Mumbai ITAT Condones 690-Day Delay, Deletes Wife’s Credit Card Expense Disallowance

Chirag Anil Shah Vs ACIT (ITAT, Mumbai)

Wife’s Credit Card, Husband’s Business Expense-ITAT Swipes Away Disallowance; 690-Day Delay Also Condoned u/s 253(5)

Summary:

The controversy

The assessee, Chirag Anil Shah, challenged the order of the CIT(A), NFAC, for AY 2013-14, though the appeal before the Mumbai ITAT was delayed by 690 days. Apart from seeking condonation of delay, the assessee contested disallowance of foreign travel expenses, an addition arising from an alleged Form 26AS mismatch & an ad hoc disallowance out of other expenses.

The assessee explained that the CIT(A), while passing the appellate order, had failed to adjudicate the ground concerning the Form 26AS mismatch. He therefore filed a rectification application u/s 154 on 26.12.2023 & bona fide believed that an appeal before the ITAT could be filed only after disposal of that application. However, the rectification application remained unattended. It was only after the AO passed a penalty order u/s 271(1)(c) that the assessee consulted a Chartered Accountant & learnt that the appellate order could be challenged notwithstanding the pending rectification application.

690 days late, but the explanation was not an afterthought

The Revenue opposed condonation on the ground that the assessee ought to have been vigilant & filed the appeal within the prescribed period. The ITAT, however, found that the assessee’s explanation constituted reasonable & sufficient cause. His belief that the appeal should await disposal of the rectification application was found to be bona fide, particularly because the application related to a ground which had admittedly remained unadjudicated by the CIT(A).

Accordingly, the Tribunal condoned the delay of 690 days & admitted the appeal for adjudication on merits. The ruling reinforces that limitation provisions should not defeat substantive justice where the conduct of the assessee is adequately explained & does not indicate deliberate negligence or mala fides.

Foreign travel routed through wife’s card

The assessee had debited foreign travel expenses of about Rs.20.32 lakh. Out of this, Rs.6,42,409 was paid to his wife, Smt. Rashi Chirag Shah, by way of reimbursement. The AO disallowed the amount for want of supporting evidence. He further disallowed Rs.29,847, being 20% of cash expenditure of Rs.1,49,237, & Rs.2,48,191, being 20% of the remaining foreign travel expenditure, alleging absence of complete particulars regarding the persons who travelled & the services rendered.

Before the ITAT, the assessee furnished details of expenditure incurred for attending various international exhibitions, including Metal Expo, Russia & CNR Expo, Istanbul, Turkey. He also produced his wife’s bank statement to demonstrate that certain expenses had been incurred through her debit/credit card & were subsequently reimbursed.

The CIT(A) had accepted that the expenditure was initially incurred through the wife’s card but considered the routing of business payments through her account unexplained. He also reasoned that if the wife had rendered services to the business, she should have been treated as an independent payee & tax ought to have been deducted at source on the payments made to her.

Reimbursement is not remuneration

The ITAT firmly rejected this reasoning. It held that nothing in law prohibits an assessee from incurring business expenditure through the credit card of his spouse & subsequently reimbursing the amount. The wife had not received any payment for services rendered in her independent capacity. Her card had merely been used as the payment instrument for meeting the assessee’s business expenditure.

Consequently, the reimbursement could neither be treated as consideration for services nor subjected to a theoretical TDS requirement. Once the expenditure was incurred for foreign travel connected with the assessee’s business & the payment trail was demonstrated, the mere use of the spouse’s card could not render the expenditure non-business or inadmissible. The disallowance of Rs.6,42,409 was therefore deleted.

Ad hoc percentages cannot substitute an enquiry

The ITAT also deleted the ad hoc disallowances of Rs.29,847 & Rs.2,48,191 out of foreign travel expenses. Following its coordinate Bench decision in Girish Raghavan, ITA No.6955/Mum/2025, dated 04.03.2026, it held that an ad hoc disallowance could not be made out of hotel & travelling expenses without identifying any specific expenditure as bogus, personal or unrelated to business.

For the same reason, the Tribunal deleted the further disallowance of Rs.47,860, representing 10% of other expenses. An AO cannot cure the absence of a specific defect by choosing an arbitrary percentage & treating it as taxable income.

