The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that there is nothing in law preventing an assessee from incurring genuine business expenditure through the credit card of his spouse and subsequently reimbursing the spouse.
The bench of Challa Nagendra Prasad (Judicial Member) and Shri G. M. Doss (Accountant Member) observed that ad hoc disallowances of hotel and travelling expenses cannot be sustained merely on a generalized basis when the expenditure relates to business purposes.
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The appeal was filed with a substantial delay of 690 days. The assessee was required to file the appeal by 28 January 2024 but filed it only on 18 December 2025. The assessee explained the delay by stating that the Commissioner of Income Tax (Appeals) had failed to adjudicate one of the grounds concerning an alleged mismatch between income disclosed in the books and income reflected in Form 26AS.
The assessee had filed a rectification application under Section 154 of the Income-tax Act, 1961, on 26 December 2023, pointing out the alleged mistake apparent from the record. According to the assessee, he was under a bona fide belief that an appeal before the Tribunal could be filed only after the rectification application was disposed of. No communication regarding the rectification application was received from the CIT(A).
The department opposed condonation, arguing that the assessee ought to have been vigilant and filed the appeal within the statutory period.
The Tribunal, however, accepted the explanation and found sufficient cause for the delay. It observed that the assessee’s bona fide belief, coupled with the pendency of the rectification application concerning a ground that had remained unadjudicated, constituted sufficient cause. Consequently, the 690-day delay was condoned and the appeal was admitted for adjudication on merits.
The principal issue concerned the disallowance of foreign travel expenditure.
The Assessing Officer had noted that the assessee had debited travelling expenses of Rs. 20,32,605. Out of this amount, Rs. 6,42,409 had been paid to the assessee’s wife, Smt. Rashi Chirag Shah, and was explained as reimbursement. Since supporting evidence was considered inadequate, the AO disallowed the entire amount.
The AO also noticed cash expenditure of Rs. 1,49,237 and disallowed 20% thereof, amounting to Rs. 29,847, on the ground that the expenditure was not fully verifiable. A further 20% disallowance amounting to Rs. 2,48,191 was made from the balance foreign travel expenditure of Rs. 12,40,959 because the assessee had allegedly failed to furnish adequate details regarding the persons who travelled and the services rendered by them.
The CIT(A), NFAC, upheld these disallowances.
Before the Tribunal, the assessee produced a paper-book containing details of foreign travel expenditure aggregating to Rs. 20,52,155, along with an expenditure break-up. The expenses included participation in several international exhibitions and business events, including Wire & Tube 2012, Automechanica 2012, NGV 2012 Mexico Exhibition, Metal Expo Russia 2012, CNR Expo Istanbul, Expoprotection 2012 Paris and Delhi travel.
A significant issue before the Tribunal was the payment of certain business travel expenses through the credit card of the assessee’s wife.
The assessee submitted that expenditure of Rs. 3,97,706 towards Metal Expo, Russia and Rs. 4,94,310 towards CNR Expo, Istanbul, Turkey had been paid through his wife’s debit card. The assessee placed her bank account statement on record to establish the payments.
The CIT(A), however, had questioned why the payments were routed through the wife’s credit card if the expenditure belonged to the assessee. The CIT(A) had also rejected the assessee’s contention that his wife was involved in the business and reasoned that, if she had rendered services independently, she should have been treated as a separate assessee and tax deducted at source on payments made to her.
The Mumbai ITAT categorically disagreed with this reasoning.
The Tribunal observed that there is nothing in law that prevents an assessee from incurring business expenditure through the credit card of his spouse and subsequently reimbursing the expenditure to the spouse.
According to the Tribunal, the expenditure was actually incurred by the assessee for foreign travel and was merely routed through his wife’s credit card before being reimbursed to her. The Tribunal found nothing improper in such an arrangement for incurring business expenditure.
The Tribunal rejected the proposition that the reimbursement represented payment for services rendered by the wife. It held that no payment had been made towards any independent service provided by her; the amount was simply reimbursement because her credit card had been used to incur the expenditure.
The addition of Rs. 6,42,409 on this account was held to be unwarranted and was directed to be deleted.
The Tribunal also dealt with the 20% ad hoc disallowances made by the AO.
The assessee relied upon an earlier coordinate Bench decision in Girish Raghavan, ITA No. 6955/Mum/2025, dated 4 March 2026, contending that ad hoc disallowance could not be made in respect of hotel and travelling expenses. The same decision was also relied upon in challenging the 10% ad hoc disallowance concerning other expenses.
The Tribunal found the coordinate Bench decision directly applicable. It recorded that ad hoc disallowance cannot be made on hotel and travelling expenses. Following that principle, it deleted Rs. 29,847 representing 20% disallowance of cash foreign travel expenses; Rs. 2,48,191 representing 20% disallowance of other foreign travel expenses; and Rs. 47,860 representing 10% ad hoc disallowance of other expenses.
The third major issue concerned an alleged mismatch between income reported in Form 26AS and income recorded in the assessee’s books.
The AO had noted income of Rs. 79,87,993 as reflected in Form 26AS, whereas the books disclosed income of Rs. 75,51,593. The resulting difference of Rs. 4,36,400 was brought to tax, and the CIT(A) confirmed the addition.
Before the Tribunal, the assessee furnished a reconciliation statement explaining the difference. The Tribunal also noted that this particular ground had not been adjudicated by the CIT(A) in the first instance.
The Tribunal restored the matter to the file of the Assessing Officer for verification of the reconciliation statement and directed the AO to pass a fresh order in accordance with law after providing the assessee with an adequate opportunity of hearing.
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