses of cleaning and washing charges to the tune of Rs.35,06,000/-.
13. In effect, the appeal of the assessee stands allowed.
Order pronounced in the Open Court on 04.11.2026