Form 26AS mismatch sent back for reconciliation

The AO had noticed receipts of Rs.79,87,993 in Form 26AS, as against Rs.75,51,593 recorded in the books, & added the difference of Rs.4,36,400. The assessee produced a reconciliation before the ITAT. Since the CIT(A) had failed to adjudicate this ground, the Tribunal restored the issue to the AO to verify the reconciliation & pass a fresh order after granting adequate opportunity of hearing.

Thus, the appeal was partly allowed for statistical purposes. More importantly, the ruling confirms that a spouse’s credit card does not transform a genuine reimbursement into professional fees—and an arbitrary disallowance remains arbitrary, however neatly the percentage is calculated.

Cases Discussed

• Girish Raghavan, ITA No.6955/Mum/2025, dated 04.03.2026 — Coordinate Bench of the ITAT, Mumbai; relied upon for the proposition that ad hoc disallowance cannot be made on hotel and travelling expenses.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI

This appeal has been preferred by the assessee against the order dated 29.11.2023, passed under section 250 of the Income-tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (“NFAC”), Delhi [“ld. CIT(A)”].

2. Along with the appeal, the assessee has filed a petition seeking condonation of delay, supported by an affidavit dated 18.12.2025. The appeal, admittedly, has been filed with a delay of 690 days, inasmuch as it ought to have been instituted on or before 28.01.2024, but came to be filed only on 18.12.2025. It is deposed in the affidavit that, while passing the order dated 29.11.2023, the ld. CIT(A) failed to adjudicate the ground relating to the addition made on account of the alleged mismatch between the income reflected in Form No. 26AS and the income disclosed as per the books of account. Aggrieved by this omission, the assessee filed a rectification application under section 154 of the Act on 26.12.2023, pointing out the said mistake apparent from the record. It is further deposed that the assessee was under the bona fide belief that the order of the ld. CIT(A) could be challenged before this Tribunal only after the said rectification application was disposed of, and that no communication was received from the ld. CIT(A) in respect thereof till date. In the interregnum, the Assessing Officer (“ld. AO”) passed an order under section 271(1)(c) of the Act, which prompted the assessee to seek the assistance of a Chartered Accountant. It was only upon being advised by the Chartered Accountant that the order of the ld. CIT(A) dated 29.11.2023 could be assailed before this Tribunal notwithstanding the pendency of the rectification application, that the assessee deemed it appropriate to file the present appeal.

3. The learned Departmental Representative (“ld. Dr”) opposed the condonation petition, submitting that the assessee ought to have been vigilant in filing the appeal within the time prescribed under the Act, and that the delay ought not to be condoned.

4. We have considered the rival submissions. In our considered view, the explanation offered by the assessee constitutes a reasonable and sufficient cause for the delay in filing the appeal. The assessee was under the bona fide belief that the appeal could be filed only upon disposal of the rectification application by the ld. CIT(A), and the pendency of the said application, concerning a ground which admittedly remained unadjudicated in the appellate order, itself furnishes sufficient cause for the delay in filing the appeal. Accordingly, the delay of 690 days in filing the appeal is condoned, and the appeal is admitted for adjudication on merits.

5. Ground No. 1 assails the disallowance of Rs. 9,20,447/- made towards foreign travel expenses. In the assessment order, the ld. AO noted that the assessee had debited travelling expenses of Rs. 20,32,605/-, of which a sum of Rs. 6,42,409/- was paid to Smt. Rashi Chirag Shah, wife of the assessee, and was explained as a reimbursement made to her. Since no evidence was furnished in support of this claim, the ld. AO disallowed the said sum of Rs. 6,42,409/-. The ld. AO further observed that a sum of Rs. 1,49,237/-, paid in cash, was not fully verifiable, and accordingly disallowed 20% thereof, amounting to Rs. 29,847/-. A further disallowance of 20% was made on the balance foreign travel expenditure of Rs. 12,40,959/-, amounting to Rs. 2,48,191/-, on the ground that the assessee had failed to furnish details of the foreign travel expenses, including the particulars of the persons who travelled and the services rendered by them. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A), NFAC, Delhi, who upheld the order of the ld. AO.

6. Before us, the ld. AR filed a paper-book containing details of the foreign travel expenses (at pages 138 to 145), aggregating to Rs. 20,52,155/-, along with a break-up of the said expenditure at page 146 thereof, extracted below:

7. The ld. AR submitted that the expenditure at Item Nos. 4 and 5 of the said table, being Rs. 3,97,706/- towards ‘Metal Expo, Russia’ and Rs. 4,94,310/- towards ‘CNR Expo, Istanbul, Turkey’, was paid using the debit card of Smt. Rashi Chirag Shah, and placed on record her bank account statement, forming part of the paper-book, evidencing the said payments. It was further submitted that no ad hoc disallowance could be made, in reliance upon the decision of the Coordinate Bench of this Tribunal, Mumbai, in Girish Raghavan, ITA No. 6955/Mum/2025, dated 04.03.2026. Relying on the same decision, the ld. AR also assailed the ad hoc disallowance of 10% on other expenses of Rs. 47,860/-, forming the subject-matter of Ground No. 3. The ld. DR relied upon the orders passed by the lower authorities.

8. We have given careful consideration to the rival submissions. The case of the ld. AO was that the assessee had failed to properly explain the necessity for the payment of Rs. 6,42,409/- to Smt. Rashi Chirag Shah. The ld. CIT(A), while acknowledging that the expenditure was incurred using the credit card of the assessee’s wife and was subsequently reimbursed to her, held that since the assessee is a separate individual, the reason for routing the payments through the credit card of his wife remained unexplained. The ld. CIT(A) also declined to accept the assessee’s submission that Smt. Rashi Chirag Shah was involved in the business at par with the assessee, and that the payments were, for this reason, routed through her account; and further observed that, if such services were indeed rendered by her, the assessee ought to have treated her as a separate assessee and deducted tax at source on the payments made to her for such services. The claim that Smt. Rashi Chirag Shah had incurred the foreign travel expenses on behalf of the assessee, and was thereafter reimbursed by him, was accordingly not accepted by the ld. CIT(A).

9. We are unable to sustain the above reasoning of the ld. CIT(A). There is nothing in law which precludes an assessee from incurring business expenditure through the credit card of his spouse and thereafter reimbursing the said expenditure to the spouse. In the present case, the expenses were, in fact, incurred by the assessee towards foreign travel, and were merely routed through the credit card of Smt. Rashi Chirag Shah, and later reimbursed to her; there is nothing untoward in such an arrangement for incurring business expenditure. The view of the ld. CIT(A), that this ought to be treated as a service rendered by the wife in her independent capacity, requiring deduction of tax at source on the reimbursement made to her, is, in our considered opinion, not correct. No payment was made towards any service rendered by Smt. Rashi Chirag Shah; the amount was merely reimbursed to her since her credit card had been utilised for incurring the expenditure. The addition on this count is, therefore, unwarranted and is directed to be deleted.

10. As regards the ad hoc disallowance of 20% on foreign travel expenses, the decision of the Coordinate Bench in Girish Raghavan (supra) squarely applies, wherein it was held that ad hoc disallowance cannot be made on hotel and travelling expenses. Following the said decision, the ad hoc disallowances of Rs. 29,847/- and Rs. 2,48,191/- made towards foreign travel expenses, and the ad hoc disallowance of Rs. 47,860/- made at 10% of other expenses (Ground No. 3), are directed to be deleted. In view of the foregoing, Ground Nos. 1 and 3 are allowed.

11. Ground No. 2 relates to the addition made on account of the alleged mismatch between the income reflected in Form No. 26AS and the income disclosed as per the books of account. As per the ld. AO, the income as per Form No. 26AS was Rs. 79,87,993/-, as against Rs. 75,51,593/- shown as per the books of account, and the resultant difference of Rs. 4,36,400/- was brought to tax, which addition was confirmed by the ld. CIT(A). Before us, the assessee has filed a reconciliation statement, and it is also noticed that this ground was not adjudicated by the ld. CIT(A) in the first instance. In these circumstances, the matter is restored to the file of the ld. AO for verification of the reconciliation statement filed by the assessee, and for passing a fresh order in accordance with law, after affording adequate opportunity of hearing to the assessee. Ground No. 2 is, accordingly, allowed for statistical purposes.

12. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 31st August, 2026.